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Read Full BioInvestment firms are evaluating gambling company stocks as the launch of prediction market parlays has had a sizable impact on prices.
DraftKings‘ price plunged from $42.25 on Tuesday to just over $35 on Thursday, while FanDuel parent company Flutter fell from 20,930 GBX to 18,570. The drops were attributed by many to the launch of same-game parlays (SGP) at Kalshi.
After self-certifying multi-leg markets with the Commodity Futures Trading Commission (CFTC) last month, the platform released parlays on Monday Night Football games.
The markets generated a limited volume of trading, resulting in fees of less than $2,000 for Kalshi. They are also only across the game winner, total points, and touchdown scorer markets. However, the self-certification filed allows for prop bets and various other markets to be included.
Benchmark & Jefferies Not Overly Concerned by Prediction Parlays
Despite the stock price drops, major investment firms Benchmark and Jefferies remained optimistic that sports betting companies will recover.
Benchmark lowered its price target on DraftKings to $43.00 from $53.00 on Thursday, but maintained a “Buy” rating on the stock.
While acknowledging the rise of prediction markets has shaken investor confidence, Benchmark stated that there is “no evidence of a tangible business impact.”
Investment group Jefferies, meanwhile, said the Kalshi offerings “lack the sophistication of traditional online sports betting” parlays. The firm cited the limited markets available for users to build their own bets, compared to the range of markets offered by sportsbooks.
Jefferies Managing Director David Katz said in an investor note, “We do not believe the economics of prediction markets are nearly comparable to [online sports betting], with the product and technology also not comparable”.
One benefit of prediction markets is that they are not dependent on results going their way. DraftKings reported that the Buffalo Bills’ win over the Baltimore Ravens in NFL Week 1 was the single-worst game outcome ever. For either result, Kalshi will take the same cut.
Stock Market ‘Right to Be Cautious’
The benefit of not relying on results, as well as being able to operate across all states, no matter the betting laws, means some investment firms are more cautious.
Regulus advisor Paul Leyland said, “While comparable matched trading volumes remain relatively small compared to bookmaker handle, we believe the stock market is right to be cautious.”
Leyland went on to say that while parlays may not rival sportsbooks, prediction markets could surpass the companies in other betting markets.
Quoted in Steve Ruddock’s newsletter, Straight to the Point, he said, “Prediction markets can reasonably go for the other 60% of US sports betting revenue highly effectively: singles bets on big events and SGPs with three legs or fewer, especially since they tend to appeal to sharper customers.”
Deutsche Bank went even further, suggesting that prediction markets could potentially dominate parlays as well. The company stated, “We anticipate that this product has the potential, in the long term, to offer more competitive parlay pricing compared to sports-betting operators, given competition from the market makers.”
Prediction Markets Show Potential as Issues Remain
Whether market makers are willing to take on the risk of big payouts remains to be seen. The prediction market space is also becoming increasingly crowded. Polymarket is set to launch in the US and is expected to capture a significant share of traders. Underdog has partnered with Crypto.com, FanDuel has linked up with CME, and others are applying for CFTC licenses.
If there are multiple platforms, liquidity is spread across different sites, but bettors can generally wager on whatever they want (within reasonable limits) at a sportsbook.
Additionally, ongoing court battles could significantly impact the potential of prediction markets. The CFTC broke its silence on sports event contracts this week and warned companies they may have to abide by state rules after all.
The organization is still considering who will lead the regulator. A new chair that takes a firmer stance on the letter of the law regarding the Commodity Exchange Act (CEA) could also burst the, for now, expanding bubble.
