Recently, the sharp decline in the US stock sports betting sector has pushed the question of whether "the prediction market is threatening the business model of sports betting" into the spotlight of the capital market. With prediction market platforms such as Kalshi and Polymarket rapidly pushing sports event contracts into the mainstream view, top betting companies like DraftKings and Flutter have seen significant pressure on their stock prices.
DraftKings fell 8% in a single day, marking its worst performance since September 2025; Flutter's stock price fell 6.3%, setting a new low since August 2024. Investors' sentiments have been affected by the threat of structural substitution by the prediction markets.
🟢 However, if we calmly study several sets of data, it is evident that this concern has been magnified by the capital market, and the threat of prediction markets to sports betting has been overestimated.
A research report published by Citizens in January 2026, 《Gaming, Online Gaming & Gaming Technology》, pointed out that the current share of prediction markets in legal sports betting is only about 5%, with an annual betting scale of approximately $8 billion.
As a comparison, the overall annual betting amount of regulated sports betting in the US has far exceeded $160 billion, and prediction markets are still in a very early stage in terms of volume, penetration rate, and user coverage. Citizens analyst Jordan Bender frankly stated that prediction markets are indeed impacting sports betting companies, but the degree of impact on their capital market has been "clearly exaggerated."
Kalshi only introduced contracts such as the league championship in the most recent NFL season, while its main competitor Polymarket has not yet fully returned to the US market. Although financial technology platforms like Robinhood, Crypto.com, and Coinbase are accelerating their layout in prediction markets, in terms of user habits, product maturity, and liquidity structure, prediction markets are still in a typical early development stage.
🟢 The market's optimistic expectations largely come from a "blind expectation" of the "theoretical upper limit."
Eilers & Krejcik in their latest report suggested that the potential total size of prediction markets could reach up to $1 trillion, with the sports prediction market accounting for about $435 billion.However, this figure describes a very long-term theoretical space, not a scale that can be converted into real betting revenue in the short to medium term.
Even Kalshi itself, during the busiest week of sports events, achieved a trading volume of about $1.98 billion, and if simply annualized, its annual trading could reach $100 billion, a calculation that itself is not a sustainable business reality.
Bender attributes the recent rapid heating of the prediction market more to marketing-driven "short-term frenzy."
A large number of non-sports betting users download apps and try trading out of curiosity, but the actual user retention rate is not high. ➡️ These new users have not formed stable betting habits and are unlikely to participate in event betting long-term and frequently like traditional sports betting players. In contrast, the core users of sports betting inherently have the motivation and behavioral inertia for continuous betting, which determines that the prediction market is more like "expanding the market" in the short term, rather than directly drawing from the existing market of sports betting.
From a business logic perspective, the relationship between prediction markets and sports betting also involves functional differentiation. Prediction markets focus on peer-to-peer transactions, emphasizing price discovery and probability expression, suitable for price-sensitive, rational users with a financial trading mindset; sports betting, on the other hand, continues to amplify entertainment attributes and emotional value through mechanisms such as accumulators, prop bets, promotions, and VIP incentives. 🔴 Even after prediction markets start offering products like accumulators, their liquidity, pricing stability, and user experience are still difficult to replicate the mature systems of FanDuel or DraftKings in the short term.
In terms of user structure, the differences between the two are even more pronounced. Bender believes that sports users highly depend on the cashback, customized odds, exclusive services, and emotional incentives provided by sports betting companies, which are precisely the capabilities that are difficult for prediction market exchanges to replicate. This also means that the impact of prediction markets on sports betting is more concentrated on arbitrage and strategic users.
Another report by Citizens predicts that with the push of non-sports contracts and data products, the overall revenue of prediction markets is expected to grow from the current approximately $2 billion to $10 billion by 2030, with data and information generated by non-sports players potentially feeding back into the sports betting ecosystem.
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