The Super Bowl is supposed to be Christmas morning for gambling companies. Instead, it became the clearest signal yet that prediction markets like Kalshi and Polymarket are cannibalizing the traditional sports betting industry at a speed nobody predicted.
Flutter Entertainment, the parent company of FanDuel, just posted its longest losing streak in 23 years. DraftKings is trading near levels not seen since 2023, down more than 60% from its all-time high. And while those two companies scrambled to launch their own prediction market knockoffs in December, Kalshi racked up 1.9 million app downloads in January alone. DraftKings Predictions and FanDuel Predicts? They combined for fewer than 100,000.
The numbers tell a story that Wall Street analysts spent months trying to explain away. They can’t anymore.
The Super Bowl Was a Stress Test, and Sportsbooks Failed It
Prediction markets are expected to account for roughly $630 million in Super Bowl wagering this year, capturing an estimated 80% of the year-over-year growth in total betting activity on the game. Traditional sportsbook handle? Expected to be roughly flat, possibly declining slightly.
That’s not a rounding error. That’s a structural shift.
Kalshi processed $720 million in NFL-related bets during a single week of the playoffs, including more than $100 million on one game. During that same stretch, New York state data showed that revenue from online sports wagering actually plunged during what is historically the industry’s most profitable period. DraftKings shares cratered 8.3% in a single session. Flutter fell 5.5% to its lowest intraday level in months.
Wall Street analysts at Citizens Bank estimate prediction markets still only account for about 5% of total sports wagering. But that number is climbing fast, and the trajectory matters more than the snapshot. When a new category captures 80% of incremental growth during the biggest betting event of the year, it’s not a sideshow. It’s the main event.
Why Prediction Markets Are Winning
The advantages are structural, not cosmetic. Understanding why prediction markets are pulling users away from DraftKings and FanDuel requires looking at three overlapping dynamics that traditional sportsbooks simply cannot replicate under their current business model.
First, geographic access. Kalshi operates in all 50 states under federal CFTC regulation. DraftKings and FanDuel are still locked out of major markets like California and Texas, where state legislatures haven’t legalized sports betting. That means tens of millions of potential bettors in two of the country’s largest states can trade on Kalshi right now but can’t place a single wager on DraftKings. Apptopia data shows about 10% of DraftKings Sportsbook users were also using Kalshi in January, suggesting meaningful cross-platform migration is already underway.
Second, product breadth. Traditional sportsbooks are largely limited to game outcomes, player props, and parlays. Kalshi lets you bet on whether Jeff Bezos will attend the Super Bowl, which brands will advertise during the broadcast, or what the halftime show performers will do on stage. These novelty markets create engagement that sportsbooks simply don’t offer, and they bring in users who might not care about point spreads but find event-based prediction fascinating.
Third, and this is the killer: Kalshi doesn’t limit winners. Bear Cave editor Edwin Dorsey has been beating this drum for months, noting that Kalshi’s exchange-based liquidity model means it can theoretically accept a $5 million Super Bowl bet without moving the odds. Try placing that wager at DraftKings. They’ll cut your limits before you finish typing the amount. Sharp bettors and high-volume traders have a natural home on prediction exchanges, and they’re migrating accordingly.
The Parlay Panic and the $7 Billion Meltdown
The moment that crystallized the threat arrived on a Monday night in September 2025, when Kalshi quietly launched customizable same-game parlays hours before a Monday Night Football doubleheader. The feature generated just $1,762 in fees on its first day. It barely functioned. It wasn’t even available through Robinhood, which routes more than half of Kalshi’s activity.
None of that mattered. DraftKings shares plunged 12.1% the next morning. Flutter dropped 10%. Combined market capitalization losses approached $7 billion in a single trading session.
Why? Because parlays are the financial engine of modern sportsbooks. They account for more than half of sportsbook revenues and generate margins exceeding 10%, roughly double what traditional single bets produce. Kalshi entering that territory, even clumsily, told the market something important: the product moat that DraftKings and FanDuel had been telling investors protected them was thinner than anyone realized.
Analysts at Stifel and Jefferies called the selloff overblown, pointing out that Kalshi’s parlay product was rudimentary. They weren’t wrong about the product. But they may have been wrong about the signal. Within months, Kalshi’s app downloads topped three million, the company inked a landmark partnership with the NHL, and sports contracts grew to represent more than 90% of its trading volume.
The NHL Went First, and the Floodgates Opened
When the NHL announced multiyear partnership deals with both Kalshi and Polymarket in October 2025, it became the first major American professional sports league to formally embrace prediction markets. The deals granted both platforms access to official NHL data, the right to use league logos, and advertising placement on digitally enhanced dasherboards during nationally televised games, the Winter Classic, the Stadium Series, and Stanley Cup Playoff broadcasts.
The American Gaming Association called the move “deeply concerning,” describing prediction markets as “backdoor gambling schemes masquerading as financial products.” AGA president Bill Miller warned that “no professional league should lend its brand to companies operating in defiance of state law and consumer protection norms.”
The NHL didn’t flinch. Commissioner Gary Bettman said the partnership gives the league control over what markets get created, arguing that working with the platforms is better for integrity than ignoring them. Since then, individual team deals have followed. Kalshi partnered with the Chicago Blackhawks. Polymarket signed with the New York Rangers. The NFL, NBA, and MLB are still holding back, but Fox Sports has already partnered with Kalshi for NFL game clips and data integration.
Polymarket’s trajectory is equally telling. After being kicked out of the U.S. in 2022 following a $1.4 million CFTC settlement, the crypto-based platform returned in late 2025 under friendlier regulatory conditions. Intercontinental Exchange, the parent company of the New York Stock Exchange, invested up to $2 billion in Polymarket at a valuation of approximately $9 billion. That’s not speculative seed funding. That’s Wall Street infrastructure money betting that prediction markets are permanent.
DraftKings and Flutter Are Playing Catch-Up, Badly
Both companies launched prediction market products in December 2025. DraftKings Predictions, built on its acquisition of derivatives exchange Railbird Technologies, is available across 38 states. FanDuel Predicts operates through Flutter’s broader infrastructure. Flutter’s parent company reportedly plans to invest $200 to $300 million into its prediction market product in 2026.
The early returns are brutal. Sensor Tower data from January shows Kalshi at 1.9 million downloads versus the combined sub-100,000 for DraftKings and FanDuel’s prediction apps. Needham analyst Bernie McTernan put it plainly: “It’s still early days for the products and Kalshi has a lot more functionality than them at this time.”
The functional gap is real. Kalshi lets users trade on everything from Fed interest rate decisions to Oscar winners to whether a specific announcer will say a particular phrase during a broadcast. DraftKings and FanDuel are still building basic sports contract functionality. Neither platform offers the depth of novelty markets that make Kalshi sticky for casual users, and neither has the exchange-based pricing model that attracts sophisticated traders.
Wall Street’s earnings estimates tell the story in dollars. Fourth-quarter adjusted earnings projections for Flutter have plunged 49% over the past three months, according to Bloomberg data. Revenue expectations dropped 6.3%. DraftKings earnings estimates fell 29%, with revenue projections down 2.6%.
DraftKings stock is down more than 60% from its all-time high. Flutter’s stock is on an eight-week losing streak, the longest in 23 years. Shares of both companies have declined notably in 2026 even as total prediction market volume surges.
The Regulatory Battlefield Will Decide Everything
Kalshi currently faces 19 federal lawsuits challenging the legality of its sports contracts across states including California, Massachusetts, Nevada, New Jersey, Maryland, and Wisconsin. State gaming regulators argue that buying yes/no contracts on football games is functionally identical to sports gambling and should fall under their jurisdiction.
Kalshi disagrees, aggressively. The company has enlisted high-profile attorneys including former solicitor general Neal Katyal to argue that federal CFTC regulation preempts state gambling laws. New CFTC Chair Michael Selig, appointed under the Trump administration, signaled in January 2026 that the agency would defend its exclusive jurisdiction over event contracts and allow sports markets to continue operating.
The political connections run deep. Donald Trump Jr. serves as an advisor to both Kalshi and Polymarket. Polymarket’s return to the U.S. coincided with Trump’s second term. The current CFTC leadership is considerably more market-friendly than its predecessor, which had attempted to block election contracts before Kalshi successfully sued.
Most industry observers expect these cases to eventually reach the Supreme Court. A pending California Supreme Court decision on the “event contract vs. gambling” distinction is expected by late spring 2026 and could set precedent for the entire industry. If prediction markets win, DraftKings and FanDuel lose their most powerful competitive advantage: the state-by-state licensing moat that kept competitors out.
What This Means for Investors and the Broader Market
The prediction market boom is reshaping the gambling industry’s competitive landscape in ways that go beyond sports betting. Robinhood, which launched a prediction market hub with Kalshi in March 2025 and subsequently acquired a 90% stake in MIAX Derivatives Exchange, has seen its stock more than triple. Coinbase and Crypto.com have both launched prediction products. Crypto.com’s standalone OG app debuted in February 2026 with aggressive welcome bonuses targeting its first million users.
The arms race is accelerating precisely because the addressable market extends far beyond sports. Prediction markets let users trade on inflation data, Fed rate decisions, election outcomes, corporate earnings, geopolitical events, celebrity behavior, and cultural moments. That breadth of product makes them attractive to financial traders, news junkies, and casual entertainment consumers simultaneously.
For DraftKings and Flutter shareholders, the question isn’t whether prediction markets represent a threat. That debate is over. The question is whether the incumbents can build competitive products fast enough to retain users who are discovering that a CFTC-regulated exchange offers better odds, broader markets, and nationwide access without the $65-per-month live TV streaming package they don’t need.
The sportsbook industry spent the past seven years building a business model on state-by-state regulatory moats. Prediction markets just found the tunnel underneath. Whether courts and regulators close that tunnel, widen it, or simply shrug will determine whether DraftKings and FanDuel remain the kings of American sports gambling or become the Blockbusters of an industry they thought they owned.
