Rise of Kalshi, Prediction Markets Has Crushed Sportsbook Stocks (DKNG, FLUT)

If you’re a sports fan in any capacity, you’ve noticed the extreme gambling-ification of the space.

Rather than showing highlights, ESPN’s flagship show SportsCenter is now more focused on peppering you with prop bets to make while watching games.

Live broadcasts of games are seeing the same effect. Whether it’s ESPN or Amazon, viewers are inundated with on-screen live betting lines, fantasy projections, and — of course — recommended prop bets.

For many viewers, it’s not about who wins a game anymore. It’s about whether Steph Curry makes more than 4.5 three-pointers.

Considering the rapid rise of mainstream sports-gambling culture, surely the sportsbooks facilitating the betting are crushing it. Right? Well, not quite.

Enter Kalshi, the prediction-market maker that burst onto the scene in late 2024 by offering wagers on election outcomes. In early 2025, around the time of the Super Bowl, it branched out into sports. It seemed small at the time, but it’s swelled into something far more influential. Now, sports account for more than 90% of trading volume on Kalshi.

In retrospect, it was a monumental moment for how people bet on sports, and the way stock investors view sportsbooks.

The chart below shows the relative performance of DraftKings and Flutter Entertainment, which runs FanDuel, since Kalshi’s first push into sports market-making. Since Super Bowl LIX, it’s been a sharp decline for both.

So what, exactly, is going on here? How was an upstart able to so quickly take a bite out of the industry’s biggest players? It can be boiled down to four key differences that many bettors apparently find appealing.

1. Kalshi operates as an exchange. Sportsbooks are the house.

On Kalshi, users trade contracts with each other, and the prices are set by supply and demand. Sportsbooks, meanwhile, set odds themselves, and take the other side of wagers.

2. Kalshi users trade probabilities. Sportsbook users wager against priced odds.

On Kalshi, contracts usually trade between $0 and $1, and settle at $0 or $1. Sportsbooks provide odds with their cut already backed out.

3. Kalshi is regulated by the CFTC. Sportsbooks are regulated at the state level.

As of now, Kalshi can operate nationally under federal law. Sportsbooks have to navigate their universe on a state-by-state basis. Want to gamble on DraftKings in Wisconsin? Tough luck (unless you’re willing to drive to Illinois).

4. Kalshi makes money from fees. Sportsbooks make money winning more than they lose.

Put simply, Kalshi doesn’t care which side wins, while sportsbooks absolutely do.

If there’s a consistent theme here, it’s that Kalshi is more decentralized, and users don’t feel like they’re consistently bleeding money to the house.

Of course, prediction markets have their own set of issues. The lack of regulation makes manipulation easy, if not rife. There’s also the possibility that the ever-evolving CFTC rules could force pauses or even shutdowns of entire markets.

It seems to be a leap of faith bettors are willing to take, at least for now. And it’s coming at the expense of sportsbook shareholders.