Loopholes or progress? Prediction markets M&A divide experts
A new wave of mergers and acquisitions (M&A) has erupted in the prediction markets space. From Underdog’s partnership with Crypto.com, to FanDuel’s tie-up with CME Group, and DraftKings’ reported pursuit of Railbird, the deals are sparking concerns that the industry’s evolution is being driven less by innovation than by regulatory arbitrage. According to industry veterans and responsible gambling experts, these moves could fundamentally rewrite the rules of both competition and consumer protection.
A new gold rush in prediction markets
Prediction markets, once a niche tool for academics and political enthusiasts, are now evolving into financialised sports betting platforms. By allowing users to trade on the outcomes of events, they blur the lines between investing and wagering. They are betting platforms where people can wager on the outcome of future events—everything from elections to sporting events. Kalshi, one of the key players in this space, started offering contracts tied to sports outcomes, presenting them as legitimate financial instruments, a categorisation that remains under fire. Recently, ahead of the NFL season opener, Kalshi expanded its sports offering, rolling out prop-style and parlay-style markets designed to mimic popular sportsbook features.
Last week, Underdog kicked off September with a major industry first, officially bringing sports event contracts to market through a new partnership with Crypto.com. This marks the first time a sportsbook operator has launched sports event contracts. Freelance iGaming Consultant Aydemir Yuksel told SiGMA News, “Underdog is definitely moving in the right direction.” He noted that the company’s aggressive expansion strategy has put it on a “good growth path—arguably faster and sharper than some larger rivals.” However, Yuksel warned that relying too heavily on a single crypto payments partner could expose the operator to long-term risks.
“We’re talking hundreds of millions in lost licensing fees and tax revenue. And for what? So, the CFTC can let these companies do an end-run around state law?”
– Longtime Nevada sportsbook director Robert Walker
For larger incumbents, the strategy is different. FanDuel’s partnership with CME Group has positioned it to push into financial event contracts — from Gross Domestic Product (GDP) to Standard and Poor’s (S&P) markets — under federal Commodity Futures Trading Commission (CFTC) oversight rather than state gambling laws. DraftKings’ interest in acquiring Railbird, a newly federally licenced prediction market platform based in the US, highlights how aggressively top sportsbooks are moving into this grey area. Additionally, DraftKings filed a new application with the National Futures Association (NFA) under Gus III Holdings LLC, seeking approval to operate as both a Swap Firm and an Introducing Broker. This comes despite the company’s fiscal guidance for 2025 stating that it “does not include the potential launch of a Prediction Markets offering.”
‘A back door into sports betting’
Not everyone is convinced this trend represents progress. “Maybe 10 percent is actual innovation, but 90 percent is just finding a way to take sports bets without dealing with state oversight,” Longtime Nevada sportsbook director Robert Walker told SiGMA News. “They’re not solving any real problems for consumers—they’re solving a problem for their bottom line by dodging fees and taxes.”
Walker described the M&A push as a distortion of market competition, “When FanDuel teams up with CME Group or DraftKings goes after Railbird, what they’re really doing is creating a back door into sports betting. They get to offer the same product as licensed sportsbooks without jumping through all the hoops.” He warned that this imbalance could devastate smaller operators who are already grappling with steep licensing fees and state tax regimes. “It’s completely unfair to the smaller guys,” he said. “How is that supposed to work? It’s not a level playing field at all.”
Regulatory blind spots
At the heart of the debate lies a jurisdictional tug-of-war between state gambling regulators and the CFTC. If prediction markets are treated as commodities trading, operators can bypass state gambling licences, and the tax revenue that states rely upon. While the CFTC has authorised event contracts under federal derivatives law, states such as New Jersey, Nevada, and Maryland argue these platforms violate local gambling statutes, issuing cease-and-desist orders. “States are going to get crushed financially if this keeps up,” Walker warned.
Even observers outside the gambling industry express concerns about opacity. Anna Dent, an independent researcher and policy adviser, told SiGMA News, “My instinct is that this will lack transparency over how it works and what the risks are.”
For Walker, these deals aren’t about innovation; they’re about finding loopholes. He said, “I’ve been in this business for over 35 years, and I’ve never seen anything like this. This isn’t how the industry normally evolves—this is companies exploiting loopholes and a CFTC that seems more interested in helping them than protecting the public interest. It’s opportunistic, not evolutionary.”
Responsible gambling risks
Alongside regulatory and financial concerns, responsible gambling has emerged as a central issue in prediction market M&A. “Responsible gambling risks are critical to evaluate,” Keith Whyte, President of Safer Gambling Strategies LLC, told SiGMA News.
“Most sports bettors and traders are young, educated males—characteristics associated with higher risk for gambling problems. The amount of money traded on exchanges may soon dwarf that on sportsbooks, which means a trader with a gambling problem may be able to lose a lot more money.” Whyte added that the risks cut both ways, “Sports bettors may develop trading problems, and traders may develop gambling problems.”
You can look at the clinical criteria for gambling addiction and substitute ‘trading’ for ‘gambling’ and everything still fits.”
– Keith Whyte, President of Safer Gambling Strategies LLC
Still, Whyte acknowledged that bringing prediction markets under established gambling operators could be an opportunity, provided responsible gambling standards are harmonised. “Same minimum age, same suite of strong protections, across sportsbook, daily fantasy, prediction markets and casino,” he said. “If done right, this could be a chance to ensure consistent safeguards.”
He stressed that “every sports prediction site should have consumer protections which meet or exceed National Council on Problem Gambling‘s (NCPG) Internet Responsible Gambling Standards.” Without this, he warned, companies face “enormous regulatory and reputational risks.”
Whyte also highlighted another concern: “Much of the global risk for gambling problems stems from unregulated and under-regulated forms of gambling, sometimes offered by the same company alongside a regulated gambling product, such as social casino or daily fantasy.”
Finally, he noted that “regulated gambling companies who engage in these markets will have to respect the rules set by regulators in the states where they are licensed. The danger is in non-gambling companies coming in and offering a sports trading product in states where sports betting is explicitly prohibited.”
What’s next for prediction market M&A?
The current wave of deals could just be the beginning. Walker predicts that if sports contracts are deemed legal, “There will be an influx from much bigger companies than Underdog and Crypto.com. This would be a crushing blow to the states, which rely on the tax revenue generated by sportsbooks.” That possibility underscores that currently what lies at stake is the financial model of state-regulated gambling, the competitive balance between operators, and the very definition of what counts as sports betting.
To address event contracts and prediction markets, the CFTC and the US Securities and Exchange Commission (SEC) will hold a joint roundtable on 29 September. The agencies have already warned that “novel products” are clouded by legal uncertainty and inconsistent regulation. For Walker, the key question is simple: “Why is the CFTC letting sports betting companies pretend they’re commodity traders? If it looks like sports betting, acts like sports betting, and takes money like sports betting, then it should be regulated like sports betting—by the states.”
