The prediction market arms race is heading to a new level. The two biggest names in U.S. sports betting are making moves, albeit in different ways. DraftKings has acquired Railbird, a CFTC-regulated Designated Contract Market (DCM). FanDuel is partnering with CME Group, with plans to operate through a Futures Commission Merchant (FCM) model with FanDuel Markets.
Once a curiosity that made headlines during election season, the landscape for prediction markets has shifted dramatically. Kalshi and Polymarket, currently the two biggest players in the space, have had little trouble attracting institutional investments while trading volume has soared to astronomical levels.
DraftKings is the dominant in online U.S. sports betting, and also holds a significant chunk in online casino gaming. With the announcement of a DraftKings Predictions app, it’s clear the operator is aiming for another piece of pie. For investors, traders, and regulators, the next few months in the prediction markets space will be downright fascinating.
DraftKings announces Railbird acquisition
DraftKings’ acquisition of Railbird is official. The deal has been expected, with news first breaking over the summer. Railbird is a DCM that’s regulated by the Commodity Futures Trading Commission (CFTC). The DCM designation is key, as it classifies Railbird as an exchange where event-based contracts can be listed.
That makes DraftKings the first major U.S. gaming company to own the same type of license used by futures exchanges. It opens the door to listing and clearing contracts under federal oversight without relying on individual state regulations.
When will DraftKings Predictions launch?
The gaming giant has confirmed those plans, announcing that DraftKings Predictions is on the way with a possible launch in 2025. The mobile application is expected to debut in the coming months. In the press release announcing the deal, DraftKings noted that users will be able to “trade regulated event contracts on real-world outcomes across finance, culture, and entertainment.”
Will the DraftKings Predictions app offer sports?
There was no mention of sports, which has become a hot-button issue at the state level for prediction market operators. It has gone beyond being a talking point, with warnings issued by state regulators and litigation ongoing in states including Nevada. The timeline for anything resembling a clear resolution remains unclear.
For DraftKings, the Railbird acquisition means that they now own the pipes in advance of getting a prediction market app off the ground. Instead of waiting on the sidelines to see how it all plays out, they have control and an entry way. As DraftKings CEO and Co-Founder Jason Robins sees it, the deal “positions us to win in this incremental space.”
DCM vs. FCM: What’s the difference?
From a trading perspective, the average user wants to be able to easily make trades and manage their accounts in a safe and secure environment. How it works behind the scenes doesn’t matter all that much. Those new to the game will explore what the operators have to offer, perhaps try them all out, and then land on a favorite or two as their preferred destination.
That said, it’s important to understand the distinction between a Designated Contract Market (DCM) and a Futures Commission Merchant (FCM). DraftKings has gone the DCM route, which means they own the exchange. FanDuel’s deal is to serve as an FCM, which essentially means that they handle the role of broker while CME handles the exchange side.
Both approaches check off the right boxes for federal oversight. For a platform to be CFTC-regulated, it needs to have one of the two designations. As the prediction market industry continues to grow, it’s an important nuance to understand. When new platforms emerge, a DCM or FCM designation serves as a great clue of which may be built to last.
Early innings for the prediction markets race
The past year has been a whirlwind in the prediction market space. At this time last year, platforms were in the headlines due to the upcoming U.S. presidential election. Instead of fading into the background once the results were in the books, prediction markets expanded in a way that few were able to foresee.
Kalshi and Polymarket have been the driving forces, the former in the U.S. and the latter on a global scale. They won’t have the spotlight to themselves for much longer. DraftKings and FanDuel are established and trusted brands, and both bring an absolutely massive built-in user base to the table.
The battle lines have been drawn on several fronts. Kalshi is working toward global expansion, while Polymarket is nearing a U.S. return. Both companies have recently had massive funding rounds that translated into eye-popping valuations. Meanwhile, DraftKings and FanDuel have been going toe-to-toe for decades, and now take the battle into a new arena.
Who will win? We don’t know, but having more reliable options to choose from is fantastic news for traders. As the battle for U.S. sports betting dominance has revealed, competition breeds innovation, and the strongest will ultimately rise to the top. Before too long, perhaps we’ll see a prediction market contract available on who will win this race.
