Race To Control the Prediction Market Stack May Lead to Mergers: Bernstein

In a 29 Jun note, the analysts made a prediction of their own, saying the competition may lead to a spate of mergers as companies seek to fill in gaps in their offerings by acquiring firms with complementary products. 

"Predictions represent the future of all markets," the analysts said, arguing that exchanges, sportsbooks and consumer-finance platforms are now competing for the same customer. The firm said the past eight months have seen major platforms move to control both the front-end and back-end of the prediction-market stack, from customer distribution to exchange infrastructure and clearing.

The note comes as mainstream financial players increasingly introduce products that resemble prediction markets. Cboe Global Markets last week introduced binary options tied to the Mini-S&P 500 Index through its Cboe Predicts suite, giving traders yes-or-no exposure to index outcomes inside the listed-options market. 

CME-linked rails have also been used by large consumer platforms entering event contracts, while crypto and brokerage firms have built or acquired their own venues.

Infrastructure moves in-house

Bernstein said the sector is shifting from partnerships to vertical integration. DraftKings acquired Railbird, Robinhood and Susquehanna built Rothera, Coinbase bought The Clearing Company after introducing event contracts, while Flutter created a dual futures-commission-merchant structure to preserve exchange optionality.

Platforms that once routed volume through third-party exchanges are increasingly pulling that revenue in-house.

The analysts estimate Coinbase has reached about $100mn in annualized prediction-market revenue, while Robinhood has traded more than 16bn event contracts so far this year. DraftKings disclosed about $1.3bn of annualized consumer prediction volume in May, before later switching volume onto DKeX, its own Railbird-built exchange.

That shift matters because prediction-market economics are spread across several layers: distribution, brokerage, exchange, clearing and market-making. The more layers a platform owns, the more revenue it can retain.

Consolidation question grows

The convergence could reshape mergers and acquisitions. Bernstein said old boundaries between sportsbooks, brokerages, crypto exchanges and pure-play prediction markets are breaking down.

Kalshi and Polymarket own important regulated or crypto-native infrastructure but lack the distribution of large sportsbooks and brokerages. DraftKings owns distribution and, through Railbird, an exchange. Robinhood and Coinbase are among the furthest advanced because they combine consumer scale with owned regulated infrastructure.

The most likely deals may involve sportsbooks acquiring exchanges to close infrastructure gaps. Bernstein said a broader wave could include prediction-market platforms buying sportsbooks, exchanges buying distribution or sportsbooks combining with each other.