DraftKings Scrambles to Enter Prediction Markets as Pressure Mounts

Can a new prediction market offering and a deal with ESPN right the ship for DraftKings?

It must be said, even the hardiest of DraftKings (NASDAQ: DKNG) investors must be feeling the pressure as the online sports betting giant’s share price continues to nosedive into November.

The catalyst behind the downfall? The release of its controversial rival, prediction market Kalshi’s, monumental first weekend of NFL event contract trades in late September, which has seen DKNG’s stock tumbling ever since. The stock is down 19.38% in the last 30 days alone.

DraftKings is certainly not alone, as the impact of Kalshi’s historic NFL weekend – which saw over $275 million traded in a single day – has almost instantaneously siphoned off a core section of all the major players’ sportsbook verticals. 

Confirmation indeed, if it was needed, that U.S. sports bettors would be compelled to switch to the low-fee, CFTC-regulated prediction platform, in favor of the margin-heavy sportsbooks.

As a result, DraftKings, Caesars (NASDAQ: CZR), and FanDuel (NYSE: FLUT) bore the brunt of the sportsbook selloffs since the end of September. However, while FanDuel sought to preempt this catastrophe by partnering with derivatives platform CME Group (NASDAQ: CME) in the summer. DraftKings, meanwhile, was left exposed… until now.

Sportsbooks’ Performances Since Kalshi’s NFL Event Contracts Launch

DraftKings fast-tracks its Railbird acquisition

Of course, DraftKings entering the prediction market sector has been on the cards for a while now, with the strongest hint coming from CEO Jason Robins, who intimated of a possible diversification during the firm’s Q2 earnings call in August. 

However, Kalshi’s devastating insurgency has accelerated the need to fast-track the concept of launching its own event contracts exchange since then.

Perhaps earlier than planned, the likely consequence of the external pressure led to DraftKings announcing last week that plans were in motion to acquire Railbird. While obtaining a readymade CFTC-regulated prediction market platform, albeit tiny in comparison, analysts agree it’s a clear indication that DKNG’s board is under pressure to implement emergency countermeasures.

Nonetheless, how quickly they can do this is uncertain, and there is a hint of irony with Polymarket creating a market on this very question, asking: “Will DraftKings launch a prediction market in 2025?” 

While the move seems almost inevitable, with current trading sitting at around 41% “Yes”, it perhaps reflects the overall skepticism that a fully operational product is unlikely to be live before year-end.

Speed is of the essence as sports bettors flock to Kalshi 

Undoubtedly, when DraftKings announced its 37% revenue surge in its Q2 earnings in August, everything appeared to be rosy – but the disruptive nature of prediction markets has changed all that, and August seems like a long time ago now. 

The core challenge for DraftKings, as with any traditional sports betting operator, is that the sportsbook model relies on its lucrative vig and parlay margins. 

Prediction markets on the other hand operate solely on low transaction fees, so with the sportsbooks’ margins taken out, event contracts could become the preferred way to wager, particularly in states such as California and Texas, where the likes of Kalshi can operate, but DKNG’s cannot.

In the meantime however, DraftKings is taking steps to shore up its existing portfolio, having just agreed a deal with Disney-owned ESPN to serve as its exclusive sportsbook and odds partner. This comes on the same day rival sportsbook Penn Entertainment ditched its $2 billion ESPN Bet deal after failing to gain traction, pivoting to TheScore Bet as its new sportsbook brand instead.

For existing DraftKings investors, the true litmus test will be not only how quickly they can roll out a prediction market product, but whether its brand-name standing can successfully lure punters back from the more established platforms.