DraftKings Inc., Flutter Entertainment PLC and other stocks tied to the sports betting industry tumbled on Friday as new data suggested they could lose out to competing offerings from prediction markets startups.
Platforms such as Kalshi and Polymarket have recently launched financial contracts tied to sports results, with reports of a surge in activity during the start of the NFL playoffs last week. Meanwhile, in what is typically a boom time for sports betting, New York state data shows revenue from online sports betting is down sharply from a year earlier.
DraftKings shares fell 8.3% in New York trading, their worst intraday loss since late October. Shares in Flutter, which operates gambling app FanDuel, fell as much as 5.5% to their lowest intraday level since late November. The broader gambling sector also tumbled, with the S&P industry index down 2.5%.
Online sports betting has been under pressure for months since prediction markets took off with new sports contracts. The startups use their status as federally regulated exchanges to offer sports betting, circumventing state laws governing online gambling.
Although gambling regulators in several states have called the products illegal and forced the companies to shut them down, the startups have continued to forge ahead, and sports betting already accounts for about 90% of Kalshi’s trading volume. The contracts have been widely distributed through Kalshi’s partnership with retail broker Robinhood.
“We do believe prediction markets are having an impact on sportsbooks,” said Citizen Equity Research analyst Jordan Bender. “PM is built around big events like the NFL playoffs.”
Piper Sandler & Co. analysts led by Patrick Moley said the five highest-volume games of the season were played on Kalshi last week, with NFL-related bets on the platform reaching a record $720 million. Analysts said the weekend also marked a milestone, as the Chicago Bears’ comeback against the Green Bay Packers was Kalshey’s first game in which the deal exceeded $100 million.
Shares of Flutter and DraftKings have recovered in the past two months after both companies said they would open their prediction market products in states where sports betting is illegal. While the companies launched the new apps last month, it’s unclear whether they’ve gained any traction.
“It’s still early days for these products and Kalshi currently has many more features than them, so I would be surprised if they gain a lot of traction,” Needham analyst Bernie McTernan said.
The industry has been debating whether prediction markets can provide real competition to the more established products offered by sportsbooks, especially in lucrative areas such as multi-round parlay betting. A recent report from Citizens Bank estimated that new platforms still account for only 5% of total U.S. sports betting.
“We believe the prediction market will expand more than it cannibalize the traditional online sports betting market,” said Dan Wasiolek, senior equity analyst at Morningstar.
Over the past few months, New York state data has shown that online gaming companies have generally seen revenue growth compared to the previous year.
but new weekly numbers Reports from New York show that traditional sports betting revenue fell 40% year-over-year in the week ending January 11, which includes the NFL Wild Card Weekend. At the same time, prediction markets have seen a surge in trading volume and attracted widespread public attention.
Needham’s McTernan said that while the stock selloff was largely due to the New York state data, sportsbooks also faced difficult comparisons. “If you compare it to two years ago, it doesn’t look that bad,” he added.