Sports betting has a new competitor, and it comes from Wall Street. Prediction markets are attracting billions of contracts as brokerage platforms and derivatives exchanges move into territory traditionally dominated by sportsbooks.
Five companies are positioning themselves for a battle that could reshape how Americans trade, speculate, and wager on real-world events.
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Theme: Prediction Markets, Sports Betting, Event Contracts, Financial Exchanges, and Digital Gaming
A New Way to Bet on Almost Anything
Traditional sportsbooks make money by setting odds and accepting wagers. Prediction markets operate differently, allowing customers to trade contracts tied to the outcomes of real-world events.
A contract priced at $0.65, for example, might pay $1 if the predicted outcome occurs and nothing if it doesn't. Customers can also sell their contracts before the event concludes.
The model is gaining traction quickly.
Robinhood's third-quarter event-contract volume reached 16.4 billion contracts, more than seven times the previous year's level. That activity generated $173 million in revenue, up 541%.
These figures represent contracts traded and transaction revenue, not traditional sportsbook wagering volume.
But the implications are enormous.
Brokerage platforms can now compete for customers interested in sports, politics, economics, and other events, potentially reaching audiences that traditional gambling companies cannot.
And the sportsbooks are fighting back.
What's Driving It
DraftKings Builds Its Own Exchange
DraftKings launched its proprietary prediction-market exchange, DKeX, in June, integrating event contracts directly into its existing sports betting application.
At launch, its prediction platform was generating approximately $3.4 billion in annualized consumer volume.
That's an important strategic shift. Rather than simply competing against prediction markets, DraftKings wants to own the infrastructure powering them.
Its established customer base, technology, and sports expertise provide advantages, but the company is entering a market where brokerage platforms already have considerable momentum.
DraftKings reports third-quarter results Thursday after the close, giving investors another opportunity to assess its progress.
Regulators Could Decide the Winners
The Commodity Futures Trading Commission proposed new rules in October that would explicitly classify certain event contracts, including sports-related contracts, as financial swaps.
The proposal remains open for public comment until November 18.
Meanwhile, state gambling regulators continue challenging prediction-market operators, arguing that some contracts effectively constitute sports betting.
The distinction matters because federally regulated exchanges and state-licensed sportsbooks operate under different requirements.
A favorable regulatory outcome could accelerate prediction-market adoption. An unfavorable one could substantially limit the industry's growth.
The Chain Reaction
Prediction markets attract new customers → trading volumes increase → sportsbooks launch competing products → customer-acquisition spending rises → exchanges and platforms capture additional revenue → regulatory decisions reshape the competitive landscape
The risk is that expanding trading activity fails to generate sustainable profits.
What's Working
FanDuel Is Joining the Fight
Flutter Entertainment's FanDuel Predicts platform is expanding through partnerships with CME Group and Crypto.com.
Its third-quarter prediction-market volume reached $119 million, more than doubling from Q2, while average monthly players increased 39% to 66,000.
Revenue remains immaterial, but the platform's growth demonstrates that traditional sportsbooks are gaining traction.
Flutter's broader financial results also illustrate the cost of expansion. Third-quarter U.S. adjusted EBITDA fell 94% to just $3 million, partly reflecting prediction-market investment.
Exchanges Have an Advantage
CME Group provides another approach through its established derivatives infrastructure.
Third-quarter revenue reached $1.7 billion, supported by record third-quarter average daily volume of 29.4 million contracts.
Prediction markets remain a small part of its business, but CME already possesses the technology, clearing infrastructure, and regulatory experience needed to support event-based trading.
What to Watch
The biggest question is whether prediction markets create new spending or simply redirect customers away from sportsbooks.
Watch transaction fees, trading volume, customer-acquisition costs, and regulatory developments.
DraftKings' Thursday results should provide additional insight, particularly around its DKeX platform and spending on prediction-market expansion.
The strongest signal would be accelerating adoption accompanied by improving profitability
DraftKings (DKNG)
What it does: Operates online sportsbooks, digital casinos, fantasy sports, and prediction-market platforms.
Why it fits: Combines established sports betting operations with its proprietary DKeX exchange.
What stands out: Its prediction platform reached approximately $3.4 billion in annualized consumer volume in June.
The Takeaway: Buy this if you want an established sportsbook expanding aggressively into prediction markets.
The risk is rising customer-acquisition costs and regulatory uncertainty.
Flutter Entertainment (FLUT)
What it does: Operates FanDuel and other global sports betting and gaming businesses.
Why it fits: Its customer base and trading expertise provide a foundation for competing in event contracts.
What stands out: FanDuel Predicts' Q3 volume reached $119 million, although revenue remains immaterial.
The Takeaway: Buy this if you want diversified gaming exposure with an emerging prediction-market opportunity.
The risk is continued investment spending and pressure on profitability.
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Robinhood Markets (HOOD)
What it does: Operates a digital brokerage offering stocks, options, cryptocurrencies, and event-contract trading.
Why it fits: Prediction markets create additional opportunities to generate revenue from its existing customers.
What stands out: Q3 event-contract revenue increased 541% to $173 million, with 16.4 billion contracts traded.
The Takeaway: Buy this if you want direct exposure to rapidly expanding prediction-market activity.
The risk is regulatory intervention and volatile trading revenue.
CME Group (CME)
What it does: Operates derivatives exchanges and clearing infrastructure across major financial and commodity markets.
Why it fits: Its technology and FanDuel partnership provide exposure to financial event contracts.
What stands out: Q3 revenue reached $1.7 billion, supported by record third-quarter trading activity.
The Takeaway: Buy this if you want established exchange infrastructure with prediction markets offering additional upside.
The risk is limited near-term contribution from prediction markets.
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PENN Entertainment (PENN)
What it does: Operates regional casinos and digital gaming platforms, including theScore Bet.
Why it fits: Its sportsbook business faces increasing competition as prediction platforms attract customers.
What stands out: Q2 Interactive revenue reached $349 million, but adjusted EBITDA remained negative at $9.5 million.
The Takeaway: Buy this only if you want a higher-risk gaming recovery play.
The risk is sustained digital losses and competitive pressure.
The Betting Business Is Changing
Prediction markets are creating a new competitive landscape where financial exchanges and sportsbooks increasingly offer similar products.
Robinhood is already generating meaningful revenue, DraftKings and Flutter are investing aggressively, CME supplies infrastructure, and PENN faces tougher competition.
The opportunity extends beyond sports betting into an entirely new category of financial activity.
The biggest winner won't necessarily be the platform attracting the most contracts. It'll be the one turning that activity into sustainable profits.
Best Regards,
— Adam Garcia
Elite Trade Club
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