Las Vegas is the historic home of legalized sports betting in the United States. It just isn’t home to the two biggest sportsbook operators in the United States. If that’s confusing, then what follows is for you.
- Major operators like FanDuel, DraftKings, and Underdog are opting, in some instances, for federally regulated prediction markets over state-regulated sportsbooks.
- The shift suggests that prediction markets are becoming a more attractive alternative to traditional sportsbooks.
- Prediction markets are growing quickly and even mainstream companies are joining in, creating the risk of states being sidelined from their traditional role as gambling regulators.
Earlier this month, the Nevada Gaming Control Board blasted out a notice to its licensees. The Nevada sports betting regulator said that it had "accepted the surrender" of FanDuel-owner Flutter Entertainment's order of registration, as well as all related licenses and approvals for Flutter and FanDuel.
So, there went one of the biggest legal sports betting operators in the U.S. The board then added in its notice that it had given approval to requests by DraftKings to withdraw all of its pending sports betting applications in Nevada. There went the other biggest operator.
The strongly suggested reason for this was prediction markets.
“It has been made clear to the Board that Flutter Entertainment/FanDuel and DraftKings intend to engage in unlawful activities related to sports event contracts,” the control board said. “This conduct is incompatible with their ability to participate in Nevada's gaming industry.”
To sum it up, you could infer that DraftKings and FanDuel were abandoning interest in the gambling mecca of Nevada because they want to launch prediction markets that will put them in the bad books of the local regulator.
Underdog pulls out of Missouri ahead of sports betting launch https://t.co/Joe4BM9fCi
— FOX2now (@FOX2now) November 26, 2025
Consider this as well: Word got out this week that Underdog, a force in daily fantasy sports and an early adopter of the prediction market-style of sports betting, was walking away from a Missouri sports betting license.
Mike Leara, executive director of the Missouri Gaming Commission, told FOX 2 in St. Louis that Underdog was choosing prediction markets over Show-Me-state-regulated sports betting.
“They have decided to go to that market,” Leara said. “It’s not regulated at any level compared to what traditional sports betting is regulated, and obviously, there’s no tax on it.”
So, the through line from Nevada to Missouri was companies choosing federally regulated prediction markets over state-regulated sports betting. Big or small, they opted for sports event contracts over traditional sports wagering.
That says something about the state of sports betting in the U.S. right now. First, in practice, sports betting is no longer the exclusive domain of states, their lawmakers, and their regulators. Second, the federal version of sports betting can be more appealing to sports betting operators in some instances.
From yesterday's Nevada ruling against Kalshi:
— Geoff Zochodne (@GeoffZochodne) November 26, 2025
When Chief District Judge Andrew Gordon applied the famous porn test (my paraphrasing) to sports event contracts, he concluded: "These are sports wagers and everyone who sees them knows it." pic.twitter.com/d5Jbh8HOOW
For some states, such as Nevada, this is concerning. That’s why Nevada regulators are in court scrapping with prediction market operators, including Crypto.com, a partner to Underdog.
On Tuesday, a federal judge sided against Kalshi in ongoing, prediction market-related litigation there. That legal action hinges largely on whether federal commodities law and oversight that governs prediction markets, or designated contract markets (DCMs), preempts state-level gambling regulation.
Chief District Judge Andrew Gordon wrote that if Kalshi's view is adopted, "there is a not-insignificant chance that the regulated entities in this state will abandon their current model and become DCMs, unleashing even more unregulated gambling and devastating the Nevada economy and related tax revenues."
“Indeed, recently, two of the ‘largest sports betting operators in the U.S., FanDuel and DraftKings, agreed ... to not seek licensing in Nevada in order to focus efforts on launching prediction markets in other states,’” Gordon added, citing recent media coverage.
Gordon quashed an earlier injunction he had granted to Kalshi, which had kept Nevada sports betting regulators at bay. Kalshi is appealing and seeking to stay the dissolution of the injunction.
But there it is in black-and-white: Prediction markets present an opportunity for gambling companies to shake off the constraints and taxation of states and pursue a federal form of de facto sports wagering.
Choose your own adventure sportsbook
If you’re a sportsbook operator and you’re weighing whether to apply for or renew a state license, you can now consider whether you’d like instead to be a prediction market. Instead of being the "house," and offering -110 moneylines and spreads, you can run an exchange, and let users buy and sell contracts for 52 cents apiece.
While there is legal and regulatory risk in doing this, for some companies the rewards could outweigh the risks. And, at the end of the day, it may still be easier to ask for forgiveness than permission.
Which brings us back to Underdog, which bills itself as “the fastest-growing sports company in the U.S.”
Underdog is definitely a disruptor or innovator in the world of fantasy sports and sports betting. It and others shook the online gambling industry up with parlay-like pick’em contests.
When it comes to state-regulated sports betting, Underdog has taken some shots as well. It brought its fantasy-friendly brand of sports wagering to North Carolina. It was also poised to launch an online sportsbook in Missouri, lining up a "market access partnership" with Major League Baseball's Kansas City Royals.
However, Underdog was quick to grasp the potential of prediction markets. It is offering its sports predictions product in Missouri right now.
The Missouri Gaming Commission was taking a wait-and-see approach to sports event contracts, but it was not going to look favorably on its sports betting licensees running a prediction market in its backyard. So a choice was evidently made, and Underdog decided to be a prediction market in Missouri, rather than a state-regulated sportsbook.
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Again, that says something. One of the more innovative sports betting operators took a look at what is a relatively friendly state for the industry (its tax rate will be just 10% for sportsbook operators) and said it just doesn’t make enough sense for us. Instead, we’re going federal.
We're not talking about New York and its 51% tax rate for mobile sports betting operators. We're not even talking about Illinois and its per-bet tax on top of an increased tax rate.
We're talking about Missouri, a state that legalized sports betting using a ballot measure that was backed financially by DraftKings and FanDuel. Missouri, in theory, is supposed to be a more commercially sensible state for sportsbook operators.
It just clearly doesn't make enough sense for every sportsbook operator. Not when there is now an alternative route, a path to sports betting via federal regulation.
This is the case with other states as well. A one-size-fits-all approach to sports betting regulation doesn't necessarily fit all. The difference is that prior to late 2024, there wasn't as good an alternate route for outsiders to take. Now they have prediction markets, at least for as long as those prediction markets are able to offer sports event contracts.
So sports betting states can fight this new reality, and try to shutter prediction markets. Several are.
State lawmakers could also (hear me out!) rethink their legal markets, and consider if what they've permitted is attracting the best product and brightest minds. Or, in other words, these lawmakers could ask themselves: is your version of sports betting all that good?
Yeah, but ...
Unfortunately, the growth of prediction markets is happening at a very awkward time for legalized sports betting.
We've seen indictments handed down charging professional athletes with sports betting-related misdeeds. There is seemingly a new sports betting-related concern arising every week.
Right now, it’s easier just to bash regulated sports betting as bad, as something that corrupts and cheapens national pastimes. If anything, it seems more acceptable at the moment to propose shoving the sports betting genie back into the bottle, to re-criminalize it or further restrict wagering. Some lawmakers want to ban certain player props, while others think sportsbook operators deserve higher tax rates. The governor of Ohio regrets legalization altogether.
It's an understandable reaction. And, in this climate, what state in its right mind is going to suddenly try to make it more enticing for gambling companies to do business? How would it fly with voters if you slash tax rates for sportsbook operators? Where would the political capital be in going to bat for the gambling industry?
There is also the fact that state-regulated sportsbooks are doing brisk business even with prediction markets operational.
State-regulated sportsbook handle continues to rise, with the American Gaming Association reporting recently that it increased 13.9% in the third quarter, to more than $33 billion. Prediction markets would need to up their game significantly to poach business from sportsbooks in a meaningful way.
Who will be the head coach of LSU football next year? 🏈 https://t.co/XwHWofQSYU
— Robinhood (@RobinhoodApp) November 25, 2025
However, it's obvious that some pretty significant players believe there is a serious opportunity to be had. On Tuesday, another disruptor, Robinhood, announced it is partnering with “market making leader” Susquehanna International Group on its own prediction market.
“Prediction Markets have quickly become Robinhood’s fastest-growing product line by revenue,” the company said. “Just one year since launch, 9 billion contracts have been traded by more than 1 million Robinhood customers. By introducing a robust, institutional-grade exchange to the market, we’ll add more choices for consumers. We’ll also gain the flexibility to build faster and deliver more contracts and services to traders.”
This is the real prediction market predicament. A federal market for sports betting that looks like it can only be curbed by the courts, and a state-regulated one that is being curbed all over.
We've come a long way in a short time.
A year ago, sports event contracts weren't a thing. A year later, they're definitely a thing. And, a year from now, we might find out if they've become the thing.
