By the end of this decade, prediction markets are projected to reach an impressive $1 trillion in annual trading volume, largely fueled by contracts related to sports, along with increased engagement from both fintech and conventional betting entities, as per a fresh report from research firm Eilers & Krejcik.
As indicated by Citizens’ analysis, existing prediction market platforms currently generate approximately $10 billion in trading volume. This highlights the nascent phase of a sector that analysts predict is on a rapid growth trajectory.
Sports are anticipated to act as the primary catalyst for this growth. Eilers & Krejcik estimates that contracts related to sports will represent 44% of long-term prediction market volume, as platforms broaden their offerings connected to leagues, games, and individual player performances.
However, the report warns that uncertainties in legal and regulatory frameworks might hinder or interrupt this expansion.
“Multiple factors, particularly legal hurdles, could slow or disorient the growth of prediction markets,” stated Chris Grove, partner emeritus and strategic advisor at Eilers & Krejcik, in an interview with CNBC. “Despite this, fundamental consumer demand and various brands aiming to satisfy that demand are prominently in place.”
It’s important to note that comparisons between prediction markets and conventional sports betting are nuanced due to the differing methods of measuring volume. In prediction markets, both sides of a transaction count towards volume, whereas sportsbooks reflect only the total amount wagered. For instance, a transaction involving a 40-cent buyer and a 60-cent seller generates $1 in prediction market volume, in contrast to the $1 recorded for a single sports wager.
Employing a conversion methodology, Eilers & Krejcik posits that mature sports prediction markets could equate to a sportsbook-style handle that is 60% to 80% of the current regulated online sports betting market. While 31 states in the U.S. permit online sports wagering, prediction markets are operational across all 50.
The swift emergence of platforms like Polymarket and Kalshi has attracted established players into this domain. Robinhood has introduced enhanced prediction functionalities, incorporating NFL parlay and prop contracts, while Fanatics, in collaboration with Crypto.com, unveiled Fanatics Markets this past December. Additionally, DraftKings and FanDuel are expected to roll out their own prediction platforms by the close of the month.
“The sportsbooks certainly recognize the looming disruption this could bring to their operations,” remarked Robinhood CEO Vlad Tenev.
Experts suggest that the industry remains in its formative stages, with broader institutional participation likely to emerge as this asset class evolves.
“Prediction markets are just beginning their journey towards exponential growth,” noted Citizens analysts, “as this asset class transitions from speculation to a more integrated segment of the capital markets, making room for institutional participation.”
Tenev further elaborated on this phase: “We believe we are witnessing the inception of a prediction market supercycle.”
As these platforms mature, cross-selling strategies are projected to differentiate, mirroring the distinct approaches of trading-centric firms and gambling-focused operators. Still, analysts emphasize a growing trend that blurs the lines between investment and wagering.
“Historically, there has always been some overlap between the two domains,” Grove commented, “but we now appear to be inhabiting an environment where gambling is increasingly resembling investing, just as investing migrates closer towards gambling.”