Fanatics brings prediction market fully in-house with Water Street Labs acquisition

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The Backstory

Prediction markets move from niche product to strategic battleground

Fanatics’ move to bring its prediction market infrastructure fully in-house reflects a broader shift in the U.S. wagering and financial technology sectors: event contracts are no longer a peripheral experiment. They have become a contested growth channel for sportsbook operators, federally regulated exchanges, crypto-linked platforms and political actors trying to define the rules before the market hardens.

The company entered prediction markets in December 2025 through a partnership with Crypto.com’s North American derivatives arm. By acquiring Water Street Labs from BGC Group, Fanatics is seeking more control over listing, clearing and product development at a time when competitors are testing whether prediction markets can provide nationwide reach beyond the state-by-state limits of legal sports betting.

That distinction matters. Sportsbooks must obtain licenses in each state where online sports betting is legal. Prediction market operators argue that event contracts fall under federal commodities law when listed through regulated exchanges. The result is a fast-developing clash between state gambling regulators, the Commodity Futures Trading Commission and companies that see a path to offer sports-linked products in large states that still do not allow traditional sports betting.

Sportsbooks chase a federal route around state limits

DraftKings has been one of the clearest examples of sportsbook interest in the sector. The company has explored a deal for Railbird Exchange, a federally licensed prediction market platform, after earlier withdrawing its own federal application. As DraftKings weighed a potential Railbird acquisition, the strategic logic was evident: a federally regulated exchange could give a major operator exposure to event contracts without waiting for each state to legalize sports betting or approve a sportsbook license.

FanDuel also has been linked to partnership discussions with Kalshi, which has built prominence in sports prediction markets and reportedly reached a $2 billion valuation after a recent funding round. Those talks, alongside DraftKings’ interest and Fanatics’ acquisition, show that incumbent sportsbooks are treating prediction markets as both a competitive threat and an adjacent business line.

The attraction is not limited to sports. Prediction markets can cover elections, government actions, economic indicators, entertainment outcomes and geopolitical events. But sports contracts are the most disruptive category for existing gambling law because they resemble familiar sportsbook products while operating under a different regulatory theory. That overlap has made the sector especially sensitive for state regulators, tribal gaming interests and licensed sportsbook operators that have invested heavily in local compliance.

Regulators are split over who gets control

The central policy question is whether prediction markets should be governed mainly by the CFTC or by states under gambling law. The CFTC has argued in court filings and public statements that it has exclusive authority over federally regulated event contracts. Several states disagree, contending that sports-linked contracts are illegal gambling if offered without state licenses.

That fight intensified as the White House began reviewing a CFTC proposal to regulate prediction markets. The filing, first reported by Bloomberg and later covered in a report on the White House review of the CFTC plan, followed the agency’s decision to withdraw an earlier proposal that would have barred contracts tied to sports and political events. The new proposal has not been made public, but its review by the Office of Management and Budget indicates that the administration recognizes the stakes of federal rulemaking.

President Donald Trump has publicly backed federal oversight through the CFTC, while former CFTC and Securities and Exchange Commission Chairman Gary Gensler has argued that states should regulate prediction markets under current law. That disagreement underscores the unsettled legal foundation beneath the industry’s expansion. If federal courts ultimately side with the CFTC, prediction market operators could gain a more uniform national framework. If states prevail, operators may face the same patchwork that governs sports betting.

The courts already are shaping market behavior. Kalshi and Robinhood have fought multiple state actions alleging that their sports event contracts constitute unlicensed gambling. In Tennessee, a federal judge temporarily blocked the state from stopping Kalshi’s operations, at least pending further proceedings. Such rulings give operators room to continue building products while the underlying jurisdictional question remains unresolved.

Political scrutiny rises with market growth

As prediction markets have expanded, scrutiny has moved beyond licensing and into market integrity. House Oversight and Government Reform Committee Chairman James Comer has said the committee will investigate potential insider trading on Kalshi and Polymarket, focusing on how platforms monitor suspicious trades and prevent misuse of nonpublic information. The inquiry, detailed in the House committee probe of Kalshi and Polymarket, adds a new layer of risk for platforms that trade on political and government-related outcomes.

The concern is straightforward: markets tied to elections, legislation, military actions or executive decisions may be vulnerable to traders with access to information unavailable to the public. Reports of trades linked to political developments, international conflicts and military activity have fueled bipartisan interest in tighter oversight. Comer’s committee requested details on identity verification, geographic restrictions and surveillance systems, with responses due in early June.

Those concerns are especially relevant for companies trying to position prediction markets as regulated financial products rather than gambling. Exchanges depend on trust that prices reflect public information and fair trading, not privileged access. Any perception that government employees, military personnel or campaign insiders can profit from confidential information would invite tougher rules and could undermine the industry’s argument that federal commodities regulation is sufficient.

An industry lobby forms around federal oversight

The sector has responded by professionalizing its political operation. The Coalition for Prediction Markets recently added former U.S. representatives Sean Patrick Maloney and Patrick McHenry to its leadership team, signaling a coordinated push to keep regulation at the federal level. As the prediction market coalition brought on former members of Congress, the industry gained advocates with experience in both parties and on financial policy.

The coalition’s core message is that prediction markets need clear and consistent guidance, not a state-by-state system that could fragment liquidity and compliance. That argument mirrors the business case advanced by operators: national markets work best when there is a single regulatory architecture, centralized surveillance and uniform clearing. Fanatics’ decision to own its infrastructure fits that model by reducing reliance on intermediaries and giving the company more control over compliance, product design and data.

Still, the political strategy faces resistance. State attorneys general, gaming regulators and tribal interests are unlikely to concede authority over sports-related wagering products without a fight. Their position is strengthened by the history of sports betting legalization, in which states built tax regimes, consumer protections and licensing standards after the Supreme Court struck down the federal sports betting ban in 2018.

Fanatics bets infrastructure will define the next phase

Fanatics’ acquisition of Water Street Labs is therefore more than a technology deal. It is a bet that vertically integrated infrastructure will matter if prediction markets become a durable, federally supervised asset class. Owning listing and clearing capabilities could let Fanatics move faster, design products around its large sports fan base and connect retail trading with institutional data and analytics through its BGC partnership.

The timing is significant. Major sportsbooks are exploring acquisitions and partnerships, federal regulators are preparing new rules, Congress is examining market integrity and states are litigating their authority. Companies that control compliant infrastructure may be better positioned to adjust as rules change. They also may have more credibility with regulators demanding surveillance, identity controls and clear clearing arrangements.

The stakes extend beyond Fanatics. If prediction markets are ultimately treated as federally regulated financial products, they could reshape how Americans wager on sports and events. If courts or lawmakers push them back into state gambling frameworks, the sector’s growth could slow and resemble the fragmented rollout of online sports betting. Fanatics is moving before that outcome is settled, positioning itself for a market that could either become a national financial product category or the next front in U.S. gambling regulation.