The rise of prediction markets has sparked concerns among investors in the sports betting industry, yet new research indicates these platforms may not significantly disrupt traditional sportsbooks. According to a report from Citizens Equity Research, approximately 5% of legal US sports betting volume, equating to roughly $8 billion annually, has transitioned to event-trading platforms. While this shift is notable, it is not expected to alter the financial outlook for major operators.
The report reveals that while there is a tangible movement of betting activity towards prediction markets, it remains limited. Research conducted by the Juice Reel aggregator, which analyzed over a million linked user transactions, found that bettors tend to increase their overall spending despite reallocating some funds to event-trading platforms. Specifically, users reduced their regular gambling budgets by about 11% after engaging with prediction markets, while their total combined betting activity across all types increased by around 9%. This suggests that prediction markets are drawing in new participants rather than merely siphoning off existing customers.
In comments made by Jordan Bender, a leading analyst at Citizens, the sentiment among investors has been overly pessimistic. He pointed out that the significant drop in stock prices in 2025 far exceeded the actual impact of market share losses. For large companies such as DraftKings, FanDuel, and Fanatics, the shift to prediction markets poses minimal financial risk. These firms not only dominate more than 75% of the legal betting market in the US, but they also operate their own prediction platforms, allowing them to recapture users who may stray.
Challenges for Traditional Operators
Conversely, companies without similar online offerings may face greater challenges. Traditional brick-and-mortar establishments, such as Caesars, MGM’s BetMGM, Penn Entertainment, and Rush Street, risk losing customers to online markets. Analysts suggest these companies have been hesitant to develop their own prediction platforms due to concerns that online betting could negatively impact their physical casino revenues.
A significant contributor to the recent upswing in prediction markets is Kalshi, which saw its monthly event-contract volume surpass $6 billion in November and December, primarily driven by heightened interest in football and aggressive marketing strategies. Despite this surge, experts note that the growth has begun to plateau, raising questions about the sustainability of such rapid expansion.
Another critical aspect of the study addresses the financial wellness of users engaged in prediction markets. Findings indicate that new users tend to lose money at a faster rate on these platforms compared to traditional sports betting applications. The average trade on prediction markets exceeds $180, significantly higher than average sports bets. Furthermore, more experienced traders are outperforming casual users, leading to a higher exit rate among less successful participants.
Overall, while the prediction market sector is experiencing rapid growth, analysts maintain that its current impact on sportsbook finances is modest. As Bender noted, the situation mirrors the industry’s revenue declines resulting from an unprofitable Monday night football game, underscoring the need for continued observation as the landscape evolves.
