DraftKings is reportedly in talks with Railbird, a federally regulated prediction market platform that would allow the sportsbook to enter the futures prediction market, which has been offering contracts on sporting events since earlier this year.
DraftKings Expanding Its Footprint
There is an old saying, “If you can’t beat ‘em, join ‘em.” That could be the tactic that Boston-based DraftKings is taking after the futures prediction market platforms have entered the sports betting industry. Firms like Kalshi were known as financial instruments to purchase commodities like gold, silver, or pork bellies, to name a few.
Prediction Markets Expand Into Politics
However, these companies began to branch out into political races, something sportsbooks are prohibited from doing, and the action was decidedly on Donald Trump defeating Kamala Harris, which was stunning because all the major polls had the former vice president well in front.
However, when the votes were counted, Donald Trump won in a landslide, and the futures market platforms were lauded by President Trump for being the only prescient voice amongst all others that were anticipating a Harris victory.
Since that time, the commodities companies have migrated to the world of sporting events contracts, starting right around the Super Bowl. The legal challenges these companies have faced have been mitigated by their governing body, the U.S. Commodity Futures Trading Commission, taking a laissez-faire approach to them superseding state regulatory bodies.
DraftKings Pulled Back from Predict Market
DraftKings had appeared to be ready to dip its toes in the prediction market with its DraftKings Predict, but abruptly pulled its application for federal licensing last April. Speculation is that having its name associated with an industry that has drawn the ire of the same regulators who govern sportsbooks may not have been the best idea.
However, now reports are that DraftKings is considering buying a company with a different name to enter the competing futures market. This has not been confirmed by the company, but a spokesperson did say the following when asked about the possibility:
“DraftKings speaks to a variety of companies regarding various matters in the normal course of business, and it is our general policy not to comment on the specifics of any of those discussions.”
Competition Overlap
Mobile sportsbooks are regulated by a state agency or gaming board that has jurisdiction over the online gaming platforms that are licensed to operate in their state. These are traditional bookmakers that offer lines, odds, totals, prop bets, and other forms of wagers in a variety of markets. Once the bet is placed, the lines or odds on the wager are locked in.
However, prediction markets work similarly but offer contracts on sporting events that can fluctuate depending on the score. If the score of a game is favorable, that contract will be worth more than its purchase price; likewise, it will be less if the score is unfavorable.
But more importantly, prediction market platforms are not regulated by state agencies but are instead governed by the U.S. Commodity Futures Trading Commission to operate as a Designated Contract Market (DCM).
Federal Regulation Allows Access to All 50 States
This means that these DCMs, or prediction market platforms, are free to operate in all 50 US states, including those where mobile or retail sports betting has not been launched. Texas and California are the two most heavily populated states, yet neither has launched a sports betting industry, much to the chagrin of the mobile sportsbooks.
Sports betting regulators have sent cease-and-desist letters to the prediction market platforms and have taken them to court. However, prediction market companies like Kalshi have scored early legal victories and continue to operate with impunity in all U.S. markets. Yet, more legal action is on the way, and this story is far from finished.
What’s Next?
Prediction markets have carved out a regulatory edge by operating under federal law, giving them access to all 50 states. Now, with DraftKings reportedly looking to enter that space through Railbird, the line between traditional sportsbooks and futures markets may soon blur. As legal battles continue, all eyes will be on how state regulators -and DraftKings- respond in the months ahead.
