Prediction Markets Challenge Sports Betting giants, But Bank of America Sees Opportunity
The rise of prediction markets is shaking up the sports betting industry, recently causing billions in lost value for major players like DraftKings and Flutter entertainment (parent company of FanDuel). Though, analysts at Bank of America believe the market’s reaction might potentially be an overcorrection.
Shaun Kelley of Bank of America reiterated his “buy” rating for both DraftKings and Flutter on Monday, despite slightly lowering his price targets to account for the new competitive landscape. He now forecasts DraftKings to reach $48 per share (a potential 37.2% increase from Monday’s closing price) and Flutter to hit $325 (a 26.8% jump).
The recent downturn for DraftKings and Flutter (down roughly 27% and 19% respectively over the past month) is largely attributed to increasing competition from platforms like Kalshi and Polymarket.Polymarket recently secured a notable $2 billion investment from Intercontinental Exchange, the parent company of the New York Stock Exchange, further solidifying its position.
Kalshi is viewed as the most immediate threat, boasting availability in all 50 U.S. states and attracting a younger demographic of sports bettors. The company recently expanded its offerings with the introduction of same-game parlays, directly challenging customary sportsbooks.
While acknowledging Kalshi’s move, Kelley points out that its parlay options currently lack the breadth of those offered by established sportsbooks. He also highlights the substantial potential for growth within prediction markets – estimated at $1.3 trillion in available volume – without necessarily impacting the existing online sports betting (OSB) market.
Looking ahead, Kelley suggests DraftKings and Flutter could even enter the prediction market space themselves, potentially starting in the 21 states where they currently don’t operate. He argues that the significant investments these companies have made in product development, technology, and customer acquisition create a strong competitive advantage.
“Investors are rightly concerned, but the math shows there’s room for prediction markets to grow without hurting existing sportsbooks,” Kelley wrote.He believes the superior product,speed,promotional offerings,and established customer base of traditional sportsbooks will continue to attract core sports bettors in their existing markets.
While prediction markets may offer potentially higher margins, Kalshi benefits from operating under the regulatory framework of the Commodity futures Trading Commission (CFTC), allowing access to states where traditional sports betting is restricted. Kalshi has experienced rapid growth in sports-related betting, with 80% of its volume increase since September 1st driven by sports.
kelley concludes that while short-term challenges remain, the emergence of prediction markets signals the beginning of a larger, evolving market, presenting both risks and opportunities for the industry.
