Prediction markets aren’t significantly cannibalizing sportsbooks, a team of Citizens analysts asserted in an industry note Monday, but the biggest bettors are likely moving from traditional sportsbooks to prediction markets and offshore. The data, from JuiceReel, revealed that it’s difficult for sharp players to get a meaningful return on investment on state-regulated sportsbooks.
That view was echoed by a pair of professional sports bettors that Citizens analyst Jordan Bender interviewed Friday. Both Isaac Rose-Berman and Tanzi Yi told Bender that they are taking more of their action offshore or to prediction markets as traditional sportsbooks continue to limit bettors. In addition, they said, the Holy Grail of investing — being the market maker — is available to them on Kalshi and other prediction markets, but not on sportsbooks.
“Those platforms [prediction markets], whatever their flaws, they don’t kick bettors out,” Rose-Berman said. “So if you are a bettor with a lot of money, that is very appealing. They also allow you to capture that retail float. … If you’re on a sportsbook, you can’t really capture the losses of other people, but on prediction markets, you can. Most profitable prediction market traders are able to market make and capture as much retail float as possible.”
Rose-Berman said that while he can log onto Kalshi and “put in $50,000 or $100,000 and start market making,” he is often limited to $50 or $100 per wager on DraftKings or FanDuel.
“It’s a new game,” Yi said. “And that is what is attractive to me, being able to be on the other side of bets, that’s what I want do. We all want to be FanDuel or DraftKings, that’s the dream.”
While Rose-Berman and Yi are taking advantage of that opportunity now, they said it’s likely that at some point in the future, Kalshi and other prediction markets will close the loop on individual market makers in favor of institutions or their own trading teams. In addition, the market-making opportunity isn’t available on platforms like DraftKings Sportsbook or FanDuel Sportsbook because those companies “keep all the action for themselves,” but for more recreational bettors, the experience on the traditional sportsbooks-turned-prediction markets is better than on Kalshi.
Both bettors said there is risk involved with market making — Rose-Berman said that if he makes a market, he wants to see many smaller trades happening on the other side because if there is one trader “gobbling” up the position, he knows it’s another pro and he could lose. Yi pointed to “a whole order book being wiped out” on a prediction market trade during the 2025 U.S. Open because there are no limits and consumers are not banned.
Young gamblers favor prediction markets
The JuiceReel research revealed that the average sportsbook or prediction market customer struggles to make money, but for different reasons. On traditional sportsbooks, parlays account for up to 35% of sportsbook handle, and are “structurally unfavorable” to bettors — i.e., the odds heavily favor the house. On prediction markets, the median customer is faced with direct competition from sharps, which results in greater losses to casual or not-quite-professional traders.
But where prediction markets could be doing the most damage, wrote Bender, is in the youngest demographic. As sportsbook app downloads have been trending down, Bender wrote, it could be because prediction markets are “diverting potential new players, particularly in the regulated states, who might have otherwise downloaded a sports betting app.” Per the report, total app downloads for DraftKings and FanDuel dropped 18% and 13%, respectively, year over year for the September-February time period.
That said, Bender projects that high spending campaigns entering the 2026 NFL season could bring bettors back to sportsbooks from prediction markets, and it’s possible the number of available prediction platforms may begin shrink, mirroring what happened after legal sports betting became a state’s rights issue in 2018. Citizens estimates that 61 online sports betting platforms launched outside of Nevada in the last eight years, but only 31 are still active. And of those 31, the top eight account for 98% of revenue. In the first full year since prediction markets and sports event contracts came onto the gambling scene, about 24 prediction platforms have launched or are seeking licensure.
“Ultimately, we see DraftKings and FanDuel as main competitors to the incumbents [Kalshi and Polymarket] with decades of operational experience in the betting industry, while many attempting to compete will fail,” Bender wrote. “Longer term, sports betting legalization in new states will put a ceiling on the TAM and make it increasingly difficult for an abundance of prediction market operators to compete in those respective states, in our view.”
Additional interesting tidbits
Other key findings Citizens shared:
- The average consumer has a -5% return on investment (ROI) on traditional sportsbooks and a -8% ROI on prediction markets.
- No single age cohort is profitable in traditional sports betting, and the smaller the wallet, the lower the ROI on both state-regulated sportsbooks and prediction markets.
- Customers who have traded more than $500,000 on prediction markets since last July are the most profitable group, with a 2.6% return on investment.
- Players leaving sportsbooks for prediction markets are “lower quality” customers for sportsbooks.
- Legal gambling industry executives say they estimate up to a 5% cannibalization rate from prediction markets.
- The median age, per Sensor Tower data, of a traditional sportsbook player is 35 compared to 31 for prediction markets — and the under-25 demographic represents 7% of traditional sportsbook customers vs. 24% on Kalshi.
- The bulk of prediction market players live in the non-legal gaming states of California, Georgia, and Texas and the legal gaming states of Florida, Illinois, New York, Pennsylvania, Washington, New Jersey, and North Carolina. Florida has only one platform, Hard Rock Bet, and Washington state allows only in-person wagering.
- Consumers with prediction market apps have an average of 6.5 apps on their devices vs. an average of 2.5 apps for those who do not use prediction markets.
Customers got best price on Kalshi for MM
In a second analyst note Monday, Citizens declared Kalshi a winner through the first four days of March Madness, with Bender writing that the company offered the customer superior pricing compared to DraftKings, Fanatics, and FanDuel sportsbook offerings. Overall, Kalshi’s pricing was 4.04% vs. 4.28% for DraftKings, 4.40% for FanDuel, and 4.47% for Fanatics. The pricing was on moneyline and over/under bets. Comparing all prediction products, Bender wrote that Kalshi beat out DraftKings, Fanatics, FanDuel, and Robinhood.
Polymarket’s pricing was “superior” to all as it has “nearly no fee structure,” but the platform isn’t widely available in the U.S.
Citizens projects that handle for the full NCAA men’s basketball tournament will be down 3% compared to last year due to “artificially-inflated comps in the prior year from all the favorites winning (larger wallet recycling) and higher customer churn exiting the NFL season.” The $3 billion projected handle for the whole tournament is twice that of the Super Bowl.
