DraftKings’ expansion into prediction markets is becoming one of the most legally and financially sensitive elements of its business, according to a 2025 financial reporting disclosure.
- DraftKings’ prediction market expansion carries legal and regulatory risks, with outcomes hinging on federal and state court rulings.
- Adverse rulings could force halts on certain products, impact state licenses, and increase compliance costs across DraftKings’ platforms.
- The company is investing heavily in prediction markets despite uncertainties, viewing sports event contracts as a major growth opportunity.
DraftKings, one of the nation’s leading sportsbook operators, launched sports event contracts via its own prediction market in December of last year, joined by market share rivals FanDuel and Fanatics. Their launch was in response to the hundreds of millions of dollars taken in by Kalshi and other prediction markets - and among growing corporate fears these upstart platforms could take away revenue.
Company officials believe DraftKings Predictions could generate tens of millions of dollars in additional revenue alongside its existing platform; it also could lead to even greater investment losses with no potential for future financial gain.
Like other prediction market operators, DraftKings’ legal ability to operate these markets depends on federal oversight by the Commodity Futures Trading Commission (CFTC), as opposed to sportsbooks' state-by-state regulations. Federal regulators, and the prediction markets themselves, have argued that sports event contracts are a form of legally protected “swaps,” akin to stock trades, and are not subject to state law.
But the legal footing for sports-related event contracts, which make up around 90% of prediction markets’ betting volume, is far from settled.
“There are currently numerous lawsuits challenging the CFTC’s exclusive jurisdiction over event contracts, with a specific focus on sports event contracts,” the company wrote in its 2025 10-K filing document, a legally mandated, comprehensive look at all publicly traded companies' finances and potential business risks.
That litigation raises the possibility that courts could determine that state actions restricting event contracts are not preempted by federal law, or that outcome-based event contracts do not qualify as swaps. Nevada courts have recently ruled in favor of state regulators in their push to brand sports event contracts as a form of illegal gambling, and more than a dozen other states have taken legal action.
“Depending upon the ultimate resolution of this litigation, we may not be able to continue to offer certain event contracts and potentially could be subject to adverse litigation and regulatory actions for doing so,” DraftKings wrote in its filing.
Potential consequences
Such an outcome could force the company to halt prediction markets across multiple jurisdictions. The risk is compounded by the company’s geographic footprint.
If federal preemption were narrowed or overturned, DraftKings could face a patchwork of state-level interpretations that differ across the 47 jurisdictions where it offers DraftKings Predictions. The company warned in its filing that federal or state courts “may conclude that state actions attempting to prevent the trading of CFTC-regulated event contracts are not preempted” by federal law, a determination that “could require us to cease offering certain event contracts in one or more states (or across all jurisdictions in which we operate).”
Regulatory risk is not limited to ongoing litigation.
In June 2024, the CFTC proposed a rule amendment that would have prohibited DraftKings from offering election, sporting, and award show event contracts in the future. Although that proposal was withdrawn in February 2026, the filing makes clear that the issue remains active.
DraftKings mentions of prediction markets in annual 10-K financial disclosure and reporting form:
— Ryan Butler (@ButlerBets) February 19, 2026
2025: 86
2024: 0
“In connection with the withdrawal of the proposed rule amendment, the CFTC Chairman indicated the potential for new event contracts rulemaking in the future,” the company wrote, adding that “the CFTC could take new regulatory action or impose broader and more expansive regulations with respect to these or other event contracts.”
Even absent an outright ban, the company signaled that heightened oversight could impair operations.
“There is a risk that regulators could request or require us to cease offering specific products or services,” DraftKings wrote. “Such regulatory actions could lead to the suspension or termination of product offerings, which may result in increased compliance costs, financial losses, and negative publicity.”
Threats to existing business
The implications extend beyond prediction markets alone.
DraftKings cautioned that adverse decisions “could negatively impact or result in a suspension, revocation of, or any other adverse action against,” not just DraftKings Predictions, but state gaming licenses for its sportsbook, iGaming, daily fantasy sports, or digital lottery courier platforms.
This year’s 10-K underscores that DraftKings is willing to take the risk, especially as its stock has declined more than 50% over the past 12 months, with much of the losses pegged to investor concern about prediction markets. The company didn’t mention prediction markets in its 2024 filing; it referenced prediction markets 86 times in 2025.
While DraftKings continues to operate its prediction markets under federal derivatives regulation, the company’s own disclosure makes clear that a critical segment of the business depends on unresolved legal questions, evolving rulemaking, and the durability of CFTC jurisdiction. The outcome of litigation, future regulatory action, or state-level intervention could reshape the viability of event contracts - and potentially affect other licensed gaming operations in the process.
