If Prediction Markets Win, Sportsbooks Will Have to Become Something Else

Strategic Analysis | September 19, 2026

For most of the post-Murphy era, the American sports-betting business operated according to a simple premise: if you wanted to take legal sports bets, you needed permission from the state.

That premise created the modern sportsbook industry.

DraftKings, FanDuel and their competitors spent billions acquiring customers, securing market access, obtaining licenses, integrating responsible-gaming systems, paying state taxes and building products around a jurisdiction-by-jurisdiction map. States, in return, acquired control. They could decide whether sports betting existed, who could offer it, what could be wagered on, how old customers had to be and how much of the operator’s revenue belonged to the government.

Prediction markets have introduced a considerably more disruptive proposition:

What if a company can offer substantially the same economic proposition through a federally regulated derivatives market without asking the state for permission at all?

That question is still being litigated. Courts are now openly divided over it. The Commodity Futures Trading Commission is rewriting its own rules around it. Tribes are attacking it from another direction.

But the industry is no longer waiting for the lawyers to finish.

DraftKings acquired CFTC-regulated exchange operator Railbird in October 2025 and launched DraftKings Predictions two months later. At launch, DraftKings said event contracts would be available across 38 states, including sports contracts in major jurisdictions such as California, Florida, Georgia and Texas. FanDuel launched FanDuel Predicts with CME Group at roughly the same time and has since expanded its sports offering through Crypto.com.

By the second quarter of 2026, DraftKings was telling investors that Predictions was growing faster than anticipated. FanDuel's parent, Flutter, had gone even further: it was building a market-making business designed to supply liquidity to prediction markets and said that operation alone was expected to generate approximately $50 million of revenue in 2026.

That is the strategic signal.

The incumbent sportsbooks are not merely preparing to compete against prediction markets.

They are preparing to become prediction-market companies themselves.

And if the federal model survives, that transformation changes much more than the logos on the apps.

Sportsbook licenses have value partly because they are scarce.

A state decides to authorize online wagering. It establishes a licensing regime. Operators satisfy suitability standards, negotiate market access where necessary, build state-specific compliance systems and pay taxes tied to gaming revenue. The resulting license functions as both permission slip and barrier to entry.

That structure helped create enormous incumbent advantages.

Then event contracts arrived through a completely different legal doorway.

A federally regulated prediction market operates under the Commodity Exchange Act rather than a state gaming statute. The product is structured as a derivative contract: customers buy and sell positions whose value depends on whether an event occurs. When the subject is the Federal Reserve's next rate decision, the conceptual difference from a traditional financial market is easy to see.

When the question is whether the Chiefs cover a spread, the distinction becomes considerably less intuitive.

The transactional architecture is different. A traditional sportsbook generally acts as principal, sets prices, accepts wagers and manages its resulting risk. An exchange facilitates contracts between market participants and can earn transaction fees while liquidity providers make markets.

But a customer's economic experience can look awfully familiar.

Pick an outcome. Put money behind it. Get paid if you are right.

That similarity is precisely why the regulatory fight matters.

If federal law gives CFTC-regulated markets a durable path to offer sports contracts nationwide, the competitive value of possessing a state sportsbook license changes. It remains valuable—but it no longer necessarily controls access to the underlying consumer demand.

The sportsbook license stops being the gate. It becomes one lane through it.

That is a materially different industry.

The legal fight has produced an unusually clean disagreement.

In April, the Third Circuit affirmed a preliminary injunction preventing New Jersey from enforcing its gambling laws against Kalshi's sports event contracts. The court concluded that the contracts fit within the Commodity Exchange Act's definition of a “swap” because their outcomes were associated with potential financial, economic or commercial consequences. Because swaps traded on a CFTC-designated contract market fall within the agency's exclusive jurisdiction, the court held that Kalshi had demonstrated a reasonable likelihood that federal law preempted New Jersey's competing regulation.

That was not a final merits judgment declaring every sports prediction contract lawful nationwide. It was an appellate decision concerning preliminary relief. But its reasoning, if ultimately adopted more broadly, provides the legal architecture for a federal sports-event-contract market.

The Ninth Circuit went the other way.

In August, reviewing Kalshi's fight with Nevada regulators, the court concluded that sports event contracts were likely not “swaps” within the meaning of the Commodity Exchange Act. Reading the statute in context, the court rejected an interpretation broad enough to transform ordinary sports outcomes into federally regulated swaps merely because sports have downstream economic consequences. It also invoked major-questions concerns with reading the Commodity Exchange Act as quietly transferring nationwide authority over sports wagering to the CFTC.

So the same basic product now sits inside two competing legal descriptions.

In one circuit, it is a federally regulated derivative over which state gambling regulation is likely preempted.

In another, it is essentially a sports bet that never became a swap in the first place.

That is not a technical disagreement at the margins. It is a disagreement over which sovereign gets to draw the map.

And the map is the business model.

The CFTC itself is now trying to impose structure on this rapidly developing market.

Its June 2026 proposal would define “gaming” as an activity that participants typically engage in for recreation or entertainment, that operates under rules, and that produces measurable outcomes depending on luck, skill or athletic ability.

Sports rather obviously fit that description.

But that does not mean the proposal would automatically ban every sports contract.

Instead, the agency has proposed a contract-specific framework under Commodity Exchange Act Section 5c(c)(5)(C). Contracts involving gaming would enter a public-interest analysis, with the Commission considering factors including market integrity, manipulation, information leakage, consumer protection and the usefulness of the contract for price discovery or risk management. The proposal also contemplates a 90-day review process.

That distinction matters.

The central legal question is not simply whether sports constitute “gaming.” The more consequential questions are what follows from that classification, which contracts the CFTC may permit, and whether state gambling laws can independently prohibit the same transaction.

The agency is effectively trying to build a regulatory grammar for an industry that developed faster than its existing vocabulary.

And even a favorable CFTC regime would not eliminate every obstacle.

On September 16, the Ninth Circuit handed tribes an important victory in Blue Lake Rancheria v. Kalshi. The court held that two California tribes were likely to succeed on their argument that sports event contracts accessed from tribal lands constituted Class III gaming under the Indian Gaming Regulatory Act and violated applicable tribal gaming rules. The court remanded for consideration of the remaining preliminary-injunction factors. It did not finally outlaw Kalshi nationwide, but it demonstrated that even a successful federal commodities theory does not necessarily erase separate federal tribal-gaming law.

The prediction-market legal map may therefore never become perfectly national.

It may simply become much less state-centric.

That is why the incumbent response is so revealing.

DraftKings and FanDuel do not actually need prediction markets to destroy sportsbooks.

They need prediction markets to expand the places where their customer-acquisition machines can operate.

Consider the strategic optionality.

In a state with mature online sports betting, an incumbent can continue running its sportsbook: deep props, same-game parlays, promotions, loyalty programs, casino cross-sell where permitted and years of accumulated customer behavior.

In a state without online sports betting, it can potentially offer event contracts through the federal framework.

If the state later legalizes conventional sports betting, the operator may already have the customer.

FanDuel described essentially that strategy when it launched Predicts: use event contracts to acquire customers before state sports-betting legalization and bring those customers into the broader ecosystem later.

That turns prediction markets from a substitute into an acquisition channel.

It also changes how one should think about the competitive threat from Kalshi, Polymarket, Robinhood and other entrants.

The question is not merely whether a prediction-market startup can take market share from FanDuel.

It is whether FanDuel can take the prediction-market structure, combine it with an enormous customer base, sophisticated sports pricing, a major national brand and an existing wagering interface—and make the distinction between the two categories increasingly irrelevant to consumers.

That is a much harder competitive problem for a startup.

FanDuel's developing market-making business deserves particular attention because it reveals where the economics may be heading.

Traditional sportsbooks make money partly by pricing markets and managing risk. Exchanges need liquidity: someone willing to quote prices and stand ready to trade.

Those are not unrelated competencies.

Flutter says FanDuel's pricing and risk-management capabilities position it to provide liquidity to prediction markets, including more complicated combination products, and expects approximately $50 million in market-making revenue this year.

That raises a second-order possibility that is easy to miss.

The future sportsbook may make money even when the customer is not betting at its sportsbook.

An incumbent could theoretically own the consumer relationship on one product, provide pricing or liquidity infrastructure to another, distribute contracts from multiple exchanges, cross-sell other entertainment products and route customers among regulatory regimes depending on geography.

DraftKings is already pursuing a multi-exchange strategy rather than tying Predictions exclusively to one venue.

The business starts looking less like a bookmaker and more like a financial-services platform built around sports.

The valuable assets become customer distribution, pricing, data, liquidity, payments, identity, compliance technology and interface design.

The wager itself is merely one transaction flowing through that stack.

The state-regulated sports-betting system is not merely a consumer-protection regime. It is a fiscal system.

State-regulated sportsbooks generated roughly $16.96 billion in revenue during 2025 and approximately $3.71 billion in state taxes, according to American Gaming Association data compiled from state regulators.

That money exists because states control lawful market access and can charge operators for it through taxes, licensing fees and regulatory obligations.

A successful federal event-contract model weakens that bargaining position.

California and Texas illustrate the stakes. Both represent enormous sports markets without conventional statewide mobile sports betting. If consumers can nonetheless obtain sports-outcome exposure through federally regulated contracts, the traditional political question—Should this state legalize sports betting?—quietly changes.

The consumer market may already exist.

The remaining political question becomes who gets to regulate and tax it.

That is a much less comfortable starting point for state governments.

It also creates an awkward incentive for incumbent sportsbooks. DraftKings and FanDuel have spent years helping build, defend and operate within state regulatory systems. Yet if prediction markets become commercially meaningful, they have a fiduciary and competitive incentive to exploit the federal pathway themselves.

They may simultaneously argue that state-regulated sportsbooks remain the superior consumer-protection model while operating prediction-market products wherever the alternative is available.

That is not hypocrisy so much as regulatory arbitrage becoming corporate strategy.

Companies compete under the rules that exist, not the rules their old business model would prefer.

There remains a strong counterargument.

A sportsbook is not simply an exchange with different paperwork.

Modern sportsbooks have spent years optimizing parlay construction, live betting, personalization, promotions and frictionless mobile interfaces. Exchange liquidity can fragment. Thin markets can produce poor pricing. Transaction fees are visible in ways sportsbook hold often is not. Financial-market regulation also brings its own compliance burdens.

And courts may ultimately conclude that sports-event contracts cannot be used as an interstate bypass around state gambling law.

Those are serious limitations.

But product convergence is already eroding the easy distinctions.

The CFTC's public database includes sports contracts covering moneylines, point spreads, totals, player statistics, futures and multi-event combinations. FanDuel has added player props and customizable combination contracts to Predicts.

Once a consumer can construct increasingly sportsbook-like positions inside a prediction-market interface, legal categorization and consumer perception begin moving in opposite directions.

The lawyer sees a swap.

The regulator sees a wager.

The consumer sees Sunday's game.

That tension is not going away because someone writes a better disclosure.

Prediction markets also threaten to broaden the competitive field far beyond gambling companies.

A sportsbook historically competed against other sportsbooks.

An event-contract platform can compete against—or be distributed through—brokerages, crypto apps, exchanges and financial platforms whose customers already keep money on account.

That changes customer-acquisition economics.

A person who would never download a dedicated sportsbook may already have Robinhood or another financial application. Conversely, DraftKings may use sports to persuade customers to trade contracts on politics, economics, entertainment or financial events.

The contest therefore becomes larger than “who has the best NFL lines?”

It becomes:

Who owns the account from which a consumer expresses a paid opinion about the future?

That is a much bigger addressable market—and a much broader competitive set.

DraftKings has already described Predictions as part of a larger growth opportunity rather than a niche sports product, while its current platform carries markets ranging from sports to economics, politics, culture and crypto.

Once that happens, sports wagering becomes one use case inside a larger event-trading ecosystem.

That is precisely how a sportsbook becomes something else.

Three developments matter more than the latest weekly market-share number.

First, watch the courts.

The split between the Third and Ninth Circuits goes directly to whether sports event contracts are swaps and whether the Commodity Exchange Act displaces state gambling regulation. Additional appellate decisions could either reduce that conflict or deepen it. A durable circuit split over an economically significant national market is difficult to leave unresolved indefinitely.

Second, watch the CFTC.

Its final treatment of sports under Regulation 40.11 could determine not merely which contracts survive, but how aggressively exchanges can innovate around props, combinations, in-game markets and other products that increasingly resemble a conventional sportsbook menu.

Third, watch what DraftKings and FanDuel build rather than what they say.

The most revealing signals will be whether prediction products are integrated into common accounts and loyalty systems; whether operators expand market-making; whether liquidity becomes concentrated among a few sophisticated providers; whether sportsbook pricing technology migrates into event contracts; and whether operators begin treating state gaming and federal derivatives regulation as interchangeable rails beneath one consumer interface.

That architecture would make the legal distinction almost invisible to customers while making it enormously important to regulators.

Which is usually where the most interesting fights begin.

Prediction markets do not need to replace sportsbooks to transform sports betting.

They only need to establish that a sportsbook license is no longer the exclusive route to a sports-wagering customer.

If that happens, DraftKings and FanDuel are unusually well positioned to adapt. They already possess the brands, customers, technology, pricing expertise and marketing infrastructure required to compete across both systems. The evidence suggests they have figured that out.

The deeper disruption falls elsewhere.

States built sports-betting regimes around the premise that they controlled market access. Prediction markets challenge that premise. Exchanges turn gambling questions into derivatives questions. Market making turns sportsbook expertise into financial-market infrastructure. And national distribution weakens the geographic scarcity that gave individual licenses so much economic value.

So if prediction markets ultimately win their legal fight, the sportsbook probably does not disappear.

It becomes one tab.

And the companies once defined by taking bets become something much larger: platforms competing to own the market for putting money behind an opinion about what happens next.

The irony is that prediction markets may pose an existential threat to the traditional sportsbook model without posing an existential threat to the companies that dominate it.

DraftKings and FanDuel may be among the biggest winners.

The system that made them dominant is what may have to become something else.