Betting stocks experienced a significant downturn on Friday as data indicated traditional sports gambling platforms may be losing market share to prediction market startups. DraftKings Inc., Flutter Entertainment PLC, and other stocks associated with the sports gambling industry all saw declines.

DraftKings shares plummeted as much as 8.3% in New York trading, marking its worst intraday drop since late October. Flutter, the operator of FanDuel, saw its shares fall by as much as 5.5%, reaching their lowest intraday level since late November. The broader gambling sector also suffered, with an SP gauge of industry shares declining by as much as 2.5%. This downturn coincided with the start of the NFL playoff season, a period typically characterized by high activity for sportsbooks.

The catalyst for this decline appears to be the rising popularity of prediction markets like Kalshi and Polymarket. These platforms have recently introduced financial contracts tied to the outcomes of sports games, and reported a surge in activity during the first week of NFL playoffs. This suggests a shift in consumer preference, with some users potentially migrating from traditional sportsbooks to these newer platforms. Adding to the pressure, New York state data revealed a year-over-year decrease in online sports wagering revenues, signaling a potential slowdown in the traditional sports betting market.

Online sportsbooks have faced increasing pressure in recent months as prediction markets have gained prominence by offering sports contracts. These startups leverage their status as federally regulated exchanges to offer contracts on sporting events, providing a different approach to wagering compared to traditional sportsbooks.

The emergence of prediction markets as viable alternatives presents a challenge to established players like DraftKings and Flutter. These companies will need to adapt their strategies to compete with the innovative offerings of prediction market startups. The future of the sports gambling industry may hinge on the ability of traditional sportsbooks to integrate elements of prediction markets into their platforms or develop new products that appeal to a broader range of consumers. The coming months will be crucial in determining whether this is a temporary blip or the start of a more significant shift in the sports wagering landscape.