Kalshi storms the sports betting gold rush, with friends in very high places

Kalshi—a prediction market platform with friends in high places—entered online sports betting this year with guns blazing in a direct challenge to top sportsbook operators like Flutter Entertainment (NYSE: FLUT) and DraftKings (NASDAQ: DKNG), and it’s got a not-so-secret weapon: federal oversight. The company is regulated by the Commodity Futures Trading Commission, which means it’s been able to bypass state officials and tribal gaming bodies like those in Florida—at least for now.

“It could change how gambling com­pan­ies oper­ate in the US forever,” KPMG head of US gam­ing Rick Arpin was quoted as saying in the Financial Times. “It is not like any­thing we have seen in a long time, it is unique.”

Founded in 2018, the fintech startup has prominent backers including brokerage magnate Charles Schwab and KKR-cofounder Henry Kravis, both of whom have ties to the Republican Party. Kalshi also counts Brian Quin­tenz—who President Donald Trump has nominated to chair the CFTC—as a board member, with Don­ald Trump Jr. serving as a strategic advisor.

The apparent cozy links to the highest levels of federal power are especially noteworthy because of the way the Department of Justice was able to shut down a burgeoning online poker industry in a coordinated 2011 effort—now referred to as “Black Friday”—that resulted in criminal indictments, asset seizures and extradition efforts. Since then, moves for further legalization of online gaming have faced fierce opposition from casino heavyweights like the late Sheldon Adelson, who, as CEO of Las Vegas Sands Corporation (NYSE: LVS), was well known for his lobbying efforts that many viewed as a cynical attempt to protect the brick-and-mortar giants from digital disruption.

Online sports betting was able to break through the political morass after the Supreme Court struck down a ban in 2018, and that activity is now legal in more than 30 states and surging in popularity. Revenues rose 25% last year in the US to nearly $14 billion, according to the American Gaming Association, with much of that flowing back to state governments in the form of taxes and royalties. Kalshi’s entrance into the lucrative segment has raised so many eyebrows—with some states like Maryland and New Jersey trying, and so far failing, to shut it down—because it uses a legal gray zone to leapfrog over state governments and potentially cut them off from the gravy train.

Royal Flush

At the heart of the debate is the difference between wagers—which state-regulated sportsbooks handle—and the binary, “yes/no” positions that can be traded on Kalshi as what are essentially CFTC-regulated derivative contracts. To the average bettor eyeing the French Open, Kalshi might look like just another sportsbook. But legally, it’s something very different. It’s no wonder that gaming investors have been bracing for a royal flush from a politically-connected Kalshi, especially after a tie-up with retail trading giant Robinhood (NASDAQ: HOOD).

DraftKings just saw quarterly revenue jump 20%, but its shares have declined nearly 5% so far this year while the S&P 500 gained 2%. Flutter, which owns the popular FanDuel sportsbook, has seen its shares decline 3.7% so far into 2025, even as it posted record income in the first quarter. The trend has continued among other big gaming companies, with shares of MGM Resorts International (NYSE: MGM) and Penn Entertainment (NASDAQ: PENN)—which runs the ESPN BET sportsbook—falling 4% and 20%, respectively, over the same period.

Amid the rising threat, legacy sportsbooks say they’re paying close attention. DraftKings CEO Jason Robins, for his part, thinks the new competition from prediction markets could push states where sports betting is not currently legal—like California and Texas—to rethink their stances.

“That’s just going to continue to be a powerful lever that this is happening whether you want it to or not, so do you want to do it in a way that makes sense,” he said in a recent earnings call. “If you’re a California tribe or if you’re a state that hasn’t legalized it yet, does it allow you to prosper or do you want to watch it happen somewhere else, and I think that’s something that everybody is talking about right now.”

Indeed, the game ahead may all come down to how well the legacy operators can spin the narrative. A complex battle between state and federal regulators looks to be coming to a head with billions at stake, but the real game-changer could center on just how Kalshi is able to play its literal Trump card. You can be sure the winner won’t come down to simple chance.