Prediction Markets Could Complement, Disrupt Sports Betting, Says BofA

Posted on: March 19, 2025, 04:18h. 

Last updated on: March 19, 2025, 04:18h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.
  • Array of potential outcomes seen for prediction markets
  • Disruption of traditional sports betting a possibility

Prediction market operators encroaching on territory long dominated by sportsbooks is an increasingly prominent and one that could gain momentum should the regulatory environment swing in favor of the former.

Kalshi screenshot
A screenshot of events futures trading exchange Kalshi’s website. An analyst says prediction markets could disrupt sports betting. (Image: Kalshi)

That’s the take of Bank of America analyst Shaun Kelley who in a new report said there are varying ways in which prediction market companies’ embrace of sports event contracts could affect the old guard sports wagering industry.

At their best, we see prediction markets as a complimentary product that can drive new customers, expand the total area market of sports betting, and blur the line between sports betting and financial technology,” observes the analyst.

His comments arrived as Kalshi – a prediction markets behemoth – and financial services such as Crypto.com are offering sports event contracts to clients. Those instruments are classified as derivatives and as a result, companies featuring such fare are regulated by Commodities and Futures Trading Commission (CFTC).

Important Prediction Markets Ruling Could Be Imminent

The timing of Kelley’s observations is relevant because the CFTC is expected to soon conduct a roundtable on event contracts and a ruling on Crypto.com’s foray into the space is also expected over the near-term. Those events, which could arrive later this month or in early April, could provide much needed regulatory clarity for prediction market operators.

The timing is also pertinent because there’s mounting evidence that some financial technology companies see opportunity with sports event contracts. For example, Robinhood Markets (NASDAQ: HOOD) announced Monday that’s partnering with Kalshi to offer NCAA Tournament markets to its clients. That’s not lost on sportsbook operators that know many of their core clients — young men — are also customers of platforms like Crypto.com and Robinhood.

“At their worst, they could be disruptive new entrants, with deepening products/markets, access to national scale and cost advantages that need to be closely monitored,” adds Kelley. “We see multiple ways these technologies could work together, but coming incremental regulatory clarity from the CFTC in late March/early April could be a material catalyst for interest in this nascent area.”

The analyst said tailwinds for prediction market firms include attractive pricing and higher limits, but sportsbook operators have them beat when it comes to promotions and depth of betting menus.

Why Regulatory Clarity Matters

Both gaming companies and prediction market providers could benefit from more clarity from the CFTC. As things stand today, firms offering event contracts believe they can do so in all 50 states — a luxury not enjoyed by sportsbook operators.

However, Nevada regulators told Kalshi to cease doing business in the state because political and sports event contracts aren’t approved in the state.

Some operators aren’t waiting for the competitive threat to come to them. They’re already acknowledging and preparing rebuttals. For example, DraftKings (NASDAQ: DKNG) has filed plans a potential prediction markets entry, but that effort remains in its infancy.