Report Suggests Prediction Market Growth May be Overhyped
A new report suggests prediction markets are only taking around 5% of business from regulated sportsbooks, suggesting that platforms like Polymarket and Kalshi still have a long way to go to topple the likes of DraftKings and FanDuel.
Citizens equity research analyst Jordan Bender said that around $8 billion of the handle from regulated sportsbooks was being funneled into prediction markets, a figure which, while slightly higher than previous estimates, shows that traditional sports betting platforms are resilient in the face of the rapid growth experienced by newer platforms.
Sports betting stocks could be underpriced
According to Bender, the downturn seen in betting stocks such as Flutter, which is down almost 30% from its 52-week high, is an overcorrection from the market, with the dip far too severe to be attributed to the relatively small loss in turnover which can be attributed to prediction markets.
“One bad Monday Night Football game could have the same negative result on EBITDA as the total impact the prediction market space is currently having on the sector,” said Bender. “Additionally, incremental legalization over time will shrink the prediction market total addressable market through a superior product offering (online sports betting), in our view.”
In the report, Bender also suggests that prediction markets may be at a peak level of cannibalization of traditional sports betting platforms, and had potential issues over customer churn rates which could inhibit future growth.
Prediction markets could face slowing growth
Bender cited Kalshi’s massive advertising push in Q4 2025, which included several major partnerships with CNN and CNBC. However, trading volume only increased between November and December by 3%, representing one of the lowest rates compared to seasonal growth for the entire year.
Since prediction markets have no direct interest in the results of any event being settled, sharp bettors have been encouraged to use the platforms, bringing large amounts of liquidity and volume with them. However, this has also led to higher losses among recreational players, which Bender believes could have a damaging effect on growth potential, as “”prediction markets are creating worse losses for the worst users, while more educated bettors are winning more.”
The companies behind more orthodox betting platforms have expressed intent to move into the prediction market space, with both FanDuel and DraftKings showing an interest in a US launch. However, for now, it appears their current models may be much safer than predicted.
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