DraftKings Prediction Markets Entry Could Differ From FanDuel, Says Analyst
DraftKings Prediction Markets Entry Could Differ From FanDuel, Says Analyst
Table of Contents
- DraftKings’ approach to prediction markets could be different from FanDuel’s, according to analysts.
- Higher costs may be incurred, yet this could yield greater rewards for DraftKings.
As news circulates about Flutter Entertainment’s (NYSE: FLUT) FanDuel partnering with CME Group (NASDAQ: CME) to introduce financial event contracts, industry experts are speculating how DraftKings – FanDuel’s closest competitor – will respond.
In a new report, Jefferies analyst David Katz discusses how DraftKings may react differently to FanDuel’s strategic manoeuvre. He suggests that like FanDuel, DraftKings is likely to proceed “strategically” when venturing into prediction markets.
Katz notes that operators in the US need designated contract market (DCM) and futures commission merchant (FCM) permits from the Consumer Federal Trade Commission (CFTC). FanDuel avoided a potentially drawn-out regulatory process by teaming up with CME, which already holds these approvals.
“Sources within the industry note that Flutter’s partnership with CME Group appears well-planned, as it avoids the cost of acquiring a DCM, leverages CME’s solid reputation, sidesteps legal issues associated with similar firms, and remains under the radar of state gaming regulators regarding sports contracts,” notes Katz.
DraftKings May Take an Alternative Approach
It is posited that DraftKings might adopt a different methodology for entering the prediction markets, as it has been reported that the company has sought filings with the National Futures Association (NFA). Such filings suggest it could pursue DCM and FCM permits independently, although this approach comes with both perks and drawbacks.
Katz states: “We note that DKNG’s attempt to secure DCM and FCM licenses might be a costlier route compared to Flutter’s choice. Nonetheless, it would enable DraftKings to retain more of the platform’s economic benefits.”
Additionally, DraftKings may consider acquisitions as a pathway into the prediction markets sub-sector. Recent reports indicated that discussions occurred regarding a potential acquisition of Railbird, a privately held prediction market firm holding a DCM license. However, no advancements have emerged from these discussions as of yet.
DraftKings has a track record of leveraging acquisitions to enter new markets, evidenced by its purchases of companies like Jackpocket and Simplebet.
Importance of Prediction Markets and Potential Risks
With companies like Kalshi and Polymarket capitalizing on football season for more sporting event contracts, traditional sportsbooks may find themselves compelled to join the prediction markets fray. Katz remarks that it is a compelling space, yet it does not fundamentally alter the overarching investment outlook for firms such as DraftKings and Flutter.
- Key considerations for sportsbook operators:
- Potential regulatory scrutiny from states resistant to gaming expansion.
- Managing relations with existing state regulators and navigating opportunities in new markets, notably involving tribal gaming in California and Texas political entities.
“Despite the alluring prospects of prediction markets, we have concerns about this sub-market due to the possible implications for relations with both established legal state regulators and prospective new markets,” concludes Katz. “Our impression is that DKNG would also likely exercise caution in any potential predicaments surrounding predictions.”
