NEW YORK – If prediction markets aren’t stealing some business from online sportsbooks, the federally regulated exchanges are certainly seeing an interestingly timed surge in popularity during a relatively tougher stretch for state-regulated bookmakers.
This was the picture painted by two bank analysts on Monday during NEXT.io’s “Emerging Verticals” event in New York City.
- Prediction market trading volume, led by Kalshi, is rapidly rising while growth in U.S. online sports betting handle has recently slowed and even turned negative.
- Some analysts say the timing raises questions about whether prediction markets are pulling activity away from traditional sportsbooks.
- Major sportsbooks are investing significant time and money into their own prediction platforms, but it could weigh on profitability.
Sitting about a 15-minute walk away from Wall Street, Julie Hoover, equity research associate at Bank of America, and Shaun Kelley, managing director and senior research analyst of BofA, walked an audience through the recent ups and downs for prediction markets and online sportsbooks.
In short, the rise of prediction markets is happening as state-regulated online sportsbooks have fallen on tougher times.
Quick summary of prediction market-related comments from @nextdotio event in NYC:
— Geoff Zochodne (@GeoffZochodne) March 9, 2026
-Nobody knows what's gonna happen in court
-PM volume growing (still mostly sports), online sportsbook handle growth waning
-Other concerns: payments, latency/data, public opinion of sports betting
To start, volume at prediction markets keeps growing, the analysts noted. Kalshi’s weekly trading volume recently hit a new high of approximately $2.8 billion, which is almost three times what it peaked at during the prediction market coming out party that was the 2024 presidential election.
Moreover, the bulk of volume continues to be tied to sports-related event contracts. Even post-Super Bowl, sports still account for around 75% of trading, the analysts explained.
While there’s no more NFL football on which to wager, plenty of activity has migrated toward college basketball. That makes sense, with interest in March Madness odds rising and massive amounts of betting expected.
At the same time, the growth of handle for state-regulated online sports betting sites in the U.S. is slowing. More recently, the handle growth has gone away entirely, and monthly wagering fell slightly in December and January, according to the BofA analysts.
This, Hoover noted, has driven some concerns, because Kalshi volume keeps rising as online sports betting handle went negative “for the first time ever.”
“It’s really begging the question: What impact are Kalshi and other prediction markets having on the regulated online sports betting space?” Hoover said.
Commercial sportsbook wagering last year was almost $167 billion, according to the American Gaming Association. If Kalshi were to keep running at its most recent high, that would still translate to around $145 billion in volume.
However, handle and volume are not the same. A 10-cent bet on Kalshi is worth a dollar in volume; on DraftKings or FanDuel, it would just be 10 cents of handle. As things currently stand, the BofA analysts estimated prediction markets account for around 8% of the regulated market for online sports wagering in the U.S.
Still, FanDuel's owner, Flutter Entertainment, said it saw "moderating customer and handle growth" in the fourth quarter of 2025. This, the company said, was driven in part by bettors losing more and then made worse by "less compelling content" provided by the second half of the NFL season.
Correlation ≠ causation
And while correlation does not necessarily imply causation (a point highlighted in Kelley and Hoover’s presentation), stock prices of publicly traded online sportsbook operators have taken a hit. DraftKings shares are down more than 30% over the past year. It's worse for FanDuel's owner, Flutter Entertainment, the stock price of which is down more than 50% from a year ago.
Kelley presented a chart showing the decline of those stock prices and the timing of prediction market-related news. For example, the day last September that Kalshi unveiled customizable parlays, the stock prices of the Big Two took a serious hit.
“Every single piece of news that’s come out from the prediction market landscape has had an impact” on investor thinking, Kelley said.
But DraftKings and FanDuel are not about to let Kalshi, Crypto.com, or Polymarket have free rein in prediction markets. The two online sports betting giants are putting significant time and money into their own recently launched prediction platforms.
The biggest advantage for federally regulated prediction markets is that they are federally regulated, and therefore floating above state-level gambling rules and taxes. While states are fighting in court for their right to regulate what they see as unlicensed sports betting offered by prediction markets, the prediction markets say that is exclusively the domain of the Commodity Futures Trading Commission.
That means a prediction market operator in Illinois is not paying the state’s per-bet tax, or any other sports betting-related tax.
“If you’re going to offer a sports betting product and you don’t have to pay your largest cost of goods, which is gaming taxes, it is a massive advantage,” Kelley said.
The NFL playoffs were BORING, according to FanDuel's parent company (I am paraphrasing very liberally here). pic.twitter.com/nJPYOEn3OO
— Geoff Zochodne (@GeoffZochodne) February 26, 2026
Even so, the prediction market blitz by the Big Two will be costly, and profitability from prediction markets will take time.
Flutter, for example, expects its investment in FanDuel Predicts will cost it nearly $300 million in adjusted earnings, with much money spent on wooing customers with marketing and promos. DraftKings will spend similarly on acquiring customers for its platform, DraftKings Predictions.
Kelley noted the current situation with prediction markets is similar to the “land rush” seen with state-regulated online sports betting.
A lot of players rushed in and hoped to carve out decent market share. However, DraftKings and FanDuel (with the help of their daily fantasy customer databases and their already funded accounts) have now established themselves as the top two, with plenty of other brands already having come and gone.
Right now, Kalshi is the dominant player in the U.S.-regulated market for exchanges, accounting for 93% of volume, according to BofA.
“Often exchanges, because of the liquidity piece, very much gravitate to ‘winner-take-most,’” Kelley said.
