Flutter Entertainment PLC (LSE:FLTR, NYSE:FLUT) lowered its financial outlook for the year but revealed a potentially industry-shifting development alongside its quarterly trading statement.
The owner of European brands such as Paddy Power and BetFair, as well as FanDuel in the US, announced a move into a buzzy, fuzzy corner of US fintech that blurs the lines with gambling: prediction markets.
A new prediction markets product will be launched next month in a joint venture with CME Group Inc (NASDAQ:CME), looking to catch up and overtake fast-growing startups Polymarket and Kalshi.
Exploiting a legal loophole, prediction markets allow customers to predict (or bet on, in other words) results of sports games in states without access to regulated sports betting, neatly sidestepping US gambling laws by positioning the product as a kind of information exchange rather than a sportsbook.
Flutter said the launch is designed to capitalise on FanDuel's strong brand and make use of CME's exchange capabilities, with the aim pf owning the leading market position by the end of the second quarter of 2026.
FanDuel Predicts will be launched in states where online sports betting is not currently allowed, and as states legalise sports betting, Flutter will flip customers to its sportsbook platform.
To get off the ground, the new unit will get $40-50 million of investment in the fourth quarter of the year, the Dublin-headquartered group added, followed by $200-300 million in 2026, the majority in the second half.
As well as allowing punters in states without regulated sports betting to wager on future outcomes, FanDuel Predicts will also allow betting on a wider variety of markets, from sports to financial and "cultural" topics, Flutter said.
Immediate growth opportunity
This is a “significant incremental addressable market”, said CEO Peter Jackson, who told investors the venture would “unlock an immediate growth opportunity” in non-betting states and help funnel customers into the FanDuel ecosystem ahead of future regulatory changes.
Analysts at broker Peel Hunt called it "a decisive entry" into a "controversial" market, which came along with a downgrade for FY25 expectations, largely driven by results. Given the uncertainty around the business at the moment, not least from the UK Budget, we reiterate our Hold recommendation and lower our target price from 22,300p to 18,000p.
What are prediction markets and who are the main players?
For the uninitiated, prediction markets let users bet on real-world events from the outcome of elections both national and local, to taking positions on economic data or making more outlandish bets. Popular Polymarket bets in the past year included whether Donald Trump would smoke marijuana with Joe Rogan or whether the US government would confirm the existence of aliens.
Polymarket, a privately owned startup, raised £200 million from the likes of Peter Thiel's Founders Fund in June at a $1 billion valuation, before Intercontinental Exchange (ICE), the owner of the New York Stock Exchange, invested $2 billion last month at a valuation of around $10 billion. More recently it has been looking for more funding at a valuation of $12-15 billion.
The startup’s main competitor is Kalshi, which last month raised over $300 million at a $5 billion valuation, a big jump from its prior fundraising just three months earlier, when it was valued at $2 billion.
Its success has caused no little anxiety in the betting industry.
A recent trip by European analysts at Berenberg to the US encountered “the most concern and fear we have felt since 2022” due to the rapid developments in the prediction space, with a fear that it will eat the lunch of the sports betting and iGaming industry.
Trump Media & Technology Group Corp (NASDAQ:DJT) announced last week that it will make prediction markets available on the Truth Social platform through an arrangement with Crypto.com, while traditional sportsbook operators like DraftKings are thought to be watching closely, though have not yet entered due to regulatory uncertainty.
'Unlocking immediate growth'
The amount of space in the Q3 results given over to the launch shows the importance to Flutter.
CEO Jackson acknowledged that prediction markets have been "a source of significant industry discussion over recent months".
He said the joint venture with the CME Group, "unlocks an immediate growth opportunity by allowing us to offer a compelling sports product to the vast majority of the US adult population in states that do not currently have access to sports betting.
"This represents a significant incremental addressable market for FanDuel in addition to our existing sportsbook and iGaming business.
"We believe this new sports opportunity lies solely in these states, as prediction markets are having a negligible impact in the states where FanDuel sportsbook is already available to customers.
"FanDuel Predicts will also accelerate acquisition of customers into the FanDuel ecosystem ahead of the state regulation of sports betting.
"Furthermore, the strength of our world-class pricing and risk management capabilities present potential market-making opportunities which we continue to assess.
"We are exceptionally well positioned to harness this growth opportunity. We have a powerful combination of assets enabled through our strategic partnership with CME Group, who have a long track record of operating the world's leading derivatives marketplace, together with FanDuel's nationwide brand presence and sports betting expertise, which has already successfully delivered a position as the clear leader in sports betting.
"Our extensive experience operating the Betfair Exchange within the Flutter Group also equips us with a deep understanding of this space."
He said the launch has been developed in "close consultation with state regulators and tribal authorities" and would be tailored and state-specific, launching in states where no local regulation exists.
Initially, FanDuel Predicts will offer sports markets in states without a current sports betting regulatory framework, with sports markets also restricted to non-tribal lands, meaning "a significant proportion of the US population will soon have access to a brand new FanDuel sports product".
A range of financial and cultural markets - elections, aliens etc - will also be offered across "virtually all states", he said.
"In our existing sportsbook and iGaming states our primary focus will continue to be the state-regulated market and strengthening our leadership position in our core sports betting and iGaming businesses."