The Genie Is Out of the Bottle: How Prediction Markets Slipped Off the Leash

Two Different Landscapes

The dynamic growth of prediction markets over the last twelve months is certainly a business and social phenomenon. The online betting industry, which one day discovered an intruder in its backyard, surely views this phenomenon somewhat differently. Amidst financial fluctuations and industry prospects, the phrase “prediction markets” is currently being discussed in every possible context.

The stock prices of the biggest firms have plunged due to fears of the rising power of Kalshi and Polymarket. Although analysts are reassuring investors that prediction markets cannot pose a long-term threat to sports betting operators, the rapid development and adoption of the new product are causing sleepless nights for investors.

The introduction of Same-Game Parlays (SGP) by Kalshi was capable of annihilating nearly $7 billion in market value from the two largest sports betting operators in a single day. Since the beginning of this year, DraftKings stock has fallen by over 16%, and Flutter Entertainment’s stock by almost 10%. While analysts’ forecasts remain relatively bullish, this situation certainly reflects the respect the sports betting industry ultimately feels toward the influence of prediction markets.

On the other side of the fence, we have unbridled enthusiasm, manifested in large investments and the ballooning valuation of both Polymarket and Kalshi, each of which has already surpassed $10 billion. Robinhood, Kalshi’s distribution partner, is also recording significant gains. After a record transaction volume appeared before investors’ eyes, Robinhood’s stock jumped 12% in a single day. Throughout Q3, Robinhood clients generated over $2 billion in event contract trading volume. These two significantly different landscapes only intensify the panic among all stakeholders in sports betting operators.

Preempting Court Rulings

All this expansion is, of course, not without legal action from entities interested in maintaining the current legal framework. Cease-and-desist letters were sent to Kalshi even before the full-scale expansion began. In response, the company filed lawsuits against specific states, arguing that as an entity regulated by the Commodity Futures Trading Commission (CFTC), it is not subject to state jurisdiction.

Accepting this point of view and looking at the whole situation from a distance, it is impossible not to notice the absolute chaos that has governed the CFTC’s actions throughout 2025. The process of nominating a new chairman is dragging on, especially after the previous nominee from the Donald Trump administration—Brian Quintenz—failed to be confirmed, and the agency’s headcount is drastically shrinking. The commission that Kalshi and other prediction markets invoke is simply unable to control what is happening right now, creating ideal conditions for the development of platforms offering event contracts.

Tribal coalitions and individual tribes are getting involved, filing lawsuits alleging that these platforms violate the Indian Gaming Regulatory Act (IGRA). However, everything in the courts proceeds at its own unhurried pace, and given the judges’ past rulings, it is difficult to predict the direction of future decisions. The chaos at the CFTC and the time window that Kalshi, Crypto.com, and Robinhood have created for themselves and other prediction platforms by suing state regulators are generating the perfect conditions for them to effectively speedrun their development.

Count Me In

Despite initial doubts and a rather cautious approach to the subject, the lack of a truly decisive response against prediction markets intensified the FOMO among many companies, which began to successively engage in this space. Initially, the “big three” consisted of Kalshi, Robinhood, and Crypto.com, and these were also the firms that bore the brunt of the initial pushback from state regulators.

Because each of them emerged relatively unscathed from the court battles, the vision of Polymarket—the world’s largest platform—returning to the U.S. began to loom on the horizon. During the Joe Biden administration, the platform was forced to suspend its operations on this side of the Atlantic. In the current climate, and with all the affinity that Donald Trump developed for prediction markets during the presidential election (especially given that they predicted his triumph), the obstacles for Polymarket to return to the U.S. have evaporated.

Trump himself has also become more decisively involved in prediction markets indirectly. First, through Donald Trump Jr.’s advisory role at Kalshi and Polymarket, and then with Truth Predict. The strength of prediction markets in the U.S. is therefore currently the fact that the most influential person in the country is a stakeholder in this area.

It’s hardly surprising that other financial and crypto platforms, such as Coinbase, the Winklevoss brothers’ Gemini, and Stocktwits, have decided to jump on the bandwagon. Meanwhile, former Polymarket employees founded The Clearing Company, and companies operating in the gambling industry began to realize that their neighbors were throwing a loud party where everyone seemed to be “having fun,” and they ought to invite themselves in.

Among the more interesting threads is the increasing migration of sweepstakes platforms, such as Novig and MyPrize, into the prediction markets space. Of the two areas of activity facing strong regulatory pressure, event betting was deemed a safer place to put their money. The situation is similar for DFS platforms, whose adoption and acceptance by authorities seemed to be on the right track. Underdog, PrizePicks, and Sleeper also concluded that prediction markets were not an opportunity to be missed.

If You Can’t Beat Them, Join Them

Over time, increasing pressure also affected sports betting operators, who gradually stopped labeling prediction markets as a “threat to the legal market” and adopted the tone of an “opportunity that cannot be ignored.” This is how DraftKings and FanDuel have already registered their presence in the prediction markets area, even though they have not officially launched operations yet. The biggest brands saw a unique opportunity in the perceived threat.

If prediction markets can undercut our numbers by competing with us in states with legal sports betting, why shouldn’t we create competition for them in states without legal sports betting? It all follows the principle of a federally regulated product, legal in all 50 states. However, it’s not so black and white for operators. While Kalshi or Polymarket fundamentally have one basket for their eggs, DraftKings and FanDuel have several, and by entering prediction markets, they could potentially risk disrupting them.

While state regulators warn licensees against offering contracts on sporting events, being present in states without legal sports betting may be more of an opportunity than a threat for operators. On the one hand, this is a complex play that increases pressure on legislators who are reluctant to legalize sports betting, and on the other, it’s an opportunity to build their brand in states that are marked gray on the U.S. legal betting map.

Although the fascination with the new type of product and the scale of its potential impact on the business of gambling companies may indeed be slightly exaggerated, DraftKings and FanDuel are well aware of the volatility of the market landscape, as they themselves originated from the regulatory gray area of DFS.

Prediction markets have become too big to ignore, and the game in the gambling industry is now revolving around being able to carve out a piece of this pie. Since a long road likely lies ahead before binding court decisions are made, no spectacular threat appears on the horizon. After these 12 months of intensive expansion of event contracts, one conclusion is certain: it is impossible to say with any degree of certainty where prediction markets will be in a year and how strong they will be.