Prediction markets could hit a trillion dollars in trading volume: E&K report

Prediction markets could reach a trillion dollars in annual trading volume by the end of this decade, according to a new report from Eilers & Krejcik, a research firm that specializes in sports and interactive gaming sectors.

“Numerous factors, most notably legal and regulatory challenges, could delay or derail the growth of prediction markets,” Eilers & Krejcik partner emeritus and strategic advisor Chris Grove told CNBC. “But the fundamental elements of consumer demand and an array of diverse brands looking to meet that demand are clearly in place.”

That growth will be fueled by sports, which E&K predicts will represent 44% of the long-run volume for prediction markets.

The booming predictions space enables users to wager on events in culture, politics and sports, among other markets. A rise in popularity for platforms like Polymarket and Kalshi has inspired traditional sportsbooks to launch their own predictions platforms.

Comparing prediction trading volume to sportsbooks handle, or amount wagered, is complicated, because in prediction markets both sides of the trade are counted as volume. 

For instance, if someone buys a 40-cent contract and someone else takes the 60-cent position, that’s a dollar in trading volume. In sports betting, a dollar bet is strictly a dollar in handle.

E&K crafted a formula to translate predictions volume into handle and concluded that mature sports prediction markets could support sportsbook-style handle that’s roughly 60% to 80% of today’s licensed regulated online sports betting market.

Of course, online sports betting is legal only in 31 states; prediction markets have launched in all 50.   

Robinhood this week introduced additional prediction markets features that allow users to trade NFL parlay and prop bets.

“The sportsbooks definitely see the writing on the wall and how this could completely disrupt their business,” CEO Vlad Tenev told CNBC Wednesday.

Fanatics, in partnership with Crypto.com, launched Fanatics Markets at the beginning of December to offer predictions trades. DraftKings and FanDuel are expected to launch their own prediction platforms by the end of the month.

Right now, platforms like Kalshi, Robinhood, Crypto.com, Polymarket and Fanatics are pulling in roughly $10 billion, according to an analysis this week from Citizens. But analysts note, “Prediction markets are in the early innings of exponential scaling as the asset class transitions from speculation to a more mature component of capital markets, with institutions likely coming next.”

Tenev said it more plainly: “We think we’re in the early stages of a prediction market supercycle.”

As the markets mature, the cross-selling to prediction customers is likely to diverge. After all, the way FanDuel coaxes a prediction customer onto its online sportsbook or icasino will look very different from Robinhood working to persuade a predictions trader to try trading equities.

Still, a broader trend is emerging: the convergence of investing and gambling.

“There’s always been some overlap between the two, but we appear to be living in a world where gambling is [becoming] more like investing just as investing is pushing further and further in the direction of gambling,” Grove said.

Disclosure: CNBC and Kalshi have a business relationship.