Prediction markets have gained favor with many sports bettors by highlighting a key difference from their typical experience: Rather than going up against a sportsbook, prediction-market users are trading against individuals who see value in the other side of the trade.

"Sports betting operates like a casino, where everyone is playing against the 'house,'" Kalshi says on its website. "Kalshi works like the stock market, with customers trading against other customers."

But in many of Kalshi's trades, customers are in fact going up against the proverbial house. Barron's has learned that one of those houses is FanDuel, the popular U.S. sports betting app.

Many other sports betting operators are trading on Kalshi, too, according to a company spokesperson.

In its first-quarter earnings report, FanDuel-parent company Flutter announced that "in April, we began trialing market-making services on a major, third-party prediction market platform."

That platform is Kalshi, according to a person familiar with the matter.

FanDuel's role on Kalshi is built around combo trades, the prediction-market version of a parlay bet, where bettors string together a series of predictions into one wager. Every part of the bet has to be right, leading to low odds and a high payout. The complex nature of the transaction requires a so-called market maker to take the other side of the trade. This is where the sportsbooks are finding significant business.

Kalshi decides who can be a market maker "following a thorough review of financial resources, trading experience, and business reputation," its website says. It may offer a discount on its trading fees to incentivize the market making.

"FanDuel competes with thousands of other users in a fair environment on an open platform," the Kalshi spokesperson said in a statement. "If a regular user wants to offer a better price, or market make on the same terms, they can. There's no special deal just for FanDuel. We have hundreds of market makers on combos, including individuals."

Kalshi hasn't previously disclosed specific market-making partners.

A retail trader faces tough odds going against FanDuel and other sportsbooks.

From FanDuel's perspective, market making for combo trades on Kalshi isn't so different from setting parlay odds on its sportsbook. "It's a way of us making money from our pricing expertise," Flutter CEO Peter Jackson previously told Barron's in an interview. "That's ultimately what we do in our core business."

Prediction markets have been seen as a headwind for traditional sports betting operators like Flutter, whose shares are down 54% this year. But the market making suggests sportsbooks may have more to gain from prediction markets than investors realize.

"It is very early days, but we already expect to generate approximately $50 million of revenue from market making this year," Flutter said in its second-earnings report. The firm has separately launched its own prediction market called FanDuel Predicts; so far it's called revenue from that business "nonmaterial."

"Success comes from cash flow," says Jordan Bender, an analyst at Citizens. Success from FanDuel's own prediction market may not come for a few years, Bender says, "but from a market making perspective they could recognize success pretty quickly."

The market-making opportunity is growing quickly. Kalshi saw $21.4 billion in combo trading volume over the past 30 days, according to Aldrin Research, accounting for 49% of all trading volume on its platform.

FanDuel's presence on Kalshi underscores the overlap across sportsbooks and prediction markets. No matter how retail traders and casual bettors wager on Sunday football, they're up against professional oddsmakers.