The Bulletin Board
THE LEDE: Gambling stocks tumble after the launch of parlays at Kalshi.
ROUNDUP: Polymarket return imminent; UK tax increase inevitable; NY bill on limiting; PA Committee advances casino smoking ban.
NEWS: Sleeper sues CFTC as palace intrigue continues to grow.
VIEWS: Is DFS 2.0 better positioned for the future? That depends on how prediction markets play out.
AROUND the WATERCOOLER: The lunacy of “not gambling” products.
STRAY THOUGHTS: Lessons from history.
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The Lede: Investors spooked after Kalshi launches Parlays
As Straight to the Point noted yesterday, the launch of parlays at Kalshi has had a profound impact on the gambling industry.
In an excellent column yesterday, InGame noted, “Kalshi’s new same-game parlays may have brought in less than $2,000 in fees for the prediction market on their first day of trading, but they helped wipe almost $7 billion off the market values of the two biggest companies in US sports betting.”
I called it an overreaction. The concern in the analyst sector is mixed.
Chris Grove, a partner emeritus at Eilers & Krejcik Gaming (a newsletter sponsor), answered both Yes and No when it comes to being a threat:
Jefferies said the Kalshi offerings “lack the sophistication of traditional OSB” parlays, noting they were pre-game only, and limited to winners, over/unders, and touchdown scorers. “We do not believe the economics of prediction markets are nearly comparable to [online sports betting], with the product and technology also not comparable,” Jefferies’ David Katz said in an investor note.
Meanwhile, Paul Leyland and the team at Regulus said, “While comparable matched trading volumes remain relatively small compared to bookmaker handle, we believe the stock market is right to be cautious.”
“We do not believe that prediction market exchanges + market makers will ever be liquid enough and/or have access to sufficiently competitive insurance products to enable them to compete in SGPs that have four legs or more, or payout more than c. 5x the stake… However, this competitive advantage for sportsbooks protects maybe half the current parlay market, or c. 30% of current revenue… The problem is that prediction markets can reasonably go for the other 60% of US sports betting revenue highly effectively: singles bets on big events and SGPs with 3 legs or fewer, especially since they tend to appeal to sharper customers.”
The team at Deutsche Bank was more bullish on the product, calling the new parlays direct competition, with the benefit of better pricing:
“We anticipate that this product has the potential, in the long term, to offer more competitive parlay pricing compared to sports-betting operators, given competition from the market makers.”
I’m still looking for some proof for any of this. As I recently wrote:
“Prediction markets are exciting, but they’re neither the salvation nor the apocalypse that people are determined to make them. They’re another player in a crowded game, one where competition drives innovation but also churn, costs, and regulatory headaches.”
Roundup: Polymarket Returns; UK Tax Increase; NY Bill on Limiting; PA Committee Advances Smoking Ban
Polymarket’s US launch could happen as early as today [InGame]: Filings with the CFTC point to an imminent launch of Polymarket: “Prediction platform Polymarket could relaunch legally in the United States as early as Thursday after self-certifying sports events contracts and election markets on Tuesday with the Commodity Futures Trading Commission (CFTC). Original filings set the launch date as not before Oct. 7, but those documents were changed by Wednesday afternoon to reflect a new date of Oct. 2.”
Is a UK gambling tax hike coming? [Gaming & Co]: From Jake Pollard’s excellent newsletter: “The UK government has given its clearest signal yet that gambling taxes will rise in the November budget, with the Chancellor insisting the industry must pay its ‘fair share’. In an interview ahead of the Labour conference in Blackpool this week, Rachel Reeves (pictured) said the gambling sector ‘makes an important contribution to the economy, but they should pay their fair share of taxes and we will make sure that happens.’” From what STTP is hearing, a tax hike looks inevitable; the only question is how big it will be.
New York bill would prevent limiting bettors without legitimate cause [InGame]: Massachusetts isn’t the only state interested in the practice of sportsbooks limiting sports bettors. Per InGame: “New York state Sen. Alex Bores filed a bill last Friday that would prevent sports betting operators from placing limits on the ‘size and frequency’ of wagers and deposits by bettors. The bill, AO 9125, allows for some exceptions, including bettors suspected of gambling disorder and suspicious activity.”
PA House committee passes smoking ban bill [Pittsburgh Union Progress]: Legislation (HB 880) that would end casino smoking exemptions took a critical step forward this week, after it was passed by the House Health Committee: “The legislation known as the Protecting Workers From Secondhand Smoke Act would extend the state’s indoor smoking ban and would eliminate most exemptions in the state’s 2008 Clean Indoor Air Act, including in casinos. The ban would also include e-cigarettes, which were not in the 2008 law.” Recall that Rhode Island passed an almost complete smoking ban earlier this year.
News: Sleeper Sues CFTC, Alleges Interference in FCM Approval
Fantasy sports platform Sleeper has escalated its battle to enter the prediction markets by filing a federal lawsuit against the Commodity Futures Trading Commission (CFTC) and Acting Chair Caroline Pham in the US District Court for the District of Columbia. The suit accuses the CFTC of “unauthorized interference” in Sleeper’s application to register as a futures commission merchant (FCM), a move that would allow the company to broker event contracts on designated contract markets (DCMs) like Kalshi or Crypto.com.
Sleeper claims the agency’s actions are “arbitrary and capricious,” violating the Commodity Exchange Act (CEA), the Administrative Procedure Act (APA), and the Fifth Amendment’s due process clause.
Sleeper submitted its FCM application to the National Futures Association (NFA) on May 30, 2025. In August, the NFA informed Sleeper that the application was complete and slated for approval by September 4. Sleeper alleges the CFTC stepped in, instructing the NFA to halt the process over “unspecified concerns” about certain derivatives.
Sleeper’s CEO, Nan Wang, blasted the CFTC for “picking winners and losers” in an emerging industry, arguing it stifles competition and transparency.
As STTP has noted, Sleeper has been swept up in the DFS 2.0 crackdowns, receiving cease-and-desist letters from several states, which have forced the company to pivot to peer-to-peer offerings and, subsequently, into prediction markets.
Leading Sleeper’s charge is Josh Sterling, a Milbank LLP partner and former CFTC director of market surveillance. Sterling, who also represents Kalshi in state lawsuits, argues only the CFTC can deem contracts against public interest, and not block brokers preemptively.
Sterling is turning into a central figure in the saga of prediction markets.
Recall that Sterling made some inflammatory comments at NCLGS in July, saying “People are adults... if they lose their shirt, that’s on them” during a responsible gambling discussion. He is also apparently being vetted by the White House for CFTC chair amid Brian Quintenz’s stalled nomination.
SPONSOR’S MESSAGE - Episode 93: Sports Betting Stocks are Down Bad
Host Brad Allen is joined by Betr head of gaming Alex Ursa to discuss:
Kalshi’s launch of SGPs and the subsequent impact on OSB stocks
Whether FanDuel has peaked in OSB
How the sale of PrizePicks helps Betr and its pick ‘em business
Listen to the episode here.
Views: Did Underdog and PrizePicks Outmaneuver FanDuel and DraftKings?
FanDuel, as part of Flutter Entertainment, boasts an implied valuation north of $20 billion. DraftKings’ market cap hovers around $15-18 billion. Yet, challengers like Underdog Fantasy (a newsletter sponsor) and PrizePicks are quietly positioning themselves for a potential upset.
Valuations may be higher, but it’s important to note that DraftKings and FanDuel’s explosive growth came with hefty marketing and compliance costs. They have spent billions to climb to the top of the US mountain, employing a spend now, profit later strategy.
The FanDuel-DraftKings duopoly dominates the US market, but in a world of uncertainty, profit later might not arrive.
Underdog and PrizePicks made the decision (purposefully or accidentally) to largely stay out of the licensed sports betting space, which may prove to be a godsend, as they are already profitable and have the regulatory agility to capitalize on emerging prediction market opportunities.
So, while Underdog and PrizePicks may look more modest on paper — Underdog at $1.2 billion (spring 2025 valuation), PrizePicks recently pegged at $2.5 billion in a majority stake sale to Allwyn for $1.6 billion — size isn’t everything.
These upstarts have focused on DFS pick’em games, largely avoiding the full regulatory quagmire of sportsbooks — Underdog operates a sportsbook in North Carolina and applied for a Missouri license.
Underdog and PrizePicks also boast stronger margins: PrizePicks reported adjusted EBITDA of $339 million for the year ending June 2025, based on disclosures in its press release announcing the Allwyn deal.
The Prediction Market Wild Card
Meanwhile, licensed sportsbooks are stuck in a regulatory holding pattern, as the issue of sports contracts at prediction markets plays out in the legal system. Several states are warning that their licenses could be at risk should they enter the prediction market arena.
Meanwhile, Underdog is offering sports contracts through its deal with Crypto.com, and PrizePicks just snagged the first NFA approval for a gaming operator, positioning it to launch prediction offerings imminently — Underdog also has a pending application.
And these mashups appear to be paying off.
As Eilers & Krejcik recently noted:
“Underdog has been climbing app download lists in September following its addition of individual game moneylines via its Crypto.com prediction market integration. Crypto CEO Kris Marszalek said on X he had been ‘blown away by the early success of the Underdog partnership, with tens of millions of contracts traded during the last week of football.’”
DraftKings and Fanatics are also in the prediction market queue. Still, their sportsbook entanglements make it unlikely they will launch sports contracts via prediction markets until there is more legal clarity.
One theory is that if prediction markets take off, the “underdogs” could leapfrog the kings by being first to market with innovative, less-regulated products. That is, of course, a theory that relies on many assumptions being true.
Bottom Line: It’s not about who’s biggest today; it’s about who’s built to adapt tomorrow.
Around the Watercooler
Social media conversations, rumors, and gossip.
Considering what has been labeled “not gambling” and offered without authorization, DFS, DFS 2.0, sweepstakes, and more, it is remarkable that no one has simply said, ‘F**k it, I’m launching an online poker site.’ Even more remarkably, state lawmakers have completely ignored poker.
Dustin also posted a podcast (a 6-minute monologue) on the idea of calling things that are clearly gambling “not gambling” yesterday.
Stray Thoughts
“If you want the present to be different from the past, study the past.” ~ Baruch Spinoza
“History is a vast early warning system.” ~ Norman Cousins
“The best prophet of the future is the past.” ~ Lord Byron