Prediction Markets: DraftKings finds federal route around state bans

DraftKings (Boston) has found a way to put a legal gambling product in the palm of nearly every adult hand in the US. Rather than secure new licenses for sports betting, it is combining its services with a federally regulated alternative that sidesteps state law.

The company announced a “Super App” at its latest Virtual Investor Day, on March 2. Called DraftKings Sports & Casino, this app unifies its sportsbook, its online casino, its lottery courier service, Jackpocket, and its newest vertical, DraftKings Predictions, into a single account and wallet. The app will be going live in a first phase in time for March Madness, the NCAA college basketball tournament (March 17 to April 6).

According to company management, prediction markets will be worth $55 to $80 billion in total gross revenue by 2030 – with DraftKings itself, in the long term, pulling in an annual $10 billion for its own predictions vertical.

Its present-day revenue in prediction markets is negligible. Total company revenues for FY 2025 amounted to $6 billion, up 27 percent year-on-year. The sportsbook and iGaming make up about 93 percent (about $5.6bn) of that total, although their respective shares of the business are unclear. We catch a glimpse from Q4, whose total revenues were $1.99 billion (up 43%), with the sportsbook contributing $1.35 billion (up 63.8%) and iGaming a record $500 million. That split is about three-quarters to one-quarter.

Present geographic coverage

Ontario aside, DraftKings operates solely in the US, where sportsbooks must secure their licenses state by state. Each state sets its own tax rates on gross gaming revenue and decides what markets, if any, a book may offer. DraftKings holds sportsbook licenses for 29 US states as well as for Washington D.C., Puerto Rico and the aforementioned Ontario. That excludes roughly half of the US, and among the absentees are the massive states of California, Texas and Florida – with respective populations of about 40, 30 and 22 million.

The predictions distinction

Prediction markets are a different animal. They issue contracts on the results of real-world events. In other words, they issue futures, and futures fall under the federal (i.e., nationwide) purview of the US Commodity Futures Trading Commission (CFTC). Prediction markets require no state licenses.

Unlike its sportsbook, DraftKings’ Predictions is a CFTC-regulated product, available in all 50 US states. It went live in December 2025. DraftKings can offer its customers a proper sportsbook wherever it is so licensed, but now it can offer an alternative everywhere else in the US. This adds about 126 million adults to its total potential customers.

There is some nuance to this picture. For instance, sports betting is legal in Nevada, but DraftKings happens not to be licensed there.

New revenue, high net

Anyhow, the boon for DraftKings promises to be great, because prediction markets eliminate more than the need for licenses. They eliminate also the material cost of state gaming taxes. Margins, then, should run 10 to 30 percent higher on this business line.

As CEO and co-founder Jason D. Robins writes in the company’s latest letter to shareholders, “Predictions is the most exciting new growth opportunity we have seen since PASPA [the Professional and Amateur Sports Protection Act, a nationwide ban on state-authorized sports betting] was struck down in 2018.”

Bettors will see less of a difference. Winnings from sportsbooks and prediction markets alike are taxable as ordinary income under US federal law, at a standard withholding rate of 24 percent on large payouts.

Effects of the Railbird acquisition

DraftKings has been operating its predictions vertical as an introducing broker, routing customer trades through the exchanges of CME Group and Crypto.com, each of which charges a fee. But last October DraftKings acquired an exchange of its own, Railbird, for a reported $50 million up front and perhaps another $200 million in incentives (Front Office Sports). This is one of several blocks it means to add to its vertical stack. The company hopes soon to become its own market-maker, futures commission merchant and clearinghouse, and thereby complete the stack.

Most sports-betting operators went into business after 2018 (with the striking down of PASPA) and did so by licensing their tech from third-party suppliers. DraftKings went for the vertical from the start, acquiring the tech company SBTech as part of its 2020 stock market flotation and bringing the stack in-house. Lower fees have enabled it to provide different odds from those of its competitors, and margins have improved with increased scale. The predictions vertical seems to be headed down the same path.

The predictions competition

But DraftKings is entering a market with two established players, Kalshi and Polymarket, although comparisons are difficult. Kalshi, privately held, generated an estimated $24 million in revenue on $1.97 billion in trading volume in FY 2024, whereas Polymarket, with its no-fee model, is designed to generate little if any revenue, even if some put its valuation at $9 billion.

Meanwhile, DraftKings’ chief sportsbook rival, FanDuel, runs its own predictions market, FanDuel Predicts, in 18 states, and PrizePicks, the player-props platform in which the European lottery operator Allwyn recently acquired a majority stake, has itself registered with the National Futures Association (NFA) to enter prediction markets.