DraftKings and FanDuel are ramping up prediction market spending as PENN warns of an NFL-season customer acquisition arms race.
Prediction markets are pulling the country’s largest sportsbook operators back into heavy customer acquisition spending, just as the industry had started shifting its focus toward profitability over market share.
Key Takeaways
- Major operators are bracing for what one CEO called “very aggressive, irrational” spending heading into football season
- DraftKings and FanDuel both say their prediction market products are attracting new customers rather than cannibalizing existing sportsbook business
- Combined, the leading operators expect to lose more than $500 million in adjusted EBITDA this year from prediction market investment and marketing alone
What Happened
DraftKings, FanDuel parent Flutter Entertainment, and PENN Entertainment used their second-quarter earnings calls to lay out very different strategies for the same competitive problem: prediction markets are reshaping how sportsbook operators compete for customers, and most of the largest players are choosing to spend into it rather than sit it out. This follows a rough week for both companies’ stock.
That shift comes as overall sports betting growth has cooled from the double-digit rates that defined the industry’s early expansion, pushing operators to lean harder on new products and previously unreachable customers to keep growth numbers up. Football season, historically the biggest customer acquisition window of the year, is expected to be where that spending shows up most.
PENN CEO Jay Snowden, whose company has stayed out of the prediction market space entirely, was blunt about what he expects from competitors this fall, warning of a coming spending arms race as football season begins.
DraftKings and FanDuel See Growth, Not Cannibalization
DraftKings reported customer acquisition up nearly 75% year over year last quarter, with prediction market volume growing almost fivefold between April and July and more than 600,000 customers having used the product through the first half of the year. The company’s unified app, which automatically routes customers between its prediction market and sportsbook depending on state legality, has helped drive that growth.
Notably, DraftKings says it isn’t seeing meaningful overlap between its prediction and sportsbook customers, estimating roughly 1% crossover in states where sports betting is already legal. The company also believes the bulk of prediction market volume in those states, somewhere between 80% and 90%, is coming from professional trading syndicates rather than the recreational bettors who make up most of its existing sportsbook base.
Flutter is making a similar bet with FanDuel Predicts, framing the product as a way to reach customers in states without legal online sportsbooks and build relationships ahead of any future legalization. Like DraftKings, Flutter says cannibalization of its core sportsbook business has been limited so far, and the company is increasing promotional spending on the product while projecting around $50 million in prediction market-making revenue this year.
Not Everyone Is Spending
PENN and Rush Street Interactive are taking the opposite approach. PENN has deliberately pulled back spending on customers it doesn’t see as long-term profitable, staying focused on its retail casino business and pointedly skipping the prediction market space altogether. Rush Street, which operates BetRivers, has described its own posture as a flexible, wait-and-see approach while it evaluates how the category affects its existing business. Kalshi’s own volume has been central to this pressure, see Kalshi and Polymarket’s record $50 billion July.
Why the Stakes Are High
Prediction markets operate under federal commodities regulation rather than state-by-state gambling licensing, which gives operators a path into large states like California and Texas where traditional sports betting remains illegal. That access is a big part of why bigger operators appear more worried about missing the opportunity than about the wave of state lawsuits challenging these platforms’ legality. For more on that legal fight, see our coverage of Novig’s lawsuit against New York and our broader prediction market regulation guide.
The bigger picture echoes the early years of legal US sports betting, when operators spent heavily to acquire customers before eventually shifting toward profitability once markets matured. Whether prediction markets trigger a similar multi-year spending cycle, or settle down faster, is likely to become clearer once NFL season activity kicks in and the leading operators report how their investments performed.