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Prediction Markets and Sports Betting: A Deep Dive into Cannibalization Trends and Market Dynamics

By jili tutorial · September 10, 2026

Prediction Markets and Sports Betting: A Deep Dive into Cannibalization Trends and Market Dynamics

Introduction: The Growing Rivalry Between Prediction Markets and Sportsbooks

In recent years, the rise of yes/no prediction markets—platforms where users bet on binary outcomes of sports events—has sparked concerns among traditional online sportsbook operators. Stocks of major players like DraftKings (NASDAQ: DKNG) and Flutter Entertainment (NYSE: FLUT) have experienced 12-month price declines partly attributed to the belief that prediction markets are siphoning away customers. However, new analysis from Citizens Equity Research suggests those fears may be overblown. According to analyst Jordan Bender, prediction market cannibalization of regulated sportsbooks is not worsening and may actually be easing—a development that could provide a tailwind for stocks like Flutter as the 2026 NFL season approaches.

This guide unpacks Bender’s report, examines the data behind the claims, explores the competitive landscape, and highlights which stocks may benefit from these shifting dynamics.

Understanding Prediction Markets and Their Appeal

What Are Prediction Markets?

Prediction markets allow participants to buy and sell contracts tied to the outcome of future events—such as “Will the Kansas City Chiefs win the Super Bowl?” or “Will Player X score over 20.5 points?” These platforms operate similarly to financial exchanges, with prices reflecting the crowd’s estimated probability of an event occurring. Unlike traditional sports betting, where odds are set by the bookmaker, prediction markets rely on a continuous auction mechanism that adjusts in real time based on supply and demand.

Why Are They Gaining Traction?

The Cannibalization Question: What the Data Shows

Key Findings from Citizens Equity Research

Analyst Jordan Bender, citing data from Juice Reel, presents several critical observations:

Why the Cannibalization Story May Be Overstated

Bender argues that prediction market operators are not simply stealing customers from sportsbooks. Instead, they are expanding the total addressable market. Marketing initiatives by platforms like Kalshi, Polymarket, or others bring in new users who might never have entered the regulated sports betting ecosystem—or who would have eventually gravitated toward sportsbooks anyway. As Bender notes, “Prediction market companies are successfully using marketing initiatives to bring new customers into the ecosystem who otherwise may not have entered the industry or would have eventually gravitated toward sports betting apps.”

In other words, instead of a zero-sum game, both industries can grow together. The “cannibalization is not getting worse and customers spending more” is a bullish signal heading into the 2026 NFL season, with Bender predicting handle acceleration in Q4 2026.

The Role of Sharps, VIPs, and Whales: Context for the Data

Who Really Drives Prediction Market Volume?

Bender warns that raw volume figures from prediction markets should be taken with a grain of salt. A disproportionate share of activity comes from sharps, VIPs, and whales—bettors who are often limited or even turned away by traditional regulated sportsbooks. These high-stakes players face strict limits on how much they can wager on sportsbook platforms, so they migrate to prediction markets where such restrictions are less common.

Thus, the 11% combined wagering figure may overstate the true competitive threat. If you strip out these large players, the actual share of mainstream retail customers using prediction markets is likely much lower. This distinction is crucial for investors evaluating the long-term impact on sportsbook operators.

Competitive Dynamics: Why Sportsbooks Are Still Spending Big

The Pressure to Invest in Promotions

Despite the easing of cannibalization concerns, Bender acknowledges that prediction markets represent a real competitive threat. The “budding rivalry” has pushed sportsbook operators like Flutter (parent of FanDuel) to commit to significant promotional spending during the upcoming football season. These expenditures have unnerved investors, who worry about margin compression.

Flutter’s willingness to spend reflects the fact that prediction markets are forcing sportsbooks to fight harder for customer attention. The analyst describes Flutter’s recent story as “messy,” but he still sees the stock as a buy heading into the 2026 football season. Leadership changes and rising market share—underpinned by a “war chest of cash”—are reasons for optimism.

The Knife Fight Analogy

Bender’s description of Flutter being “in a knife fight in this industry for decades” highlights how intensely competitive the online gaming space has always been. While prediction markets add new pressure, they also validate the broader demand for event-based wagering. Flutter’s ability to outlast rivals and invest through cycles gives it an edge.

Stock Winners: Flutter and Super Group

Flutter (NYSE: FLUT) – A Turnaround Play?

Bender rates Flutter favorably, citing:

The key uncertainty is whether the incremental investment seen in the second half of 2026 will be repeated in early 2027. Bender assumes it’s likely but sees accelerating growth as a reason to own the stock despite that risk.

Super Group (NYSE: SGHC) – The “Antidote” Play

Super Group, which operates an iGaming-first model (including brands like Betway), offers a different value proposition. Because the company does not book sports bets in the ultra-competitive U.S. market, it is largely insulated from prediction market competition. Bender describes it as a “prediction market antidote.”

Key points:

For investors seeking a less volatile bet within the online gaming space, Super Group stands out.

Outlook for the 2026 NFL Season and Beyond

Positive Signals for Handle Growth

Bender’s analysis points to a convergence of factors that should boost sportsbook handle:

If these trends hold, Q4 2026 could see a meaningful acceleration in handling, benefiting operators like Flutter, DraftKings, and others.

Risks to Consider

Conclusion: A More Nuanced Picture Emerges

The narrative that prediction markets are systematically destroying traditional sportsbook business appears oversimplified. While these platforms have grown rapidly and now command a notable share of combined wagering, the data suggests that most of that volume comes from a handful of large bettors, and that the overall migration of regular customers is minimal. Moreover, prediction markets are bringing fresh participants into the ecosystem, many of whom become high-value sportsbook users.

For investors, the key takeaway is that the cannibalization threat is not worsening and may even be receding. That bodes well for stocks like Flutter, which have been under pressure. At the same time, Super Group offers a defensive alternative with a clean growth story.

As the 2026 football season approaches, all eyes will be on whether handle accelerates as predicted—and whether sportsbook operators can finally break free from the shadow of prediction market fears.