Prediction market growth is having an irrational impact on sportsbook stocks, with only modest betting handle cannibalization, an analyst says.
Photo By – Reuters. U.S. dollar banknote and rising stock graph are seen in this illustration taken April 25, 2025. REUTERS/Dado Ruvic/Illustration
The decline in sportsbook operator stock attributed to prediction market expansion is slightly more than previously anticipated, according to an analyst note released Wednesday.
Key Takeaways
- An analyst says prediction market cannibalization of sportsbooks is real but overstated, with only mid-single-digit handle impact.
- Data suggests prediction markets partially shift spending while expanding overall gambling wallets rather than shrinking them.
- Major operators like DraftKings and FanDuel can offset losses, while retail-heavy sportsbooks face greater risk.
The growth of prediction markets such as Kalshi across all 50 states has led to a 5% decline in legal sportsbooks’ betting handle, wrote Jordan Bender, a Citizens senior equity research analyst, in a note dated Wednesday. Though the cannibalization rate from sportsbooks to prediction markets was higher than originally projected, Bender wrote that it was “by no means a downside catalyst for stocks.”
“The impact that bears have ascribed to the prediction market industry is currently proving to be overblown,” Bender wrote, “with mid-single-digit cannibalization of the legal sports betting industry representing less of an equity impact compared to the negative value ascribed to shares in (the second half of 2025).”
The information came from one million transactions on Juice Reel, a third-party platform that allows users to sync betting activity across sportsbook apps.
More details
The Juice Reel analysis found that median wallet size across all forms of gambling declined 11% in the 90 days following a user’s initial event contract placed on a prediction market. However, the “total wallet” increased 9% during that time, implying a partial substitution while increasing the size of the “gambling pie,” Bender wrote.
When considering Juice Reel users’ gambling spend against prediction market trader volume, the analysis found the overall impact was a mid single-digit decline in sportsbooks’ betting handle. Legal sportsbooks are projected to eclipse $150 billion in 2025 total bets, meaning a loss of around $8 billion in annualized handle, per Citizens’ findings.
From a stock perspective, Bender wrote this has a negligible impact on FanDuel, DraftKings, and Fanatics – the three major regulated U.S. sportsbook operators to launch prediction markets. Bender projected the companies, which make up more than 75% of U.S. betting handle, can mostly offset any sports betting losses with their respective prediction market platforms.
More from Citizens analyst note on Prediction Market – Sportsbook canibalization:
– Estimate roughly 5% of legal sports betting handle is going to PMs, or roughly $8 billion of annualized handle
– Loss has negligible impact on DraftKings, FanDuel and Fanatics’ bottom lines,…— Ryan Butler (@ButlerBets) January 7, 2026
DraftKings and FanDuel parent Flutter Entertainment saw their stocks drop 7% and 18%, respectively, in 2025 compared to double-digit gains for most major U.S. stock indices. Fanatics is not publicly traded.
All three companies launched their respective prediction market platforms in December 2025. Kalshi started accepting sports event contracts in February of last year.
Prediction market growth could be more detrimental to mobile sportsbook operators with significant brick-and-mortar assets that have so far resisted launching prediction markets over fears this could hurt their retail gaming operations, Bender wrote. This includes Caesars, MGM (BetMGM), PENN Entertainment (theScore Bet) and Rush Street (BetRivers).
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Potential prediction market high point
Bender also cautioned the current cannibalization level could be at “an interesting inflection point.”
Kalshi, the nation’s leading prediction market by volume, generated more than $6 billion in event contract volume in both November and December, compared to less than $1 billion in August. Sports event contracts constitute as much as 90% of the major prediction markets’ volume, per Citizens, with most of that coming from football.
The football-fueled growth came as Kalshi ramped up external marketing across traditional advertising channels in 2025’s fourth quarter and struck several high-profile partnerships with trading platforms Robinhood and Webull as well as legacy media outlets CNN and CNBC. That still only generated a 3% month-over-month growth in trading volume from November to December, representing the company’s lowest difference between volume and seasonality growth since April 2025.
This, Bender wrote, raises the question about customer churn rates. The stalled growth could mean the industry has reached “peak” cannibalization of sportsbooks, or it could indicate customers are substituting funds to the growing number of new U.S. prediction market operators.
This churn is also fueled by lopsided gains from the most profitable traders against recreational users, the analysis found. The percentage of funds lost from prediction market traders has significantly exceeded that from sports bettors.
“Prediction markets are creating worse losses for the worst users, while more educated bettors are winning more,” Bender wrote.