Industry analyst Paul Leyland has warned Kalshi’s pricing flexibility could shift a critical mass of VIP volume away from traditional operators.
Kalshi’s surprise introduction of same game parlays on its prediction markets platform this week has triggered significant investor concern about the threat posed to established US online sports betting operators, with DraftKings shares falling 12% and FanDuel-owner Flutter shares dropping 10% on Tuesday (30 September).
Paul Leyland, a partner at Regulus Partners, said the market reaction reflected both a lack of understanding about the economics of prediction markets alongside genuine fears about what a maturing product could mean for traditional sportsbooks in unlicensed states like California and Texas.
The concern centres on whether same game parlays can establish sufficient liquidity on prediction markets to offer a comparable product to licensed operators without the burden of state taxes, according to Leyland.
While the current product remains nascent, investors appear to be pricing in a linear evolution of the technology that could fundamentally reshape competitive dynamics.
Leyland said the real risk lays not in replicating the full complexity of multi-leg parlays favoured by high-volume bettors, but in capturing a more valuable market segment.
He said: “More sophisticated customers who are also very high value and potentially VIPs may only be doing two or three leg parlays quite often, and in that case therein lies the risk. You move the VIPs, you pull the liquidity out of the sports betting market.”
“I think that is a real concern here. It’s not the full ‘soup to nuts’ parlay product being completely comparable to the best that Flutter and increasingly DraftKings can do. It’s being good enough at a lower cost to shift a critical mass of volume.”
Pricing dynamics remain fluid
Leyland cautioned against drawing firm conclusions from current pricing disparities between Kalshi and traditional sportsbooks, noting that prediction markets’ pricing flexibility would increase substantially as volume grows.
He said: “I don’t think you can look at the products and the pricing now and say ‘this is the difference’ and therefore this suggests how structural dynamics are going to play out.
“This is still very fluid and the more money going through prediction markets, the greater the pricing flexibility there is in terms of the underlying price offered to the customer and the commission.”
The analyst suggested that Kalshi could eventually adopt US-style incentive structures, offering preferential terms to high-volume customers to build momentum rather than penalising them as Betfair historically did with its premium charge.
On the regulatory front, Leyland expressed confidence that prediction markets would ultimately survive state-level challenges, arguing that the federal framework provided by the CFTC created a clear alternative pathway to state gaming regulations.
He said: “I cannot envisage a state judiciary making the full and final view that this is gambling when there is a clear pathway to say it is not gambling and it has been authorised by the relevant federal regulator. I think this has to be decided federally.”
However, he acknowledged the regulatory uncertainty created a more complex environment for licensed operators considering their own prediction market offerings compared to Kalshi’s more focused approach.
Could Kalshi’s parlay launch complicate its legal fight?
However, one legal expert told nextpredict.io/ the parlay launch itself could complicate this dynamic, by providing Kalshi’s critics with more ammunition in the various court battles against the business across the US.
Daniel Wallach, gaming lawyer and prominent prediction markets critic, said: “At some point, the ‘potential financial consequence’ argument begins to lose its lustre. We may have crossed that bridge with parlays and player props, which, as Kalshi’s lawyers even admitted during the Third Circuit oral argument, probably do not meet the definitional threshold of a ‘swap.’
“This aggressive expansion from single-game outcomes to more exotic bets could soon have adverse consequences for Kalshi in its court cases, where the ‘swaps’ issue remains a live controversy.
“From a top-level perspective, these new offerings — which are almost indistinguishable from products offered in a state-licensed sportsbook — completely shatter the fiction that sports-event contracts do not constitute ‘gaming’ for purposes of the Special Rule and related CFTC regulatory prohibition,” he argued.
“At some point, the courts will begin to connect all the obvious dots (including Kalshi’s past statements) and see these products for what they really are — illegal sports bets, not financial instruments.”