News that DraftKings is in talks to potentially acquire forthcoming prediction market platform Railbird Exchange overtook industry headlines on July 14. Front Office Sports first reported the “acquisition talks,” noting that “Financial terms were not known, and a deal has not been finalized.” What it means as of this moment is mostly what we already knew:
- The biggest players in the sports betting space are jockeying for position to enter the bourgeoning prediction markets space. And why wouldn’t they? Federally-regulated prediction markets Kalshi and Crypto.com are currently able to offer sports event contracts, as well as futures contracts on a breadth of other topics, to customers in all 50 states.
- Particularly DraftKings and FanDuel are shopping potential ways to expedite that entry ahead of the NFL season, and have been doing so for some time.
- Recent funding rounds for Polymarket and Kalshi have sent their company valuations above $1 billion and $2 billion, respectively, making entry into the market all the more attractive.
Because Railbird Exchange just recently gained CFTC approval to offer prediction markets, the yet-to-launch platform is prime grounds for acquisition.
DraftKings has been eyeing prediction markets space for some time
DraftKings previously applied to become a member of the National Futures Association (NFA), the United States’ self-governing body of derivatives organizations, a key step toward becoming a licensed Derivatives Contract Market (DCM). Its NFA membership was pending since July 30, 2024 before the company pulled its application on March 15.
While DraftKings never announced concrete plans for its “DraftKings Predict” product, CEO Jason Robins has been public about the company’s exploration of the opportunity for some time, noting during its Q4 2024 earnings call in February they were “watching it very carefully.” After the 2024 presidential election, Robins called election betting “something we’ll plan on looking at ahead of next election, for sure.”
JMP Securities noted back in March that DraftKings was “rooting for” a positive ruling from the CFTC regarding sports event contracts in reference to the anticipated April 30th CFTC roundtable on sports prediction markets that never happened.
Cause for wait-and-see mode so far
Meanwhile, Kalshi has waged legal war against sports betting regulators in New Jersey, Nevada, and Maryland, states which tried to push Kalshi out with cease-and-desist letters. This ongoing legal battle over the regulation of sports event contracts has drawn some lines in the sand, forcing the DraftKings and FanDuels of the world to tread with caution.
As gaming and sports betting lawyer Daniel Wallach put it on a recent Prediction News Update podcast:
“The optics of being seen abandoning state-by-state regulation potentially could put these companies sideways with their Native American would-be partners and sideways with some of the state regulators who are on the front lines battling Kalshi.”
Whether or not prediction market exchanges can continue to freely offer and expand sports prediction markets, which closely resemble many sports betting offerings, could be decided by the courts in the coming months. It’s also possible that Trump’s pick as incoming CFTC Chairman, Brian Quintenz, could offer clarity around the offerings once he is confirmed.
One thing is certain: DraftKings, FanDuel, and likely others would like to be in position to pounce on the opportunity, if and when the green light is given.
Unsurprisingly, rumors surfaced just last month that FanDuel was in talks to potentially partner up with Kalshi. While many of these discussions have no doubt been ongoing in private quarters, it’s unlikely any such deal (at least the finer details) would be finalized without regulatory and legal clarity around sports prediction markets. But it’s certainly not out of the question.
If you want to keep your finger on the pulse of the likelihood that DraftKings does indeed officially acquire Railbird, you can track the market just launched by Polymarket on if a deal will be brokered by Oct. 31. But don’t read too much into the odds until sufficient liquidity and volume facilitates meaningful price discovery.
Sports betting companies uniquely positioned to compete
To date, Kalshi is the only CFTC-regulated exchange offering significant depth of sports markets, which began with NFL futures markets back in January. But competition is imminent.
That includes potentially ramped-up competition from currently offshore Polymarket, which just had DOJ and CFTC probes dropped, according to BloombergLaw. That clears the way for the crypto platform to re-enter the U.S. as a regulated prediction market exchange. But they aren’t the only competitors readying to enter the market.
According to NEXT.io, JMP Securities emphasized after meeting with DraftKings executives that existing gambling companies have a leg up on platforms like Kalshi in terms of UI/UX of mobile betting apps. The analysts said:
“DKNG should carry an advantage with its ability to leverage cross-sell vehicles like DK Horse, Fantasy, and brand awareness stemming from its national marketing campaigns.
“Speed to market, which includes building out the product, will be key, but given the product is an exchange, the initial infrastructure will need to be rented from an outsourced company and yet, over time, migrated in house.”
Because it can take up to two years to become a licensed DCM through the CFTC, and perhaps even longer with the commission being understaffed, a path to quicker entry is a no-brainer proposition for these established betting giants. And Railbird Exchange could provide that path for DraftKings.
