Bernstein: In-house prediction-market tech could spur M&A

Analysts at Bernstein wrote in a research note Monday that prediction-market operators are bringing trading infrastructure in-house and merging front and back ends. The firm labeled the trend “operational consolidation” and said it covers distribution, brokerage, exchange and clearing.

The note included the line “Every consumer platform that matters has merged the front and back end of the prediction-market stack.” Bernstein cited several specific moves: Robinhood routing major World Cup contracts through Rothera, the exchange it owns with Susquehanna; DraftKings launching DKeX and shifting volume away from CME and Crypto.com infrastructure; and Coinbase acquiring The Clearing Company and then rolling out event contracts.

Owning more of the technology stack allows platforms to retain fees and control execution, settlement and custody. Bernstein wrote that acquisitions can provide faster access to distribution, licenses or missing technical components than building them internally.

The research flagged that crypto exchanges, sportsbooks, brokerages and standalone prediction exchanges are now competing across overlapping business lines. Bernstein said that commercial incentives to consolidate could prompt mergers and acquisitions as firms seek to capture revenue that previously flowed to third parties.

The report warned consolidation may increase regulatory and antitrust scrutiny by blurring the line between financial derivatives and gambling. It called out Minnesota’s law that the Commodity Futures Trading Commission described as an outright ban on prediction markets and Illinois’ statute requiring state licenses for platforms offering sports event contracts.

The prediction exchange Kalshi has challenged both states’ restrictions in court, arguing federally regulated exchanges fall under exclusive CFTC authority. Bernstein wrote that ongoing litigation and regulatory uncertainty could delay or complicate larger integrations until judges and regulators clarify authority.

Bernstein also noted valuation differences across sectors. Platforms that control more of the stack could command higher valuation multiples if investors expect clearer revenue capture and lower third-party costs, while legal uncertainty and cross-jurisdiction compliance could reduce potential premiums.

The report presents examples of recent deals and product launches, the regulatory questions those moves have raised, and the ways acquisitions are being used to add distribution, licenses and technical capabilities.