Recent analyses indicate that prediction markets might be causing users to incur greater losses than traditional sportsbooks, contradicting earlier beliefs about cannibalization of sportsbook revenues.
As legal discussions continue regarding whether prediction markets should be classified as financial instruments or gambling products, Citizens data has shed light on consumer outcomes, revealing potential disadvantages for users of these platforms.
The initial debate in early 2026 focused on the impact of prediction markets on sportsbook performance. A January report from Citizens suggested that approximately 5% of the legal sportsbook handle was migrating to prediction markets.
Despite this, major operators like DraftKings, FanDuel, and Fanatics, who have introduced prediction market offerings, claimed they were not affected. Conversely, those operators who have yet to engage in this market may face greater risks.
During their fourth-quarter earnings calls, the CEOs of Flutter and DraftKings stated that prediction markets have not influenced sports betting, although both companies reported results that did not meet expectations.
As new data emerges, the focus is shifting from the extent of funds moving to prediction markets to the actual experiences of users on these platforms.
According to the January report, users of prediction markets are facing significantly higher losses compared to those utilizing other gambling products. The analysis revealed that prediction market participants had a median loss of 7%, whereas losses across other gambling avenues averaged only 1%.
For the lowest-performing 25% of users, losses were -28% in prediction markets compared to -11% in other gambling products. The bottom 10% faced even steeper declines, with losses of -44% versus -22% elsewhere.
The report also highlighted that more skilled bettors are capitalizing on less experienced players, a trend that appears to be more pronounced than in traditional betting environments.
A subsequent report from March, which monitored user activity from July 2025 onward, confirmed that the trend persists. It indicated that the median loss for prediction market users had increased to 8%, while sportsbook users faced a 5% loss.
More revealing is the analysis of user segments. Those engaging in prediction markets with trades exceeding $500,000 achieved a median return on investment (ROI) of 2.6%. In contrast, even the highest-volume sportsbook users reported a slight loss of approximately -0.6%.
For users trading between $100,000 and $500,000, the ROI was -1.5%, while those trading between $10,000 and $100,000 saw a -2.4% ROI. Users with less than $100 in trades experienced losses exceeding -25% to -30%.
The report emphasizes that as wallet sizes decrease, ROI declines almost linearly, suggesting that less experienced users are disproportionately incurring losses.
In comparison, sportsbook users also exhibit a downward trend in profitability by volume, but none of the cohorts achieve positive returns, highlighting a significant structural difference between the two systems.
Among users active in both sportsbooks and prediction markets, the performance gap is even more evident, with prediction market users reporting a -6% ROI.
The findings suggest that losses in prediction markets are primarily shouldered by less informed participants, while high-volume, knowledgeable users perform better than they do in sportsbooks.
This disparity raises a critical question regarding the reasons behind the performance gap between informed and retail participants.
Recent reports of individual users earning substantial profits—sometimes reaching six figures—have sparked concerns about potential insider trading within prediction markets. A survey by Truist revealed that even participants suspect insider trading may be occurring.
As a result, state regulators and lawmakers at both state and federal levels are increasingly scrutinizing insider trading and market manipulation in prediction markets, driven by fears that “informed” traders could leverage non-public or hard-to-access information for profit.