DraftKings (DKNG.US) acquires CFTC-compliant trading platform Railbird to make a strong entry into the federal regulatory prediction market.

DraftKings (DKNG.US) announced the acquisition of a federally regulated trading venue - Railbird Technologies Inc., authorized by the Commodity Futures Trading Commission (CFTC). This move is seen as the most proactive step they have taken to enter the controversial and competitive prediction market field, aiming to expand their business beyond sports betting and to capitalize on the future demand for real-money betting on events. The terms of the transaction have not been disclosed. Through this acquisition, DraftKings aims to become one of the first sports betting companies to offer federally approved event contracts; meanwhile, financial license holders such as CME Group, Intercontinental Exchange, Inc., are planning to leverage their licenses to enter the edge of the gambling market, escalating the regulatory "arms race" between financial exchanges and gambling regulators. DraftKings plans to launch "DraftKings Predictions" on its mobile app, where users can trade "yes/no" outcome contracts related to finance, culture, and entertainment. CEO and co-founder of the company, Jason Robins, said, "We are excited about the additional opportunities that the prediction market brings to our business." However, a DraftKings spokesperson mentioned that they have not yet decided whether to offer contracts related to sports events. Reports indicate that this cautious approach reflects potential regulatory resistance - state gambling regulators have signaled that they will not allow gambling companies under their jurisdiction to simultaneously offer federally regulated event contracts. Railbird was founded in 2021 by two former Point72 analysts and was selected for the Y Combinator accelerator. In June this year, it obtained the qualification as a "designated contract market" by the CFTC. This acquisition injects new momentum into its development. After the announcement of the acquisition of Railbird, DraftKings' stock price rose by 8.3% in after-hours trading; last week, reports of CME Group possibly entering sports betting caused a decline in DraftKings' stock price. CME had previously announced a partnership with FanDuel to launch financial event contracts. Currently, emerging platforms like Kalshi and Polymarket are conducting business in jurisdictions where sports-related betting is restricted, using federal licenses, which has drawn criticism from state regulators. Last week, these platforms saw record betting volumes, partly driven by bets on sports event results. Citizens' stock analyst, Jordan Bender, pointed out that the acquisition of Railbird will help DraftKings fend off competitors and double their potential market size by operating in states like California and Texas where traditional sports betting is prohibited. Bender emphasized in the report, "The prediction market has put significant pressure on the stock previously, turning unknown factors into offensive strategies, and this strategic announcement should help investors relax their guard." In recent months, gambling companies have been under pressure as the prediction market has become a threat to their business models. For gambling companies experiencing stock pressure recently, this acquisition represents a strategic shift. At the same time, this acquisition comes at a time when the boundaries between Wall Street and the gambling industry are becoming increasingly blurred. It is worth noting that any move to increase sports event contracts may face resistance from state gambling regulators - these regulators have indicated that they will not allow regulated gambling companies to offer federally regulated event contracts simultaneously.