The collaboration between CME Group and FanDuel for prediction markets is facing difficulties, as evidenced by recent comments from CME CEO Terry Duffy and FanDuel's exploration of independent prediction market ventures. CME had initially invested $10.2 million for a 51% stake in FanDuel Prediction Markets Holdings LLC, aiming to leverage FanDuel's 12 million registered U.S. users. However, Duffy has expressed concerns, likening the rise of prediction markets to the pre-2007 financial crisis, and criticizing sports-related wagers as gambling susceptible to manipulation. He also voiced skepticism about companies acting as affiliated market makers on exchanges where they have a financial interest, a practice FanDuel engages in. These remarks came despite CME's recent certification of tennis, golf, and college football prediction contracts and its active role in facilitating sports wagers, which constituted over 99% of its prediction market volume.
Signs of disconnect are also apparent as FanDuel, through its FanDuel Predicts app, has begun brokering bets via Crypto.com-owned Nadex, in addition to CME's exchange. Furthermore, FanDuel has applied with the National Futures Association to broker prediction market trades independently of CME, potentially through a separate, wholly-owned entity. This move suggests FanDuel is seeking greater autonomy, especially given that its current joint venture with CME, FanDuel Predicts, is tied exclusively to CME's exchange. FanDuel's parent company, Flutter Entertainment Plc, has seen its value decline by over $30 billion, or more than half, since August, as prediction market startups like Kalshi and Polymarket gain traction.
Financially, the CME-FanDuel joint venture has underperformed compared to competitors. Bank of America analysis indicates Kalshi holds a 91% share of the U.S.-regulated event contract market, while CME's share is close to 0%. CME's exchange typically reports around $1.5 million in daily volume, significantly less than Kalshi's hundreds of millions. FanDuel anticipates a loss of between $40 million and $50 million on prediction markets in 2025, projected to increase to between $200 million and $250 million in 2026. The current fee structure, which charges 2 cents per contract, shared evenly between FanDuel and CME, is also seen as discouraging bets on longshots and big favorites, potentially impacting volume. To recoup its losses, FanDuel would need to process an implausible $48 billion in trading volume within the first five months of 2027.
Despite the challenges, FanDuel's CEO Peter Jackson has indicated that Flutter reserves the right to increase spending on prediction markets if the product shows promising results, with a projected spend of $250 million to $300 million in 2026, up from $50 million in 2025. However, the company currently does not include any prediction market revenue in its 2026 projections, suggesting a long road to profitability. CME's cautious stance was reiterated by CEO-designate Derek Fitzpatrick, who emphasized the need for careful consideration regarding sports event contracts. The potential for the Supreme Court to rule on the gambling nature of these sports prediction markets adds another layer of uncertainty to the venture.
