Several days after archrival DraftKings entered the prediction market space with the launch of a new platform, FanDuel has followed suit with an online app of its own.
Unlike DraftKings, which is offering event contracts in 38 states at launch, FanDuel’s rollout will be limited in scope. Initially, FanDuel Predicts will be available in five states – Alabama, Alaska, South Carolina, North Dakota and South Dakota. While FanDuel announced that it will conduct a phased expansion into other states early next year, the company did not indicate which ones.
FanDuel launched the new prediction market platform on Monday in partnership with CME Group, one of the world’s leading derivatives markets, according to a joint press release. The platform will be available to customers in the Apple App Store, as well as Google Play. FanDuel will also integrate its Know Your Customer sign-up process, requiring customers to submit their birth date, Social Security number, home address, banking information and a government-issued ID.
“This launch reflects the disciplined work of teams across the company, from product and technology to legal and operations,” FanDuel CEO Amy Howe wrote on her LinkedIn page.
Near-term scenarios for the market
FanDuel joins DraftKings and Fanatics among the major sportsbooks that have made the leap into the new prediction market class. Customers in California, Texas and Florida, the nation’s three most populous states, are among those who can sign up with DraftKings and Fanatics.
After DraftKings launched its app on 19 December, one prominent Wall Street analyst outlined several scenarios for the broader market response in the coming months. Truist Securities analyst Barry Jonas said a protracted battle on the legality of sports events contracts is likely headed to the US Supreme Court. If sports event contracts pass every legal challenge on the federal level, Truist views FanDuel and DraftKings as “well positioned” to be market leaders in the prediction market space. At the same time, those developments could prompt more states to legalise online sports betting, Jonas added.
Alternatively, Jonas noted, if there is a blanket prohibition on sports event contracts, both companies will likely revert back to their strategy for online sports betting, where the two maintain an oligopoly. Jonas also raised the possibility that others without a regulated sportsbook platform (i.e. Kalshi, Robinhood and Coinbase) could gain a sizeable market share in states that face legal uncertainty. As an offshoot, FanDuel and DraftKings may also decide to close online sports betting platforms in states that deem event contracts illegal.
For now, Jonas believes both companies can outperform the rest of the market despite the significant legal risks. Another analyst, Jordan Bender of Citizens JMP Securities, told iGB in October that the company that wins with superior product and technology offerings will likely be the one to differentiate itself from the field.
Positioning on sports
FanDuel said its platform will offer event contracts on benchmarks such as the S&P 500 and Nasdaq-100, prices of oil and gas, gold, cryptocurrencies and key economic indicators. Beyond financial markets, sports event contracts will be available for baseball, basketball, football and hockey in states where online sports betting is not yet legal, except on tribal lands.
As new states legalise online sports betting, FanDuel Predicts will cease offering sports event contracts in those states, the company stated in its press release. The prediction market craze has expanded at a rapid pace. By the end of the decade, prediction market annual trading volume could hit $1 trillion a year, according to gaming analysis firm Eilers & Krejcik.
While CME Group will receive 50% of gross revenue from FanDuel Predicts, FanDuel will shoulder all of the costs to support the app. Flutter Entertainment, the parent company of FanDuel, projects incremental fourth-quarter EBITDA costs of $40 million to $50 million from the launch. CME Group, meanwhile, will handle all of the exchange-related costs.
“CME Group prediction markets will enable a new generation of users to express their views on global benchmarks, economic indicators, sports and more,” said Lynne Fitzpatrick, president and chief financial officer of CME Group. “This launch is a pivotal step for expanding the reach of our products to FanDuel’s millions of registered users across the US.”
Flutter Entertainment traded around $218 a share on Tuesday, down nearly 3%. Flutter shares are down roughly 15% year-to-date.
Matt Rybaltowski
Matt is primarily responsible for long-form feature coverage on complex sports betting scandals. He also provides coverage on finance, M&A and other technological developments.
FanDuel enters five states at launch, far fewer than its main rival.