Not long after former sports betting consultant and sportsbook/league peacemaker Sara Slane joined the management of gambling disrupter Kalshi in April, I asked her whether to expect the prediction market exchange would look more like a full-service sportsbook by the time football season kicked off.
Kalshi had created a stir by offering event contracts for the Super Bowl and March Madness, the two most bet-on events in sports. But both were basic offerings: Who would win the Super Bowl; and who would win each game, or the championship, in both the men’s and women’s brackets of the NCAA basketball tournament.
It was clear Kalshi would test the demand for offerings around other sports. And it seemed likely to me that by the time football rolled around, the company would find a way to introduce point spreads and offer player props. If you could write a contract built around whether the Chiefs would win, you could build it around whether they’d win by more than 6½, whether the combined score would be more than 43½ and how many TD passes QB Patrick Mahomes would throw.
Not only was there an established consumer demand for those bets, but offering them would also make it more likely that customers would put money on games that were likely to be one-sided.
Slane was new to the company, but said she was told they hadn’t considered it -- at least not yet.
It was inevitable. If you take the position that sports-based predictions contracts are a financial derivative, rather than a form of gambling -- which is Kalshi’s position -- those contracts can be on anything that the federal regulator overseeing them will allow, just as a sportsbook can offer any bet that a regulator will allow or, in some cases, a league will allow.
With preseason NFL games already flowing and the college football season opening this weekend, we know that the regulator, the Commodity Futures Trading Commission (CFTC), will permit Kalshi to offer contracts that will mirror the “six-pack” that all sportsbooks offer: moneyline, point spread and total. Kalshi also will offer a very limited list of player props -- only on NFL quarterbacks around touchdowns.
For now, at least.
A critical test
Robinhood, which made a big splash around March Madness as a CFTC-regulated Kalshi merchant, announced this week that it also will offer Kalshi’s football markets, though not wading into point spreads or over-unders, at least for now. In its latest earnings call, Robinhood said it traded $1 billion in prediction contracts in the second quarter, which included March Madness. It attributed a “large percentage” of that to sports.
Kalshi’s football offering is a sliver of what bettors in legal states, or users of illegal offshore apps, will be able to wager on. But it will be the only way to bet on game results legally -- or at least what thus far has been determined to be legally -- in California, Texas, Georgia, Minnesota, Wisconsin, Washington and 11 other states that together make up about 40% of the U.S. over-21 population.
That will make this a critical couple of months for Kalshi and Robinhood, a period of heavy trial and customer acquisition that is akin to what sportsbooks see when states first open.
“Like everybody else, we’re looking at how we’re going to gear up and target for customer acquisition,” Slane said. “We don’t have huge brand awareness at this point in time. We only got up and running officially last October. So, this is a whole new can of worms for us.”
Sports accounted for $2 billion in volume for Kalshi in the first half of the year, Slane said, a figure that shouldn’t be confused with handle calculations that sportsbooks use. Volume is the amount of money tied up in a contract on both the buy and sell side, which means it’s automatically twice the equivalent of handle from a similar wager. And it multiplies each time a contract is traded as prices rise and fall. If a customer buys in when a contract is at 50 cents, then sells at 70 cents, buys back in at 65 and sells again at 70, it adds to the volume -- on both sides -- each time it’s traded.
Kalshi makes its money from fees from those trades – typically about 3.5% per trade, though they vary. Robinhood will add 1% on top of that.
It is likely to generate a sliver of what the sportsbooks will bring in. Even if you use 50% as a baseline to compare volume to handle and give Kalshi $1 billion for the first half of the year, that’s dwarfed by the $17 billion that DraftKings and FanDuel each did and is about 60% of what the sixth-ranked book, ESPN Bet, did.
“They definitely make more money on hold than we do on transaction fees,” Slane said. “Do I think it’s complementary or an adjacency? Sure. Do I think options are good for consumers? Yeah. Absolutely. But sportsbooks are not going away and have not been hurt.”
The path forward
However much Kalshi and Robinhood make from football, it will be far more than the zero that the sportsbooks will collect from bettors in California, Texas and the rest of the 40% of the population that still can’t access them.
FanDuel became the first to publicly reveal its plan to approach the prediction markets this week when it announced a collaboration with CME Group, known best for its operation of the Chicago Mercantile Exchange. While it announced only that it planned to offer traditional contracts around economic indicators, FanDuel’s move also offers an accelerated path into sports contracts -- if it becomes comfortable enough with the risks of go that route.
Kalshi prevailed in two federal courts when state gambling regulators tried to shut them down earlier this year, but those were narrow rulings on whether the CFTC could supersede the state as regulators of prediction contracts. Earlier this month, it lost in a Maryland court when a federal judge ruled that the contracts constituted gambling.
Gambling regulators in the 22 states in which FanDuel operates its sportsbook agree with the latter. And some -- as well as the tribes who control the fate of sports betting legalization in California -- have made it clear to sportsbooks that wading into those waters could put their license at risk.
The leagues, which have spent the last seven years working with sportsbooks and regulators to craft an infrastructure that they’re comfortable with -- and can profit from -- also are torn on the issue.
They don’t like that Kalshi and Robinhood have moved aggressively on what amounts to a workaround of the framework they helped create. But they’re hopeful that it could hasten legalization in the big states that have stalled.
And if it doesn’t, they can see a path toward détente with Kalshi and other financial exchanges that they don’t have with offshore operators such as Bovada, which is where many in California and Texas are betting now.
“That’s definitely our pitch [to the leagues],” said Slane, who Kalshi hired because of her success building bridges between the sportsbooks and the leagues. “We want to work with you. We want you to tell us what your concerns are. We want to share data with you. We want to be as transparent as we legally are allowed to be.
“So, help us help you.”
