Prediction time: DraftKings and FanDuel are expected to take on Kalshi and Polymarket directly

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The sports betting world is buzzing over DraftKings's (NASDAQ:DKNG [https://seekingalpha.com/symbol/DKNG]) acquisition of Railbird. The deal is notable because Railbird received its approval as a designated contract market by the Commodity Futures Trading Commission earlier this year. The DCM license allows Railbird to operate as a regulated futures exchange in the U.S., which includes the event contracts used by prediction market platforms such as Kalshi (KALSHI [https://seekingalpha.com/symbol/KALSHI]) and Polymarket (POLYMARKET [https://seekingalpha.com/symbol/POLYMARKET]).

As part of its new business strategy, DraftKings (NASDAQ:DKNG [https://seekingalpha.com/symbol/DKNG]) also confirmed plans to launch DraftKings Predictions, which will be a mobile application that will allow customers to trade regulated event contracts on real-world outcomes across finance, culture, and entertainment. Notably, sports was not mentioned in the deal announcement, although the expectation is that the company will enter the category.

The acquisition of Railbird follows Flutter Entertainment's (NYSE:FLUT [https://seekingalpha.com/symbol/FLUT]) announcement that FanDuel will partner with CME Group (CME [https://seekingalpha.com/symbol/CME]) on prediction and event contracts in the U.S., initially starting with financial contracts only.

"We believe customer acquisition in unregulated states and product/technology development is the primary business case for OSB operators entering prediction markets today," updated CBRE analyst John DeCree. "If legal clarity emerges on sports contracts, we believe both DKNG and FLUT could enter the space quickly and efficiently," he added. If legal clarity does not emerge, DeCree and his team view prediction markets as a political nudge for OSB holdout states to consider legalization to capitalize on the meaningful tax revenue.

Needham expects the Railbird acquisition to improve sentiment on DraftKings (DKNG [https://seekingalpha.com/symbol/DKNG]), which was noted to currently be at a low. Analyst Bernie McTernan noted that the deal represents total addressable market expansion for DraftKings (DKNG [https://seekingalpha.com/symbol/DKNG]) into states that it does not currently have access to with regulated online sports betting, such as California, Texas, and Florida.

Bank of America analyst Shun Kelley said the DraftKings (DKNG [https://seekingalpha.com/symbol/DKNG]) announcement starts to fill in the gap about the company's strategic response to the prediction market threat, as well as show a sense of urgency and understanding of the rapidly evolving landscape.

In other prediction market news, the NHL inked a deal with Polymarket (POLYMARKET [https://seekingalpha.com/symbol/POLYMARKET]) and Kalshi (KALSHI [https://seekingalpha.com/symbol/KALSHI]) to allow its trademarks to be used by the companies. The NHL already has similar trademark deals with DraftKings (DKNG [https://seekingalpha.com/symbol/DKNG]), FanDuel (NYSE:FLUT [https://seekingalpha.com/symbol/FLUT]), and BetMGM (MGM [https://seekingalpha.com/symbol/MGM]) (OTCPK:GMVHF [https://seekingalpha.com/symbol/GMVHF]).

Shares of DraftKings (DKNG [https://seekingalpha.com/symbol/DKNG]) were up 2.8% in premarket trading, while Flutter Entertainment (FLUT [https://seekingalpha.com/symbol/FLUT]) was down 1.5%.

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