Proposed Law Targets Prediction Markets. Could It End Sports Betting Stocks' Slump?

A bipartisan bill in the U.S. Senate would ban sports betting on prediction markets, a move that would benefit betting platforms such as DraftKings (DKNG), FanDuel parent Flutter Entertainment (FLUT) as well as Rush Street Interactive (RSI).

The bill targets prediction-market exchanges such as privately held Kalshi and Polymarket, which offer yes-or-no wagers on various sports outcomes, The Wall Street Journal reported. The legislation also would ban “casino-style games” such as video poker and blackjack from prediction platforms.

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Sen. Adam Schiff, D-Calif., a co-sponsor of the bill, told the Journal that the U.S. Commodity Futures Trading Commission, which regulates prediction platforms, has opened a backdoor that violates state consumer protections and intrudes on tribal sovereignty.

Co-sponsor Sen. John Curtis, R-Utah, said he fears that many young people in Utah are becoming exposed to addictive sports betting and casino-style gaming contracts, which should be under state control rather than federal regulators, the Journal reported.

Sports Betting Apps Vs. Prediction Markets

Much of the trading on Kalshi and Polymarket is related to sports, which pits them against betting platforms such as FanDuel and DraftKings. (Polymarket has a data partnership with Dow Jones, the parent company of Investor’s Business Daily.)

Faced with the strong competition, DraftKings and FanDuel announced their own prediction markets late last year. DraftKings launched its prediction markets on sports, financial markets, business, economics and politics. FanDuel teamed up with derivatives marketplace CME Group (CME) on a launch in Alabama, Alaska, South Carolina, North Dakota and South Dakota.

Robinhood Markets (HOOD) launched its predictions platform this month, and it includes sports. Shares rose more than 1% Monday amid the broad rally in stocks and bitcoin.

Legal Fights On Prediction Markets

The CFTC has argued in court that states have no regulatory power over prediction markets. Meanwhile, Nevada on Friday won a temporary restraining order that bars Kalshi from offering contracts on sports, elections and entertainment, the Journal reported. And Arizona has filed criminal charges against the parent companies of Kalshi. The state says those companies operate an illegal gambling business without a license.

On a separate front, Sen. Chris Murphy, D-Conn., and Rep. Greg Casar, D-Texas, said last week they would introduce a bill that bans wagering on government actions, terrorism, war and other events where individuals can have advance knowledge.

“Hours before both the initial strikes on Iran and the extraction of Nicolás Maduro in Venezuela, several prediction market users placed huge bets predicting the strikes and cashed out for hundreds of thousands of dollars,” Murphy said in a statement.

DraftKings, Flutter Shares Rise

DraftKings stock rose 2.1% in midday trading, though it pared gains. DKNG remains a laggard, down nearly 30% year to date and below the 50-day and 200-day moving averages, according to IBD MarketSurge. Its Composite Rating has shriveled to 31 from 83 six months ago.

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Flutter Entertainment rallied 5% to the highest since March 6, but also pared gains. But the stock is down more than 48% so far this year. Its Composite Rating is 11, and its Accumulation/Distribution Rating is a worst-possible E.

Rush Street Interactive jumped 4.8% to 21.67, hitting its highest level since late September. Shares exited a buy zone from a 20.55 double-bottom entry, but investors could use the March 19 high of 21.66 as a high handle.

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