Kalshi’s surprise debut of sports prediction parlays triggered the sharpest sports betting stock sell-off in months, but several Wall Street analysts say the panic represents more of a buying opportunity than a lasting threat.
DraftKings shares fell 12% on four-times its normal trading volume, while FanDuel parent Flutter dropped 10% Tuesday after Kalshi rolled out a same-game parlay builder ahead of Monday Night Football’s doubleheader. Dubbed “build your combo,” the feature allowed users to combine bets on spreads, totals, moneylines and player props, encroaching on the products sportsbook executives had called a key competitive differentiator.
That “narrative now appears to be undergoing reevaluation,” Deutsche Bank analyst Steven Pizella wrote, underscoring fears that prediction markets could chip away at sportsbooks’ most valuable product.
But most analysts called those concerns overblown, pointing to steep structural hurdles for exchanges, disparities in volume, and a regulatory cloud that continues to hang over the sector like a storm front.
Predictions not equipped for parlays
Stifel analyst Jeffrey Stantial called the sell-off “a compelling buying opportunity,” arguing that exchange models are fundamentally ill-suited to replicate SGPs.
Collateral requirements make long-shot combinations uneconomical, while exposure to sharp bettors and a lack of diversified liquidity further limit the exchange’s reach, Stantial said in a note. He reiterated buy ratings for DraftKings and for Flutter, pointing to decades of overseas precedent where exchanges have remained a niche product despite maturity of the market.
“Most parlay bettors are casual, valuing product over pricing,” Stantial said. “We see fears of share erosion as overblown.”
Jefferies analyst James Wheatcroft struck a similar tone. While Kalshi’s test product targeted the same multi-leg bets that represent roughly 70% of Flutter’s sportsbook income, he agreed the offering remained “limited” compared to what DraftKings and FanDuel already provide.
Kalshi sees early parlay returns
Parlays have become the cornerstone of sportsbook economics, producing margins nearly double those of traditional bets. In 2024, operators held close to 20% on parlays in some states, compared with a national average hold of 8.6% across all wagers. They’re also by far the most popular bet type, accounting for roughly two-thirds of all wagers in places like Louisiana and Maryland.
Kalshi, which launched sports event contracts earlier this year, processed more than $535 million in volume last weekend, with 99% tied to sports. Roughly $256,000 of that came from its parlay test on the two Monday Night Football games, according to company data.
Stifel analysts noted the surge still amounts to just 1% to 4% of monthly U.S. sports betting handle depending on conversion multiples, with most activity concentrated in unregulated states and sharp bettors.
In a pricing analysis of NFL moneylines, they found Kalshi offered the best odds about 60% of the time compared to FanDuel’s 40%, while DraftKings lagged. Even so, Stifel cautioned that incremental pricing advantages are unlikely to pull in casual bettors, who make up the bulk of parlay volume.
‘Headline risk’ quelled at G2E?
Citizens analyst Jordan Bender called the reaction “only a headline risk,” but cautioned that operators should articulate a clear strategy to counter prediction market hype, potentially as soon as next week’s G2E conference or during upcoming earnings calls.
Texas Capital analyst David Bain, echoed that view and called this a major “buying opportunity,” predicting that stocks should soon rebound with “soothing comments.”
“While same-game parlays have been introduced, we believe prediction market wagering options and overall content/functionality remains thin,” Bain said. “However, in a jurisdiction with little-to no-other online gaming betting option, we understand the appeal.
“We look at today’s stock weakness as a buying opportunity for many online-gaming-related stocks
Bad start to NFL dampens blow
The sell-off also came against a backdrop of another rough start to the NFL season for sportsbooks, with Deutsche Bank noting game outcomes have pressured margins and promotional spend is running unusually high despite no new state launches.
Pizella flagged downside risks to DraftKings’ near-term earnings given a tough NFL start and elevated promotional spending, arguing the market reaction creates more of an opportunity for business-to-business suppliers.
He noted B2C operators are unlikely to cut payments to Genius Spots and Sportradar, despite new competition, and could end up ramping promotional spend that ultimately drives more gross revenue and higher variable fees.
If prediction markets bring in financial institutions to support liquidity, those firms would need likely to source official in-play data feeds, Pizella wrote.
Kalshi parlays’ longterm viability
Stifel also pointed to “significant ambiguity” concerning surrounding the long-term regulatory viability of prediction markets, “characterized by numerous unknowns and divergent potential trajectories.”
DraftKings and FanDuel have taken steps to prepare for eventually offering prediction markets. However, that uncertainty around federal oversight and the risk of states revoking their betting licenses has kept them on the sidelines. In the meantime, fantasy operators such as Underdog have already begun experimenting in partnership with Crypto.com.
As Bloomberg Law reported, a bipartisan group of senators sent a letter Tuesday calling on the regulator to enforce the federal prohibition on sports betting through futures markets. They argued the Commodity Futures Trading Commission is implicitly giving a “green light” to products that should fall under state and tribal authority.
The CFTC this week also issued a staff advistoy this week cautioning exchanges to prepare contingency plans if state regulators or courts order them to shut down. The agency suggested it would not punish exchanges for halting access under such circumstances. Massachusetts, New Jersey, and Nevada officials meanwhile continue to fight Kalshi and Robinhood in court.
