As the Super Bowl approaches, the gambling industry finds itself facing unexpected challenges that dampen what is typically a celebratory time. Flutter Entertainment Plc, the parent company of FanDuel, is experiencing its longest stock decline in over two decades, while DraftKings is trading at its lowest levels since the beginning of this year. This downturn is particularly alarming, given that DraftKings has seen its stock drop more than 60% from its all-time high five years ago.
While the matchup lacks the celebrity allure of last year’s game, the emergence of new prediction markets like Kalshi poses a more significant threat to traditional sportsbooks. Unlike established gambling apps, these platforms have navigated around state regulations, offering unique betting opportunities that have rapidly gained popularity.
Analysts have noted that traditional legal wagering, often referred to as handle, is expected to decrease by 2% compared to last year, as many bettors turn to prediction markets. Jordan Bender, a senior equity analyst at Citizens, anticipates record-breaking trading volumes on platforms like Kalshi this weekend, emphasizing that such markets are increasingly siphoning off traditional Super Bowl bets.
This development is particularly striking considering the recent trajectory of the gambling sector. Following the Supreme Court’s 2018 decision allowing states to legalize sports betting, companies in this space experienced robust growth, with wagers on the Super Bowl rising consistently for eight straight years.
Kalshi, which originally focused on financial contracts related to pop culture events, shifted its strategy to incorporate sports betting after the CFTC did not intervene when it began testing Super Bowl wagers. Now, sports contracts account for more than 90% of Kalshi’s trading volume, highlighting the swift evolution of the betting landscape.
Despite some analysts projecting a record Super Bowl handle, with expectations of a 9% increase from last year to $1.78 billion, they also anticipate that prediction markets could attract an impressive $630 million in bets, significantly contributing to the overall growth of wagering activity for the event.
The financial outlook for major players like Flutter and DraftKings has taken a hit, with their adjusted earnings per share estimates plummeting significantly in recent months. While some gambling executives claim that prediction markets do not pose a direct threat in states where they already operate, these new markets are making headway in states where traditional online gambling is prohibited, such as California and Texas.
Interestingly, BetMGM reported record sports bets in the last quarter of 2024, crediting their growth to traditional gamblers rather than the emerging prediction market competition. Yet, the presence of prediction markets is making an impact; around 10% of DraftKings users reported also participating on Kalshi, which has seen much higher app download rates than traditional competitors.
Kalshi offers a wider array of betting options that extend beyond game outcomes—covering everything from the length of the halftime show to celebrity attendance—making it particularly appealing to a new generation of bettors. Traditional platforms, in contrast, primarily focus on scores and game outcomes.
In response to the rising trend of prediction markets, DraftKings and FanDuel have launched their own similar platforms. However, their efforts have garnered significantly fewer downloads compared to Kalshi. DraftKings has also recently forged a partnership with Crypto.com to expand its offerings in this burgeoning market.
This evolving scenario is capturing the attention of gaming regulators, as some have taken legal measures against Kalshi. Legal experts predict these cases may eventually reach the Supreme Court. In the meantime, the newly appointed CFTC chair has signaled a willingness to support the continuation of sports contracts, suggesting a potential shift in oversight dynamics.
As the Super Bowl approaches, the gambling industry is at a pivotal moment, with both traditional sportsbooks and innovative new players shaping the future of sports betting.
