Platforms like Kalshi and Polymarket, which have recently introduced financial contracts tied to the outcome of sports games, reported surging activity last week during the beginning of the NFL playoff season. Meanwhile, during what is typically a boom time for sportsbooks, New York state data showed that revenues from online sports wagering plunged from a year earlier.

DraftKings shares dropped as much as 8.3% in New York trading, the worst intraday plunge since late October. Shares of Flutter, which runs the gambling app FanDuel, were down as much as 5.5%, falling to the lowest intraday level since late November. The broader gambling space also took a dive, with an S&P gauge of the industry’s shares shedding as much as 2.5%.

Online sportsbooks have been under pressure for months since prediction markets rose to prominence with their new sports contracts. The startups have used their status as federally regulated exchanges to offer sports wagers that circumvent the state laws that have governed online gambling.

While several state gaming regulators have called the products illegal and pushed the companies to shut them down, the startups have plowed ahead and sports bets have come to account for around 90% of the trading volumes on Kalshi. The contracts have gotten wide distribution through Kalshi’s partnership with the retail broker Robinhood. 

“We do believe prediction markets are having an impact on the sports betting companies,” Jordan Bender, equity research analyst at Citizens, said. “The PMs are built around large tentpole events like the NFL playoffs.”

According to Piper Sandler & Co. analysts led by Patrick Moley, last week saw the five highest volume games of the season on Kalshi, with NFL-related bets on the platform hitting a record $720 million. The analysts say the weekend also marked a milestone, as the Chicago Bears’ comeback win over the Green Bay Packers was Kalshi’s first game to exceed $100 million in trading.

The shares of Flutter and DraftKings have recovered somewhat over the last two months after both companies said that they were opening their own prediction market offerings in states where sports gambling is illegal. While the companies rolled out those new apps last month, it is not yet clear if they have gained any traction.

“It’s still early days for the products and Kalshi has a lot more functionality than them at this time, so I would be surprised if they were gaining a lot of traction,” Needham analyst Bernie McTernan said. 

There has been debate within the industry about whether prediction markets could offer real competition for the more established offerings from sportsbooks, particularly in profitable areas like multi-leg parlay bets. A recent report from Citizens Bank estimates the new platforms still only account for 5% of the total wagered on sports in the US. 

“We think prediction markets will expand more than cannibalize traditional online sports betting markets,” Dan Wasiolek, a senior equity analyst at Morningstar said. 

Over the past few months, the New York state data has indicated that online gambling companies have generally been growing their revenues from the previous year.

But the new weekly numbers out of New York suggest that the revenues from traditional sportsbooks dropped 40% year-over-year in the week ending Jan. 11, which included the NFL wild card weekend. This comes at a time when prediction markets have seen surging volumes and garnered significant public attention.    

Needham’s McTernan says that while the stock selloff is mostly due to the New York state data, the sportsbooks also face difficult comparisons. “If you look versus two years ago it doesn’t look as bad,” he adds.