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Read Full BioFanDuel, the largest sports betting operator in the US, is reportedly exploring entry into the prediction market space by forming a strategic partnership with Kalshi, an established prediction market company, in a move that could signal a significant shift in the US sports betting landscape.
The timing of the reported discussion is noteworthy. About a month ago, FanDuel’s parent company, Flutter Entertainment, acknowledged that the company is keeping an eye on prediction markets.
During the company’s Q1 Earnings Call, Peter Jackson, Flutter CEO, said the company is evaluating the potential of prediction markets.
At the time, Jackson noted that prediction markets do offer opportunities, but they can’t match the excitement of parlays, which are the most popular type of bet. Still, he added that the company is exploring options.
Last year, Kalshi won a legal battle against the US Commodity Futures Trading Commission (CFTC), which allowed it to offer election prediction markets. Shortly after the beginning of the year, the platform also introduced sports event predictions.
These prediction types are available to users in all 50 states. While multiple state gambling regulators have raised concerns and threatened Kalshi, the platform has continued to grow its sports event prediction offerings.
Prediction Market Product Could Increase FanDuel Sports Betting Presence
A potential partnership could benefit both parties.
For FanDuel, the deal can enable it to operate in all 50 states. That includes entering markets such as the nation’s largest states — California, Texas, and Florida — where sports betting remains prohibited (or restricted to one platform in Florida’s case).
Additionally, Kalshi is regulated at the federal level by the CFTC, which would allow FanDuel to bypass state regulations and access over 20 new markets for sports betting without additional licensing hurdles.
Partnering with Kalshi would help FanDuel alleviate state tax burdens, especially in states with high tax rates. A partnership could allow the operator to avoid measures such as the recently announced 50-cent surcharge in Illinois. It could move users in those states to federally regulated sports event contracts.
In addition to financial and expansion benefits, Kalshi’s unique markets, such as elections and pop culture events, could open the door for FanDuel to tap into new verticals that are currently not allowed under existing gambling laws. FanDuel still has a significant DFS presence which following the repeal of PASPA has been translated into sports betting dominance.
Adding prediction markets as a sports betting ‘lite’ product could further solidify the company’s front runner position in the United States.
Liquidity Issues Could Disappear
Kalshi stands to benefit from a FanDuel partnership significantly. A deal would give the platform access to FanDuel’s over 12 million active users.
That could help Kalshi boost liquidity across its markets. The influx of new users could raise the volume of markets, making them more efficient and engaging to everyday traders. The access to new users could also help Kalshi become a household name much faster than it would on its own.
The event prediction platform could also greatly benefit from FanDuel’s top-rated front-end user experience, as well as other technological advancements, such as payments and compliance infrastructure technology. However, it is unknown
These new capabilities could further help accelerate Kalshi’s growth and product innovation. That includes potentially features like parlay-style event predictions.
Legal Risks Loom Over the Opportunity
Despite the potential of a Kalshi-FanDuel partnership, any deal hinges on Kalshi prevailing in its legal battles with state regulators.
Not long after the platform began offering sports event picks, state gambling regulators began questioning whether this was legal. That was followed by several cease-and-desist orders by states such as New Jersey, Maryland, Nevada, Ohio, Arizona, and Montana.
Kalshi responded by suing the regulators of New Jersey, Nevada, and Maryland. The company has already scored early wins with federal courts blocking the cease-and-desist orders in New Jersey and Nevada.
At the federal level, the CFTC, which oversees Kalshi, is currently vetting a new chair. The nominee, Brian Quintenz, currently sits on the Kalshi board. However, he has stated he will resign and recuse himself if confirmed.
While Quintenz has pledged to recuse himself from matters related to the company, he recently indicated that prediction markets, including those related to sports, fall under federal jurisdiction under the Commodity Exchange Act. That’s unless Congress or the courts decide otherwise.
One case that could clarify the picture is the one in Maryland. The federal judge scrutinized Kalshi for conflicting positions regarding sports event predictions.
While the company now claims that these predictions fall under CFTC authority, it previously asserted the opposite in a case against the CFTC. If the judge rules against Kalshi through measures such as judicial estoppel, it could represent a breakthrough for state regulators.
However, amid regulatory uncertainty, a potential partnership between Kalshi and FanDuel could signal a trend in the industry of the convergence of sports betting and prediction markets.
