DraftKings buys Railbird: a federally regulated bridge into prediction markets

Kevin Jones
4 days ago
8 min read

Updated: 12 minutes ago

DraftKings has acquired Railbird Technologies and its CFTC-designated exchange, Railbird Exchange, in a move that drags the US sportsbook wars onto a new board: federally regulated prediction markets. The company says it will launch DraftKings Predictions, a mobile app that lets customers trade event contracts on real-world outcomes in finance, culture and entertainment “in the coming months.” Financial terms were not disclosed.

Deal timing. DraftKings announced the transaction on 21 October 2025, positioning the acquisition to contribute strategically rather than financially to FY25; management guidance excludes near-term contribution from prediction markets.

What, exactly, did DraftKings buy?

Railbird’s licence and market plumbing: Railbird is a Designated Contract Market (DCM) approved by the Commodity Futures Trading Commission on 13 June 2025, a status published on the CFTC’s official register and confirmed by the company. As a DCM, Railbird can list event-based contracts (including binary options and variable-payout structures) under federal commodities law.

Clearing: CFTC staff granted no-action relief in August for certain reporting requirements tied to Railbird’s event contracts, explicitly noting that QC Clearing LLC (d/b/a Polymarket Clearing)—a registered derivatives clearing organization (DCO) since December 2024—will clear Railbird’s contracts. That arrangement is material: it places a DraftKings-owned DCM on infrastructure currently associated with a rival ecosystem until DraftKings decides whether to maintain or re-platform clearing.

Technology: Railbird selected Connamara Technologies’ EP3 exchange engine in June, signalling a preference for off-the-shelf, capital-markets-grade matching and risk controls rather than building from scratch—consistent with a regulated futures venue.

Founding team and remit: Founded in 2021 by Miles Saffran and Edward Tian (YC W22), Railbird’s stated remit is a regulated exchange for trading the outcomes of real-world events—spanning economics, policy, entertainment and cultural moments.

Product wrapper: DraftKings’ new app will be able to connect to multiple exchanges, implying an aggregator/front-end strategy that can route order flow beyond Railbird alone—a design that could matter for coverage breadth, liquidity and economics. Notably, DraftKings’ launch language omits sports contracts at inception.

Deal process and advisers: DraftKings was advised by Sullivan & Cromwell LLP (legal). Moelis & Company LLC acted as financial adviser to Railbird, with Proskauer Rose LLP and Kirkland & Ellis LLP as legal counsel. Internally, Railbird has emphasised a modular, API-extensible architecture around EP3, aligning with DraftKings’ mobile-first integration strategy.

Data science capability: Beyond exchange plumbing, Railbird has invested in machine-learning-driven analytics that support market surveillance, pricing insights, and personalised discovery. DraftKings plans to use these capabilities to improve recommendations and retention inside Predictions and to inform segmentation across its broader DFS/OSB ecosystem over time.

Why now: pressure from prediction-market insurgents and FanDuel

2025 has seen prediction markets punch into the mainstream. Kalshi and Polymarket are striking headline partnerships and product launches; the NHL signed licensing deals with both, legitimising brand use and escalating pressure on sportsbooks. In parallel, FanDuel unveiled a partnership with CME Group to develop federally regulated event-based products, with an FCM joint venture pending CFTC review. The centre of gravity is shifting.

DraftKings’ move is, therefore, both defensive and expansionary: defensive because prediction markets threaten to siphon off intent and handle in non-OSB states and among retail-trader cohorts; expansionary because a federal wrapper potentially opens up large audiences in jurisdictions without online sports betting while creating adjacencies with finance-savvy users. Equity-market coverage framed the deal accordingly, highlighting an initial share-price bounce and the likelihood of a staged roadmap.

Sell-side framing. Analysts broadly characterise the deal as option value with constrained near-term P&L.

Majority expect an initial aggregator phase routing to external DCMs to accelerate liquidity—followed by progressive Railbird integration to internalise economics.
Some argue a wholly owned DCM preserves long-run margin structure and expands TAM by attracting finance-oriented cohorts that have been under-served by sportsbooks’ UX.
Others see CME as a logical early venue for non-sports markets while DraftKings builds out Railbird’s stack.

The regulatory chessboard: federal DCMs vs state gaming authorities

The strategic prize is big, but the rules are contested. States are pushing back on CFTC-regulated sports contracts that look and feel like betting. In 2025, the Nevada Gaming Control Board issued a cease-and-desist to Kalshi, while a 36-state AG coalition led by Ohio urged a federal appeals court to side with New Jersey in litigation over state authority. New Jersey and Massachusetts regulators have separately moved against sports contracts accessed via consumer apps. DraftKings’ choice to avoid sports at launch reads as a direct response to this landscape.

At the same time, federal developments have cleared some underbrush. The CFTC’s August no-action letter to Railbird and QC Clearing narrowed compliance burdens for certain event contracts, and the Commission’s registers show a growing cohort of newly designated DCMs and DCOs for this category (Railbird; QCX/Polymarket US; ForecastEx; Kalshi Klear). The regime is cohering—even if state–federal collisions over sports remain unresolved.

Pre-acquisition breadcrumbs. DraftKings explored the federal path well before the deal—filing for, withdrawing, and re-filing NFA registration under “DraftKings Predict” across 2024–25—before pivoting to a buy-versus-build decision once Railbird secured DCM status.

Product design choices that will decide the outcome

1) Sports—or not. DraftKings hasn’t committed to listing sports event contracts. Doing so risks fresh confrontation with state gaming regulators and commercial friction with league partners and OSB tax regimes. Staying non-sports (at least initially) buys time, builds UX and liquidity habits, and tests conversion across finance/culture without inviting immediate legal crossfire.

2) Exchange access model. If DraftKings Predictions connects to multiple exchanges, it can arbitrage market depth and breadth—useful while Railbird’s order book seeds liquidity. It also creates optionality to integrate with venues like CME/FanDuel if interoperability emerges—or to steer order flow in-house once Railbird scales.

3) Clearing and economics. Clearing via QC Clearing standardises collateral, default management and segregation under DCO rules. But it also places an erstwhile rival (Polymarket’s clearing arm) in DraftKings’ critical path unless or until DraftKings shifts to alternative clearing. Expect scrutiny on fees (exchange + clearing + app wrapper), latency, and payout reliability—all core to retail trust.

4) Compliance UX. Prediction markets blend capital-markets obligations (KYC/AML, disclosures, trade reporting) with gambling-adjacent harm-minimisation norms (RG tools, age limits, geolocation). The strongest products will bake in “time-to-confidence” UX—making contract definitions, settlement sources, and risk transparent at a glance. (That’s where sportsbooks often falter: cognitive load, not clicks.)

5) Launch sequencing. Expect a two-step go-to-market: (i) launch Predictions as a standalone app, initially acting as an introducing-broker-style router into external DCMs for non-sports markets; (ii) progressively migrate flow to Railbird’s own matching/clearing as integration, risk, and surveillance stacks are proven at scale.

The industry map is redrawing

A concise competitive snapshot:

Player	Regulatory footing	Distribution model	Sports at launch?
DraftKings + Railbird	DCM (Railbird), DCO via QC Clearing; DK app wrapper in development	Standalone DraftKings Predictions app; “connect to multiple exchanges”	No (finance/culture/entertainment first)
FanDuel + CME Group	CME exchanges; JV FCM pending review	Federally regulated event contracts via a joint platform	Unstated; initial focus on financial benchmarks
Robinhood + Kalshi	DCM (Kalshi); Robinhood distribution hub	Embedded event-contracts hub inside retail brokerage	Yes; but facing state actions and product pauses
Polymarket US (QCX/QC Clearing)	DCM (QCX/Polymarket US); DCO (QC Clearing)	Native prediction app; expanding US footprint	Yes (sports via venues/partners), subject to state friction

Sources: company statements and regulatory records.

Volume context. The street estimates now peg category monthly notional in the multi-billion range, with sports the growth engine but still small relative to US OSB handle. Analysts note Robinhood-sourced flow is a material share for Kalshi, and CME/FanDuel is expected to catalyse non-sports adoption at retail entry points as low as $1 per contract.

What this could mean for operators, vendors and investors

For US sportsbooks: If prediction markets scale, they compress arbitrage between trading-style products and traditional sportsbook risk books. DraftKings’ move is a hedge against that cannibalisation and a wedge into non-OSB states (e.g., California, Texas) where OSB is politically blocked but federally regulated trading can be marketed to retail investors. Expect FanDuel’s CME path to accelerate, with BetMGM/Caesars signalling caution for now.

For leagues and IP owners: The NHL’s licences with Kalshi and Polymarket show an emerging playbook for official data/IP in federally regulated markets, creating a new rights category with different economics and compliance contours than OSB skins. That gives leagues leverage—and regulators another stakeholder.

For affiliates and media: Economically, event contracts can carry lower take rates but higher trading frequency and re-engagement. The acquisition gives DraftKings cross-sell vectors from DFS and OSB into a trading loop with different promotional levers (education, research, community price discovery) than promos and SGPs.

For vendors and market-infra players: Matching engines, surveillance, reference data, identity/origination stacks and dispute-resolution tooling become the new battleground. Connamara’s recent momentum (multiple DCM/DCO wins) underscores how fast a specialist vendor can set de facto standards in a nascent category.

Distribution & cross-sell. DraftKings can seed Predictions via its DFS footprint (available in 44 states), Jackpocket (lottery funnel), and high-frequency modelling expertise from Simplebet—all of which support lower CAC and faster habit formation in non-OSB jurisdictions.

Economics vs sportsbook vig. Prediction markets typically monetise at ~1–2% of notional through maker/taker or settlement fees—well below sportsbook hold (~9–10% aided by parlays). That’s margin-dilutive on a per-dollar basis but potentially LTV-accretive if frequency, cross-sell, and data-driven personalisation raise engagement across the wider DraftKings stack.

Revenue pathways beyond sports

DraftKings’ predictions push opens revenue streams that behave differently from state-taxed sportsbook GGR. The federal DCM + DCO model supports a transaction-fee clip with always-on engagement across finance, politics, and entertainment, creating monetisation that’s less seasonal than OSB and rich in behavioural signal for the wider DK stack.

Non-sports event trading fees. A peer-to-peer exchange wrapper enables DraftKings to monetise non-sports markets via a small transaction fee (street comps suggest ~1–2% of notional, akin to venues like Kalshi/Polymarket), rather than “house” hold. Analysts highlight the election cycle and macro/cultural moments as natural demand spikes; some estimates cite multi-billion-dollar election volumes across venues, indicating a sizeable, recurring category once distribution matures. The federal wrapper also avoids state-by-state licensing/tax frictions while non-sports remains the initial focus.

Data monetisation & cross-sell. Prediction markets function as a behavioural data acquisition engine: frequent, low-ticket trades generate signal on conviction, timing, and price sensitivity. That data can improve targeting, LTV modelling, and churn prediction across Sportsbook/iGaming. DraftKings’ DFS footprint (44 states), plus Jackpocket and high-frequency modelling expertise, provides lower-CAC cross-sell into Predictions versus standalone exchanges.

Market expansion & margin advantages. The federal path lets DraftKings reach users in large non-OSB states (e.g., CA/TX) with fee-based economics that aren’t directly exposed to high state OSB tax rates. Several brokers frame predictions as a top-of-funnel “warm-up” product: users familiar with event trading convert faster and more profitably into the core OSB/iGaming stack where permitted, potentially shortening payback versus greenfield OSB acquisition. Consensus canvasses a path where P2P predictions capture a high-single-digit share of US handle by ~2030, largely additive rather than cannibalistic given today’s user mix.

Key unknowns—and what to watch next

Launch scope and geographies. Does DraftKings go 50-state (where permissible) on non-sports categories out of the gate, or stage a narrower rollout? The press release signals “coming months”; product telemetry will arrive fast once it hits app stores.
Sports timing. If and when sports contracts appear, do they target non-OSB states first to dodge intra-state conflicts—and can DraftKings thread league, regulator and public-policy needles more cleanly than today’s insurgents?
Clearing strategy. Staying with QC Clearing is pragmatic near-term but strategically awkward; watch for filings indicating a clearing migration or dual-clearing capability.
State litigation trajectory. Ohio, Nevada, New Jersey and Massachusetts proceedings will set precedents that either normalise or narrow distribution. Any adverse ruling could force geofencing, product edits, or customer-communication overhauls.
Liquidity bootstrapping. Exchange markets live or die on depth. Watch for market-maker programmes, fee holidays, and creator-tools to seed two-sided flow—plus whether DraftKings syndicates prices across multiple DCMs at launch.

KPIs to track

Liquidity: weekly notional, open interest, spreads/depth, and the share of routed flow captured on-net by Railbird.
Funnel: non-OSB state share of new accounts; DFS → Predictions cross-sell; CAC/payback vs OSB baselines; VIP cohort behaviour.
Unit economics: effective take rate after rebates, uptime/latency SLAs, net revenue per active trader.
Compliance: breadth of permitted markets, state-level restrictions, and progress on league/data partnerships.

Operator and policy veterans expect incumbents to prioritise non-OSB states, avoid regulator flashpoints, and bundle predictions into mainstream apps to overcome today’s UX friction. The consensus: low cannibalisation risk to OSB near-term; strategic upside hinges on parlay-grade product design where sports become permissible and on steady regulatory choreography.

DraftKings has bought more than a licence; it has bought a federal route to a parallel universe of “betting-like” behaviour that is regulated as trading. The decision to avoid sports at launch is not timidity; it’s a rational reading of the legal map. If DraftKings can convert its product-led scale into exchange-grade liquidity and trust while navigating clearing, state politics, and league optics, it won’t just defend share. It will help define what the next decade of real-money entertainment looks like in America.