Prediction markets are emerging as a major new competitor to online sportsbooks, sending shares of DraftKings (NASDAQ:DKNG) and FanDuel’s (NYSE:FLUT) parent company sharply lower this week, Bloomberg News reported Saturday.
Robinhood (NASDAQ:HOOD) and Kalshi reported surging activity, with Robinhood saying more than four billion prediction contracts have traded on its platform so far this year, half of them in the third quarter alone. Kalshi also set fresh records in September, topping $260 million in weekly volume during the NFL season.
The rapid growth has fueled investor fears that prediction platforms (which let people bet on political races, economic events, and increasingly, sports) could siphon users from traditional gambling sites. DraftKings (NASDAQ:DKNG) stock tumbled more than 16% for the week, its steepest drop since 2022, while Flutter Entertainment (NYSE:FLUT), owner of FanDuel, fell over 8%. Analysts quickly cut price targets, with one downgrading DraftKings to a sell-equivalent rating.
“These companies need to come out with a strategy … until that happens, the prediction markets present a risk,” said Jordan Bender, an analyst at Citizens.
Kalshi’s rollout of customizable sports parlays — long a key moneymaker for traditional sportsbooks — has heightened the threat. Hedge funds and short sellers have piled on: Spruce Point Capital predicted DraftKings (DKNG) shares could lose up to 60% as prediction markets gain traction.
Still, major banks including Morgan Stanley and Jefferies say the fears are exaggerated, urging investors to buy on weakness. Roughly 80% of analysts still rate DraftKings (DKNG) and Flutter (FLUT) a buy, according to Bloomberg data.
The market is likely to get more crowded soon, with FanDuel teaming up with CME Group (NASDAQ:CME) to launch its own prediction contracts later this year, even as regulators in some states scrutinize Kalshi’s offerings, Bloomberg News reported.