FanDuel to Debut Prediction Market App to Fend Off Competitors
(Bloomberg) — FanDuel, the US online gambling division of Flutter Entertainment Plc, is launching its own prediction market product, which will allow it to open up in states where traditional sports betting is illegal and deal with competitive pressure from new startup exchanges in the space.
The company plans to introduce a new mobile app in December, FanDuel Predicts, where users can bet on the outcome of sports and economic indicators, the company announced on Wednesday at the same time that it released quarterly financial results that fell short of analysts’ expectations.
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Flutter is working with CME Group Inc., the derivatives exchange operator, to offer so-called event-contracts tied to the outcomes of baseball, basketball, football and hockey games, a move that could create conflicts with state regulators who have said prediction markets are illegal.
The sports-betting features will only be available in states where traditional online sports gambling, like FanDuel’s current app, is illegal. If states later legalize sports gambling, FanDuel said it will stop offering the sports-related event contracts.
“The North Star is still to legalize sports betting in every state we can, but that is going to take some time,” FanDuel Chief Executive Officer Amy Howe said in an interview. “Until that happens, this gives us a great, safe alternative, to offer consumers a world-class product in a way they are not protected today.”
FanDuel will also offer event contracts based on the value of oil, gold, crypto tokens and stock indexes and these will be available in “virtually all states,” the company said.
The new product represents a significant escalation in the efforts by gambling companies to fend off upstart prediction market exchanges like Kalshi and Polymarket, which have, over the past year, circumvented state gambling laws by offering regulated financial contracts tied to sports games and other events.
The shares of FanDuel’s parent and its closest competitor, DraftKings, have been falling in recent months as Kalshi and Polymarket have attracted growing volumes and other Wall Street firms have looked to get into the business.
Flutter on Wednesday also presented third-quarter financial results that missed Wall Street expectations and lowered its revenue and profit forecasts for the year.
Sales rose 17% to $3.79 billion, shy of the $3.86 billion that analysts had been expecting. The number of monthly players, at 14.1 million, also fell short.
Results were impacted by a $150 million shortfall in the US sports-betting market, where more bets paid off for customers than for FanDuel at the start of the NFL season. The company also shut down its online betting business in India after that country outlawed such wagers.
Flutter now forecasts full-year revenue of $16.7 billion and adjusted earnings before interest, taxes, depreciation of $2.92 billion, both below the company’s earlier guidance.
Sports gambling companies have approached prediction markets with hesitation and skepticism. Some state gaming regulators have said that they will not allow the gambling companies they oversee to also operate prediction markets. The chief executive officer of Caesars Entertainment Inc. said last month that he did not have immediate plans to enter the business because he did not want to put the company’s licenses at risk.
FanDuel may placate some gaming regulators by not offering event contracts tied to sports in states where it has a traditional gambling license. But some states, such as Nevada and Illinois, have said the gambling companies may endanger their licenses even if they offer prediction markets in other states.
“We’re working with every single state regulator to make sure we can educate them on what we are doing and what we are not doing,” Howe said. “Protecting those relationships and our licenses in those states is certainly one of the most important things we do as we step into this new prediction market opportunity.”
Prediction market operators such as Kalshi and Polymarket have argued that their products are subject to review by the US Commodity Futures Trading Commission and not states, which routinely regulate and tax other forms of gambling. Sports betting is still illegal in nearly a dozen states.
There are a mounting number of legal battles between state regulators and prediction market operators. Last month Kalshi, one of the largest prediction market operators, sued New York’s gaming commission, saying the state agency is overstepping its authority by attempting to regulate sports-betting operations that fall exclusively under federal jurisdiction.
But gambling companies like FanDuel have been under growing pressure to deal with the competitive threat from prediction market operators. FanDuel announced earlier this year that it would work with CME Group to explore opportunities in the space. Rival DraftKings Inc. recently purchased a regulated exchange that will allow it to enter the space in the coming months.
Flutter said it expects to invest as much as $350 million this year and next as it rolls out the new app.
Flutter CEO Peter Jackson said he wasn’t surprised by ESPN’s decision to end its sports-betting venture with Penn Entertainment Inc. and sign DraftKings as its new preferred sportsbook starting in December. He said he looks at all such deals that come along.
“We know how hard it is to run these media-sports partnerships,” Jackson said in an interview. “They’re very difficult to activate and to make work. You need to have the best products in the market. We have the best products in the market. We’re delighted with the partnerships we have.”
(Adds guidance in 12th paragraph. An earlier version corrected the company whose shares fell in paragraph eight.)
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