Behind the rise of event contracts.By Chad Beynon

Prediction markets let users trade contracts on future events, aggregating collective wisdom to forecast outcomes in politics, sports and finance. The sector has grown rapidly, evolving from niche election betting to mainstream infrastructure in 2025, driven by blockchain and federal regulatory clarity.

Challenges include regulatory uncertainty, liquidity risks, ethical concerns and competition with online gaming. Prediction markets have rapidly expanded into sports betting this year, particularly in the United States, letting users trade contracts on outcomes such as game winners or player stats, priced between $0 and $1 to reflect market-driven probabilities.
Unlike traditional sports betting, which is state-regulated and only legal for about 60 percent of the U.S. population, prediction markets operate under federal Commodity Futures Trading Commission oversight. This makes them accessible nationwide, including in states where gambling is banned (for the meantime).

chad

Image: Chad Beynon is Macquarie Capital’s U.S. head of research and senior Gaming, Lodging & Theatre analyst. He has followed the sector for over 20 years and collaborates with a global team of gaming analysts. He previously conducted consumer research at Prudential Equity Group and is a proud graduate of the University of Maryland.

This federal approach has propelled the rapid growth, though many U.S. states have pushed back. Users buy “Yes” or “No” contracts that pay out $1 for correct prediction. Prices fluctuate like stocks, with peer-to-peer trading replacing fixed, sports-book odds. Fees can be low with high liquidity and users can trade contracts in-play, pick game winners, player stats, spreads, and long-term events. However, the offerings are not nearly as robust as sports books, in my view.

Prediction markets earn revenue mainly from transaction-based fees. The fee model aligns incentives for accurate forecasting and profits from high trading volume and liquidity. Common revenue streams include trading fees (flat or percentage, often via maker-taker models), market-creation fees, deposit/withdrawal charges and premium features.
Based on CFTC regulation 40.11, which prohibits certain contracts, these companies are rolling the dice. Last year, the CFTC challenged Kalshi’s attempt to list event contracts to predict the outcome of U.S. congressional races, arguing that these contracts violated the CFTC regulation banning gaming contracts.

However, the District of Columbia disagreed and found that the contracts were permissible. The CFTC appealed and requested that Kalshi be barred from listing the event contracts pending the appeal, but the U.S. Court of Appeals declined to issue a stay. This meant that Kalshi’s contracts were allowed to go live.

Kalshi has since expanded its offerings on election markets as well as other types of markets, including sports. With the CFTC signaling a less-aggressive stance on prediction markets under the Trump administration, states have taken it upon themselves to issue cease-and-desist letters, arguing that offering sports event contracts constitutes unlicensed sports gambling in violation of state law.
Since the end of August, DraftKings and Flutter Entertainment have lost $10 billion and $20 billion of market-cap value, respectively. Most attribute a large portion of this to the looming threat of the prediction market, in addition to recent negative-estimate revisions (caused from low NFL hold rates).

Following additional predictions analysis, our contention has been that prediction markets are not competitive with sports books when it comes to live betting, player props and parlays. Thus we expect minimal cannibalization or share loss those current markets.

As a response, DraftKings and Flutter recently announced plans on launching their respective prediction products this quarter (4Q25), as a way to participate in the market hype and potentially engage with customers it can’t currently court. DraftKings intends to only launch in states that do not have live sports betting. Flutter said it will only offer sports contracts in U.S. states that do not have legal sports betting — but intends on offering non-sports contracts in all states.

Our near-term prediction total addressable market for DraftKings and Flutter, which will only encompass states that have not legalized sports betting (40 percent of the U.S. population), is $4.4 billion for sports prediction (for 40 percent of the population without legal, online sports betting) and a non-sports prediction total market of $600 million, for a combined near-term prediction TAM of $5 billion.

Over the course of the next few months, we expect for investors to further appreciate the additional value and also realize the low cannibalization in OSB legal markets. While others are playing the “wait and see game,” we view the entry for these two companies as a smart-yet-bold way to regain investor attention and ultimately investor value.

*** This  excluisve article was originally published in January 2026 edition of  Sports Betting Operator Magazine Issue 20 Volume 8 ***