The rise of prediction market platforms including Kalshi and Polymarket is triggering a fundamental restructuring of valuations across the US online gaming sector, with sports betting giants DraftKings and Flutter Entertainment losing significant market capitalisation as investors price in the threat of cannibalisation while iGaming-focused operators command a growing premium for their insulation from the disruption.
DraftKings has already launched its own prediction market product, DraftKings Predictions, which is available across 38 states and offers event contracts on sports, economic indicators, and global benchmarks through a partnership with CME Group.
CEO Jason Robins described prediction markets as the most exciting growth opportunity for the sports betting industry since the 2018 Supreme Court ruling that overturned the federal ban on sports wagering, projecting that the category could generate $10 billion annually in gross revenue as it reaches full scale.
However, the company’s 2026 revenue guidance told a different story when it was released in February, with the midpoint of $6.7 billion coming in 8% below Wall Street consensus estimates of $7.3 billion. The conservative guidance raised concern among investors that prediction market activity may be eating into existing sports betting volumes rather than simply adding new users, precisely the cannibalisation risk that both operators and analysts have been debating since Kalshi and Polymarket began gaining traction.
The divergence in equity performance between operators with heavy iGaming exposure and those more dependent on online sports betting is now clearly visible in market data. Macquarie analyst Chad Beynon noted that Rush Street Interactive, which derives roughly 75% of its revenue from iGaming, is trading just 3% below its August 2025 highs, while DraftKings has lost more than half its value over the same period.
“This bifurcation is no more apparent than when comparing the valuations of DKNG and RSI,” Beynon said, with iGaming exposure commanding a target EBITDA multiple of 15 times against 9 times for sports betting peers.
A cross-party legislative proposal from Senators Adam Schiff and John Curtis to ban prediction market operators from listing contracts tied to sporting events briefly lifted DraftKings and Flutter shares by more than 4%, suggesting that regulatory clarity on this issue would significantly improve sentiment around the mainstream sports betting operators. Arizona’s Attorney General has gone further, filing criminal charges against Kalshi for allegedly offering unlicensed sports gambling, while Nevada has separately argued that prediction market contracts violate state gambling laws.
The regulatory landscape is likely to remain unsettled for the foreseeable future, with the Supreme Court yet to take up related cases and state-level enforcement continuing to vary widely. For operators, the strategic question is whether to compete aggressively in prediction markets at the risk of undermining their core sports betting revenues, or to maintain a cautious approach while rivals invest heavily in customer acquisition for the new category. As DraftKings CFO Alan Ellingson acknowledged on his company’s earnings call, the financial commitment required to compete effectively in prediction markets over the next year has yet to be formally quantified.
