Here's a problem DraftKings Inc. (DKNG) probably didn't see coming. Analysts predicted bettors would wager over $30 billion on the 2025 NFL season, which sounded fantastic for sports betting stocks. Except now there's a twist: prediction markets are crashing the party, offering sports betting under entirely different rules, and they're absolutely crushing it during the NFL playoffs.

The Kalshi Explosion

The first weekend of NFL playoff action delivered six games across Saturday, Sunday and Monday. Traditional sportsbooks expected big numbers. What they might not have expected was Kalshi breaking volume records two days in a row.

According to prediction markets reporter Dustin Gouker, Kalshi posted $455 million in volume on Saturday, then immediately topped that with $466 million on Sunday. These figures include volume from partners like Robinhood Markets (HOOD), which routes betting through Kalshi's platform.

The kicker? Sports accounted for 94% of Sunday's volume and over 90% on Saturday. This isn't some diversified platform where sports is a side hustle. Kalshi has become a full-blown sports betting competitor.

Sunday's top markets broke down like this:

1. NFL Games: 28.2%
2. NBA Games: 11.8%
3. Multi-Sport Parlays: 10.8%
4. NFL Same Game Parlays: 6.7%
5. NFL Spreads: 6.0%

Other sports barely registered. NCAA Men's Basketball came in at 5.5% and NHL at 1.2%. The playoff weekend featured two NFL games Saturday and three Sunday, and bettors showed up in force.

This momentum didn't appear out of nowhere. A recent DeFi Rate report showed Kalshi hitting $2 billion in weekly volume, with Polymarket at $1.5 billion. The difference matters: sports represents roughly 90% of Kalshi's weekly action, while Polymarket splits between sports (40%), crypto, and politics during the week of January 5-11.

Why This Threatens Traditional Sportsbooks

The growth of Kalshi and Polymarket creates a real headache for established players like DraftKings and Flutter Entertainment (FLUT). Both companies are scrambling to develop their own prediction markets, but they might be late to the game.

Here's what makes prediction markets dangerous: they operate under different regulatory frameworks than traditional sportsbooks. That means people in states that ban online sports betting can still access Kalshi. Yes, lawsuits have emerged and regulations could shift, but right now prediction markets enjoy a structural advantage.

They also offer markets on politics, cryptocurrency, and entertainment alongside sports. That diversity gives users more reasons to stick around between football seasons.

The billion-dollar question—literally—is whether prediction markets are stealing customers from DraftKings and Flutter or expanding the overall pie by attracting new bettors, including crypto-native users who might never have touched a traditional sportsbook.

Earnings Season Will Tell the Story

We'll get answers soon enough. Both DraftKings and Flutter report quarterly results in late February or early March, and investors will be watching those numbers with unusual intensity.

DraftKings has beaten earnings per share estimates in two consecutive quarters and four of the last five. Revenue is trickier—the company missed estimates in four of the last five quarters. Flutter shows a similar pattern: three earnings beats in four quarters, but three revenue misses in the same period.

The stock performance tells a story of concern. DraftKings shares have dropped 14.5% over the past 52 weeks, while Flutter is down 21%. Neither company is riding high heading into these critical reports.

Timing matters here. The Super Bowl hits February 8, and March Madness begins in mid-March. These are tentpole events for sports betting companies, and now they're facing stiffer competition from prediction markets. That competition could show up in the numbers directly, or it could force DraftKings and Flutter into aggressive marketing campaigns that eat into profitability.

Either way, the prediction market phenomenon isn't going away. And traditional sports betting stocks need to figure out their response before the next earnings call.