Sportsbooks Are Losing the War They Chose: DraftKings and FanDuel Down 50% While Prediction Markets Hit $20B in Valuations

On Super Bowl Sunday 2026, Kalshi processed more than $1 billion in event contracts while the entire US legal sportsbook industry handled an estimated $1.76 billion on the same game. Six months earlier, a single prediction market exchange processing that kind of volume against the combined weight of every licensed sportsbook in America would have been unthinkable. Today it’s the clearest data point in a story Wall Street has already priced in: prediction markets are challenging sportsbooks as the center of gravity in American wagering — and the incumbents’ stock prices are reflecting it in real time. Kalshi and Polymarket now carry a combined $20 billion in private valuations, rivaling the public market caps of the sportsbook operators that voluntarily left their own trade group, surrendered their Nevada gaming licenses, and launched competing prediction market products to avoid being left behind.

The Numbers That Tell the Story

The clearest way to understand the power shift reshaping American sports betting is to look at the numbers side by side. In less than a year, the entire valuation hierarchy of the betting industry has inverted. Prediction market platforms that were once considered interesting startups — potential acquisition targets for the majors — now rival or exceed the market capitalizations of the companies that were supposed to buy them.

Kalshi closed a $1 billion Series E at an $11 billion valuation in December 2025, led by Paradigm with participation from Sequoia Capital, Andreessen Horowitz, and ARK Invest. That valuation had doubled in under two months — the company raised $300 million at a $5 billion valuation just weeks earlier. Polymarket secured a $2 billion strategic investment from Intercontinental Exchange — the parent company of the New York Stock Exchange — at a $9 billion valuation in October 2025. Meanwhile, in a prediction market landscape growing more competitive by the month, the incumbents’ stock charts have been going in the opposite direction.

The volume numbers are equally stark. In January 2026, Kalshi processed $9.6 billion in trading volume — a 45% increase from December — with approximately 90% coming from sports contracts, according to The Block. Polymarket added $7.7 billion. Combined, the two platforms hit $17.3 billion in a single month, an all-time record. According to app analytics firm Apptopia, Kalshi’s 3.05 million January downloads exceeded what DraftKings or FanDuel achieved in any single month — ever.

“Meanwhile Our Stock Is Getting Killed”

DraftKings reported its best quarter in company history on February 12, 2026. Fourth-quarter revenue hit $1.99 billion, up 43% year-over-year. Full-year 2025 revenue reached $6.055 billion with a 27% growth rate. The company posted its first-ever GAAP profit — $136.4 million for the full year, and $3.7 million in net income. Adjusted EBITDA more than tripled to $620 million. By every backward-looking metric, it was a triumph.

Wall Street didn’t care. DraftKings issued 2026 revenue guidance of $6.5 billion to $6.9 billion — a midpoint of $6.7 billion that missed the $7.3 billion analyst consensus by roughly $600 million. The stock cratered approximately 14.5% the next morning, falling to $21.45 and approaching its 52-week low of $21.01. J.P. Morgan analysts called the guidance “a tacit admission of industry growth concerns” — not merely conservative forecasting, but a structural signal about where the sportsbook industry is heading.

The detail that spooked investors most: DraftKings Predictions revenue is explicitly excluded from the 2026 guidance, while its costs are included. The company is spending to build a prediction market product that it can’t yet promise will generate returns — at the same time its core sportsbook business is decelerating. For a company already facing rising state tax proposals and competitive pressure, the math wasn’t reassuring.

“Those companies are raising money at huge valuations, so it would be tough to do a transaction at this point — meanwhile our stock is getting killed. Which I don’t think is necessarily fair, but such is life. We have to prove it.”
— Jason Robins, DraftKings CEO, Front Office Sports interview at Radio Row

Robins’ candor on the earnings call was equally revealing. Describing how he set the 2026 guidance range, he told analysts: “My team came in and showed me a number and said, ‘We can hit this.’ And I said, ‘No, go make it lower.’ They went back… And I said, ‘I don’t care, make it lower again.'” The anecdote reveals a CEO who has internalized that overpromising in a structurally shifting market is more dangerous than disappointing Wall Street. After years of aggressive guidance that the company occasionally missed, Robins chose to sandbag — and the market punished him anyway.

The irony at the center of this story is sharp. Robins simultaneously calls prediction markets “the most exciting new growth opportunity since PASPA was struck down in 2018” and a potential “$10 billion annual gross revenue” market — while admitting DraftKings can’t afford to acquire the companies leading the space. That tension between strategic excitement and financial impotence defines where every incumbent sportsbook sits right now.

The $1 Billion Super Bowl — Kalshi’s Coming-Out Party

If one event captured the scale of prediction market adoption, it was Super Bowl LX. Kalshi CEO Tarek Mansour confirmed on CNBC that the platform processed more than $1 billion in trading volume on Super Bowl Sunday alone — a 2,700% increase from the prior year’s game. Bank of America estimated $871 million in notional sports-related volume on that day. For the full Super Bowl week, Kalshi’s volume reached $2.8 billion.

The comparison with traditional sportsbooks is striking — though it requires context. The AGA estimated total US legal sportsbook handle on Super Bowl LX at $1.76 billion across all 39 states with licensed operators. Nevada alone reported $133.8 million — its lowest total in a decade — and New Jersey handled $126.5 million. Kalshi’s $1 billion-plus single-day figure is exchange volume, which can count both sides of a trade, while sportsbook handle counts only the amount wagered. Even adjusting for that methodological difference, a single prediction market exchange processing volume in the same order of magnitude as the entire US sportsbook industry on America’s biggest betting event marks a turning point that would have been inconceivable a year ago.

Non-sports contracts added to the spectacle. Bettors wagered more than $100 million on which song Bad Bunny would open his halftime performance with, and $45 million-plus on guest performer appearances. These are contracts that traditional sportsbooks can’t legally offer — entertainment props regulated under CFTC jurisdiction rather than state gaming commissions. It’s the kind of market expansion that makes the prediction market model structurally different from sportsbooks, not just another version of the same product.

The honest read on pricing: prediction markets offer structurally better value on high-profile events where liquidity is deep, but sportsbooks still win on regular-season games where prediction market order books are thinner. The exchange model — where bettors trade against each other — inherently has lower margins than the sportsbook model — where the house takes the other side. But that advantage only materializes when enough traders are in the market. For bettors, the practical takeaway is to run the numbers through a vig calculator or no-vig calculator before placing significant wagers — and use an odds converter to compare pricing across platforms in the same format.

The Industry Civil War — Why DraftKings and FanDuel Burned Their Own Alliance

The American Gaming Association was the gambling industry’s single most powerful lobbying force — the unified voice that represented casinos, sportsbooks, and suppliers before Congress and state legislatures. That unity is gone. In a span of two months, three of the AGA’s most prominent members walked out, and the industry split along a fault line that may never heal. When Congress considers prediction market regulation in 2026, the gambling industry will not speak with one voice. And that is a direct consequence of the choices DraftKings and FanDuel made.

The trigger was an AGA resolution that would have banned any member offering prediction market products. DraftKings and FanDuel — which had already acquired CFTC-licensed exchange infrastructure and announced prediction market launches — faced a choice: abandon their prediction market strategies or leave the trade group. They left. Fanatics followed weeks later after launching Fanatics Markets. Suppliers followed their clients: OpenBet (FanDuel’s technology partner) and Sportradar (the data provider to both DraftKings and FanDuel) departed in January 2026.

The split is now structural. Land-based operators — Caesars, MGM, the tribal casino groups — stayed in the AGA. Digital-native operators — DraftKings, FanDuel, Fanatics — are now aligned with the Sports Betting Alliance, which also counts BetMGM and bet365 as members. The AGA launched a real-time “prediction market revenue loss tracker” estimating over $113 million in state tax revenue diverted by prediction markets — essentially a public attack on its former members. Victor Rocha of the Indian Gaming Association accused DraftKings and FanDuel of breaking promises to tribes, stating that both had previously told him they wouldn’t enter California without tribal partners — then did exactly that through prediction markets.

The consequence nobody else is connecting: once you surrender your Nevada gaming license and leave the industry’s trade group, you can’t easily go back. DraftKings and FanDuel are betting their companies that prediction markets are the future of wagering. If they’re wrong, they’ve alienated the entire casino establishment for nothing. The NFL has already banned prediction market advertising during the Super Bowl, even as its official partners DraftKings and FanDuel launch their own prediction market products. The contradictions are piling up faster than anyone can resolve them.

The Regulatory Battleground — 50 States, One Federal Question

Kalshi operates in all 50 states under CFTC federal regulation, arguing that its event contracts are derivatives — not gambling — and therefore subject to federal jurisdiction that preempts state gambling laws. States disagree, and the legal challenges are mounting rapidly.

Massachusetts issued a preliminary injunction blocking Kalshi’s sports contracts in January 2026, with the court ruling that state gambling law likely applies and that federal CFTC approval does not preempt state authority. Nevada Attorney General Aaron Ford filed a civil enforcement lawsuit against Kalshi on February 18, 2026, seeking a permanent injunction and a declaration that sports event contracts constitute illegal unlicensed wagering. A coalition of 38 states plus the District of Columbia filed a joint amicus brief arguing that sports contracts fall under state gambling jurisdiction.

Polymarket filed a federal lawsuit against Massachusetts on February 9, 2026, seeking to block enforcement of state gambling laws against its platform. CFTC Chairman Michael Selig has taken a firmly pro-prediction market stance, stating that “the CFTC will no longer sit idly by while overzealous state governments undermine the agency’s exclusive jurisdiction.” The agency has intervened in nearly 50 active state litigation cases.

There is a credible scenario where this entire thesis reverses. If federal courts ultimately rule that CFTC approval does not preempt state gambling laws, Kalshi and every sportsbook offering prediction markets could be shut down state by state — potentially in dozens of jurisdictions simultaneously. A change in CFTC leadership could accelerate that outcome; Chairman Selig’s pro-prediction-market stance is a policy choice, not a statutory guarantee, and 23 senators have already urged him to stop intervening in state cases. The $20 billion in combined private valuations assumes prediction markets survive the legal gauntlet intact. If they don’t, the incumbents who left the AGA and surrendered their Nevada licenses will have burned their industry relationships for a product they can no longer offer.

What This Means for Bettors — The Intelligence Briefing

Sources

• Kalshi CEO says Super Bowl trading volume surpassed $1 billion — CNBC
• America’s new love affair with gambling drives Kalshi to $871 million haul — Fortune
• DraftKings CEO on stock decline and prediction market valuations — Front Office Sports
• DraftKings Q4 2025 Earnings Call Transcript — Motley Fool
• Kalshi raises $1B at $11B valuation — TechCrunch
• NYSE parent ICE invests $2B in Polymarket at $9B valuation — Fortune
• FanDuel, DraftKings abandon AGA trade group memberships — CNBC
• Americans to legally wager estimated $1.76 billion on Super Bowl LX — American Gaming Association
• Nevada reports 10-year low for Super Bowl bets — ESPN
• Kalshi overtakes DraftKings and FanDuel in download race — PYMNTS / Apptopia
• Nevada Attorney General sues to stop Kalshi — SBC Americas
• Kalshi cannot operate sports prediction market in Massachusetts — NBC News
• CFTC rallies to defend prediction markets from state attacks — Finance Magnates