A new subscription product that leading gambling research firm Eilers & Krejcik Gaming debuted this week examines prediction market operators such as Kalshi in the context of the broader sports betting business.
To do that, EKG created a metric it calls “adjusted handle per adult,” which converts widely reported prediction market volume to an analog for sportsbook handle, recalculating both to account for structural differences. The most glaring of those is that both the buy and sell sides of an event contract (e.g., Yankees win or lose) are included in volume, essentially double-counting each dollar when compared to sports handle. EKG’s adjusted handle also takes into account more subtle differences, such as the treatment of parlays vs. what prediction operators call combinations.
The most intriguing takeaway from the new “Prediction Markets Monitor”: That using the new adjusted handle metric, Kalshi’s surge during March Madness would have made it the No. 4 U.S. sportsbook for that month, in a neck-and-neck race with MGM behind DraftKings, FanDuel and Fanatics. It ranked ninth by that measure in the 12-month span leading up to March.
EKG estimates U.S. prediction operators combined for about $2 billion of handle analog for the month.
“Getting the like-for-like is a little tricky,” said Chris Grove, a partner at the research and consulting firm. “But the takeaway is that if you’re talking about the universe of brands in the U.S. where American consumers go to predict the outcome of sports events for real money, Kalshi is in the top four.”
EKG hopes to bring actionable data, observation and analysis to the many stakeholders in sports and sports gambling who are trying to plot courses in a disrupted space. Creating a single, credible metric to compare two products that can present identically but function differently was an important first step.
“When we’re thinking about a new thing like prediction markets, the size of it dictates so much of how it’s approached, both as an opportunity and a challenge,” Grove said. “It dictates who gets involved and who doesn’t get involved. It dictates whether it gets coverage or it doesn’t get coverage. It dictates how policy makers approach it. All of those things are downstream from the idea of a size and scale. The trick with a new thing is that it often can come with a new way of describing its size or its scale.
“We can argue about how big it is. We can argue about how big it’s going to get. I don’t think we’re really having an argument anymore about whether it has crossed that threshold of big. And that’s important.”
Kalshi’s focus
EKG’s research confirmed the logical expectation that Kalshi does the vast majority of its business in states that have not legalized sports betting, most notably California and Texas, which EKG estimates accounted for 43% of volume. It estimates 61% of its volume came from those two states, Georgia, Florida and Washington. And that the 19 states that have not legalized online sports betting delivered 69% of Kalshi’s volume.
It said the prediction operator held a less than 3% share of handle analog in states that have more than three licensed online sportsbooks. That rose to 8.5% in states in which one sportsbook has a monopoly, such as Florida.
Kalshi does not report volume by state. EKG used Google search share and digital ad tracking as a proxy. It said it will update this model quarterly.
“This is definitely medium-confidence estimate,” Grove said. “And it is one of those that I would call a black hole estimate. We are getting to it by looking at everything that surrounds it, as opposed to being able to look directly at it. ... We shouldn’t think of that as a steady state.”
Grove cautioned that Kalshi and other prediction market operators aren’t attracting many customers in legalized states doesn’t necessarily guarantee that it can’t.
“If I’m Kalshi ... I want the path of least resistance to the greatest growth,” Grove said. “Kalshi doesn’t have unlimited money or unlimited time, in spite of raising at that [$22 billion] valuation. There still are only so many hours in the day and so many dollars in the bank, and they want to continue to show quality KPIs. So, they’re going to go way overweight on effort in California and Texas, because cost of acquisition is lower there and saturation is lower there.
“That’s an important bit of framing when you’re thinking about how competitive these products are in [online sports betting] states. They’re not trying to be that competitive in OSB states right now because it doesn’t make as much sense as putting that effort into lower friction states.”
He also pointed out the competitive advantage predictions could have in higher tax rate states, such as New York and Illinois.
“Not having to pay gaming tax is a pretty massive structural advantage,” Grove said. “So, when we talk about the ability to compete in N.Y., that’s a function of can you get to product parity. Can you get to brand parity? Not having to pay 51% in N.Y. is a pretty massive advantage if you can also get to product parity and brand parity.
“I think Polymarket and Kalshi can get to brand parity. I think product parity is still a ways off. But do they have incentive? Yes. Do they have the resources? Yes.”
Supreme Court, public policy impact
Though the report includes a public policy section that outlines bills pending in Congress and a timeline for how regulatory reform might proceed at the Commodities Futures Trading Commission, Grove doesn’t think the existential questions will be answered until the Supreme Court weighs in or elects not to.
EKG says insider-trading restrictions aimed at politics and traditional commodities futures contracts are the more likely result of any action Congress would take, if it takes one. It also predicts an accelerated timeline on new rulemaking at the CFTC, which it expects to continue to aggressively defend its jurisdiction, but with new and clarified guidelines that could put tighter restrictions on how operators approach sports. EKG expects final rules to be in place by late this year and implemented by early next year.
Grove doesn’t think anything that would materially slow prediction market expansion — by Kalshi and Poly or any of the sportsbooks that are likely to ramp up dramatically for football season — is likely to come as issues wind their way up the courts.
“It goes to the Supreme Court,” Grove said. “That’s the path. And as long as we remain on that path I don’t think any of the other things are going to happen or matter in time to have an impact. I think this is a question that ends up in front of the court. If the court decides not to take it, that’s obviously a different thing. “
Grove shot down alternative outcomes as if they were clay pigeons. He doesn’t believe the incursion of untaxed prediction apps will move more states to legalize. “The states that are left are left for a reason,” he said. “This doesn’t change those reasons.” He doesn’t see the Trump administration or Congress acting in a way that affects sports.
“The CFTC is out there actively suing states,” Grove said. “Everyone, if they want to, can just point to the courts and say, ‘We’re not going to do anything.’ This is an environment where D.C. is happy to take the easy way. Is this a top-30 issue for the average voter?”
A few more interesting nuggets:
- The early-stage U.S. market is far more sports-obsessed than the global prediction market, which is what you get when prediction markets are the only way to bet on sports legally in half of a country. In the U.S., sports made up 87% of Kalshi’s volume in the last 12 months, with crypto-related contracts second at 7%, election and politics at 1.9%, economy and finance at 1.5% and culture, climate and other at 2.5%. On Polymarket’s global exchange, sports made up 40%, followed by election and politics (21%), crypto (19%), culture, climate and other (12%) and economy and finance (7%).
- EKG projects prediction market volume to double from $76.8 billion this year to $165 billion next year.
- Combined contract volume from the new prediction apps rolled out by FanDuel and DraftKings was less than 1% of Kalshi’s in the first quarter.
