The Sportsbook-Prediction Market Arms Race

We’re breaking down sportsbooks x prediction market arms race this week.

But before we dive in, we first want to shout out our financial AI partner Endex. It’s a product that we use every day to power all of our research and modeling for our newsletter.

Endex is an AI financial modeling tool built directly inside Excel, backed by OpenAI. It allows you to generate clean financial models, charts, and analyses simply by prompting it, without ever having to leave your spreadsheet.

If you want the easiest day-one upgrade without adopting a whole new tech stack, start by adding Endex to your workflows.

For the investor, operator, team executive – or those who spend more than 5 minutes in spreadsheets a week, this was made for you & your team.

Kalshi x Madison Square Garden, Arizona sues the CFTC, DraftKings co-founder Matt Kalish stirring up a tweet storm. 

The sportsbooks vs. prediction markets war has become almost unavoidable if you live on the internet to the extent that we do. There’s always a new sports partnership, state lawsuit, Trump comment, or sportsbook vs. prediction market beef unloaded on our timelines. 

In this newsletter, we’re focusing on the beef: 

Sportsbooks vs. prediction markets.

Many would consider federally regulated prediction markets as disruptive competitors to the traditional sportsbook model.

Just this month, Kalshi raised $1B at a $22B valuation, citing 32x+ growth over the last year and $178B in annualized volume based on April’s volume.

And more than 80% of that volume comes from sports trades, according to DeFi.

A similar bet that could’ve been made on an online sportsbook in legal sports-betting states.

Investors are growing increasingly worried about the future of publicly-traded sportsbooks, despite relatively strong recent earnings.

But Matt Kalish didn’t seem too worried in a recent podcast:

Right now, these sportsbooks have prediction market applications via partnerships with exchanges like CME Group, Crypto.com. DraftKings is very close to launching their own in-house exchange. FanDuel recently made an application for a direct FCM license, which would bring them a step closer to eventually operate its prediction market in-house.

TL;DR, everyone is going to have their own prediction market.

But will they actually beat Kalshi?

Kalshi shocked the system by becoming the first prediction market to be federally regulated by the CFTC.

First-mover advantage was key to not only mass exposure but also mass adoption. The platform grew from 600K to 5.1M+ monthly active users (MAU) from January 2025 to February 2026.

In comparison, DraftKings had 4.2M MAUs, up only 2% year-over-year if you exclude its Lottery app exiting from Texas, according to its most recent Q1 2026 earnings. Comparing peak season in Q4, MAUs stayed flat year-over-year at 4.8M from Q4 2024 to Q4 2025.

One is growing exponentially.

While the other seems like it’s stagnating.

And since sportsbooks can only operate in 32 legalized sports betting states, Kalshi has become a powerful sports trading option in the other states – including California, Texas, and Georgia. 

Recent data shows that the Kalshi’s prediction markets are increasingly penetrated legal sports betting states as well, with ~36% of their deposit mix coming from online sports-betting (OSB) states:

Note that Kalshi’s Head of Comms said the deposit mix is actually even more evenly distributed between OSB and non-OSB states, meaning they are just as much of a threat to sportsbooks in legal states:

Sportsbooks launching their own in-house prediction markets should give them immediate distribution into non-OSB states. It could also drive a meaningful migration of existing sportsbook handle – total dollars users stake – into their prediction market products.

That would create a competitive product that could eventually match the incumbents’ trading volume.

At least in theory.

Let’s see what that’s shaping into right now.

We surfaced the most pertinent information on DraftKings and FanDuel’s prediction market apps based on Q1 financial reporting and new data:

From what we found, DraftKings and FanDuel share a similar prediction market strategy.

Both are also allocating $200-300M – with FanDuel explicitly guiding to $250-300M – in the 2026 fiscal year to build and market their Predicts apps.

Both are leveraging third-party exchanges.

Both are using super-apps to lower customer acquisition costs.

Since both companies are investing $200-300M to build out their prediction markets pipelines, they need to generate a lot of trading volume just to break even.

Suppose DraftKings Predicts eventually uses Railbird’s exchange for its prediction markets, cuts out the third-party exchange, and takes home an industry-standard 1-2% take rate.

On the other hand, FanDuel Predicts may have a 2% take rate, but only 1% actually hits FanDuel’s top line.

We built a quick break-even analysis on how much volume they need to get by the end-of-the-year to recoup their costs:

Compared to Kalshi’s TTM trading volume of $48.6B, DraftKings and FanDuel would have to hit ~40-60% of that trading volume in their first year to break even. 

Despite Kalshi’s four year head start. 

Requiring a significant amount of institutional players for that level of liquidity, not just retail bettors.

And the spend to match Kalshi’s relentless marketing purely focused on growing the presence of their prediction markets platform across retail and institutions. And they’re already already off to a pretty massive headstart:

The reality is that DraftKings and Flutter are mature, public companies that have already hit their profitability inflection point. 

Investors still care about how much money these companies are actually making – but the drop in market cap has forced management teams to commit spend toward competing in prediction markets.

Ultimately, these are sportsbook and casino businesses, meant for the retail bettor. And despite the platforms’ struggling stock prices, their customers are betting more on their platforms, their core products are working, and the overall numbers are moving in the right direction. DraftKings’ average revenue per monthly unique player increased 21% year-over-year to $131 in Q1, a significant jump. Revenue ($1.65B, +17% YoY), Adj. EBITDA ($168M, +64% YoY), and profitability ($21.1M vs. Q1-2025 net loss of $33.9M) are all up.

Flutter CFO Rob Coldrake said it himself in their recent earnings call: “We’ll be looking at the prediction investment envelope alongside what we’re doing in our core sportsbook as well. As we’ve always said of our capital allocation framework, we’ll be investing where we see the best returns in the business.”

And that’s what we think will happen. Many of these sportsbook players will likely ease up on their prediction markets push if they continue to generate much better returns from their more mature sportsbetting and casino products. 

Sportsbooks’ predict apps may likely just be a simple customer acquisition tool to engage the casual bettors in non-OSB states – instead of a true competitor to Kalshi and Polymarket in terms of exchange volume.

Which isn’t a bad thing.

Kalshi's $1B Series F in May 2026 was explicitly framed around institutional expansion. The announcement said the company plans to use the capital to expand adoption among hedge funds, asset managers, proprietary trading firms, and insurance companies, while building out block trading, risk products, and broker integrations.

They’re moving upstream to larger players in their route to become a true institutional exchange…

While sportsbooks can still retain a lot of value holding downstream. 

And eventually, the public markets will understand that these products are two differentiated offerings, not existential to one another.

Travis Kelce acquires minority stake in Cleveland Guardians at reported $1.7B valuation (May 27th)

U.S. consortium led by Underdog Global Partners makes ~€2B offer to acquire Napoli from De Laurentiis family (May 23rd)

Gary Lineker’s Goalhanger launches ventures arm Goalhanger Ventures to invest in and scale creator-led media businesses (May 26th)

PlayerData, a wearable and connected ball analytics platform, raises $12M Series A round (May 27th)

Enhanced Games’ stock plunge nearly 45% following debut of PED-friendly competition in Las Vegas (May 26th)

Scott Coker launches new global MMA league backed by $60M financing round led by Creator Sports Capital (May 26th)

DraftKings moves closer to launching in-house prediction market exchange DKeX after new CFTC filings (May 27th)

Stanford Athletics taps Ramp its official expense management partner in multi-year deal across 36-sport department (May 27th)

If you find our weekly job board helpful, join the T4Q Talent Network.

Now - here are some cool roles we found and personally curated this week. Enjoy!

1. Soros Fund Management - Media Partnerships & Investments: $200K

2. Fitch Ratings - US Corporates Director (Tech, Media, Telecom): $175K

3. Drake Star - Investment Banking Analyst

4. Oakwell Sports Advisory - Senior Analyst 

5. Equipe - Founding Engineer: $225K

6. WHOOP - AVP, Sports & Talent Marketing: $225K

7. Breadcrumb.ai - Commercial Partnerships Lead, Sports & Entertainment: $150K

8. Novig (Prediction Markets) - Culture GTM Lead: $170K

9. Authentic Brands Group - Director, Talent Marketing (Sports & Athletes): $140K

10. PGA TOUR - Sr. Vice President // Manager, Corporate Development