Prediction Markets Have Little Effect on Legal Sportsbook Handle, Says Analyst

Is all the sound and fury signifying nothing when it comes to the effect prediction markets are having on sportsbooks?

Well, not nothing, but less than you might imagine, according to Citizens Equity Research analyst Jordan Bender.

In a recent report to clients, Bender utilized data from Juice Reel and estimated that prediction markets “are stealing approximately 5% of regulated sportsbooks’ handle, or roughly $8 billion.”

“From a company perspective, we believe this is a wash for DraftKings, FanDuel (Flutter), and Fanatics, which are live with prediction market offerings,” Bender said.

But what about sportsbooks that haven’t entered the prediction-market space, a group that includes Bet365, BetMGM, Caesars, Penn Entertainment, and Rush Street Interactive? Bender noted that they could experience “slightly negative” effects due to the use of prediction markets.

Bender takes issue with claims that gaming stocks are down largely due to prediction markets, calling the narrative “overdone.” While DraftKings and Flutter are down 33% and 30%, respectively, from 52-week highs, Bender believes the “impact of business lost to yes/no exchanges doesn’t represent anything close to that level of cannibalization.”

He added, “To put the impact into a more digestible format, one bad ‘Monday Night Football’ game could have the same negative result on EBITDA as the total impact the prediction market space is currently having on the sector. Additionally, incremental legalization over time will shrink the prediction market total addressable market through a superior product offering (online sports betting), in our view.”

Retailers ‘Losing at a Higher Rate’ on Prediction Markets

Bender’s research also revealed a discrepancy in the amount of money lost — and how quickly — by retail users at prediction markets compared to other forms of gambling. He noted that “bettors using prediction markets lost 7% of wagers over the 90 days following their first visit to those exchanges, compared to 1% lost across other gaming venues.”

The analyst cited two factors at work. Sharp bettors are “exploiting retail competitors for single-game outcomes on prediction markets more frequently,” and those losses are “amplified because the average prediction market bet is $185 or more than triple” the $55 average bet at regulated sportsbooks.

“Said another way, prediction markets are creating worse losses for the worst users, while more educated bettors are winning more,” Bender said. “We also believe retail is losing at a higher rate with prediction markets offering worse pricing for the average user while also competing against market makers and educated bettors with pricing models and official sports data.”