By Nate Wolf
Shares of online betting leaders DraftKings and Flutter Entertainment have floundered over the last few months, in part due to the rise of prediction markets. While the carnage may end soon, it's not time to buy the dip, argues BofA Securities.
The investment bank downgraded both stocks to Neutral from Buy in separate research notes Tuesday, lowering DraftKings' price target to $35 from $48 and Flutter's to $250 from $325. Prediction markets aside, the companies face profit volatility and "never-ending" tax risks, BofA says.
DraftKings stock fell 3.7% to $29.44 on Tuesday. Shares of Flutter, which owns FanDuel, dropped 3.4% to $223.22. Both stocks are down by double digits in 2025 and on pace for 52-week closing lows, according to Dow Jones Market Data.
The pair have faced pressure from prediction markets such as Kalshi getting into sports betting. Prediction markets broker trades of federally regulated "event contracts" built around yes/no questions and are not subject to state gambling laws. This competition isn't helpful for DraftKings or FanDuel, BofA concedes, but the companies might have bigger issues to worry about.
First, both platforms are susceptible to shifts in "hold," which refers to the share sportsbooks keep for every dollar wagered. Sportsbooks want to maintain high and stable holds, but the metric depends on betting patterns and event outcomes.
Hold volatility has jumped during football season, BofA noted, heightening concerns about both companies' business models. The firm projected that weak hold in September and October alone will reduce DraftKings' earnings before interest, taxes, depreciation, and amortization by $150 million in the third and fourth quarters. For Flutter, the hit will be around $100 million per quarter, BofA says.
"We are now taking a harder look at the model and baking in lower hold amid the volatility," analyst Shaun C. Kelley wrote. The bank lowered its estimates for both companies in 2026 and 2027 based on the new assumptions.
Taxes present a second medium-term challenge. Wall Street has been slow to bake in ongoing pressure from state gaming taxes, which continue to add up and pressure margins, BofA said. The firm sees a risk for increased state taxes in 2026.
"Worst case, states could actually try to offset [prediction market] cannibalization by raising taxes on incumbents," Kelley wrote.
Flutter, which is based in the United Kingdom, also faces the prospect of higher taxes at home when British Chancellor Rachel Reeves delivers the U.K. Autumn Budget on Nov. 26. Regulatory headwinds in the U.K. have typically driven sizable downturns in Flutter stock, BofA said.
"If the above risks didn't exist, we would not downgrade solely on prediction markets," Kelley added. Notably, DraftKings acquired prediction markets exchange Railbird Technologies last month and confirmed plans to introduce an app for non-sports event contracts. Dropping Kalshi and Polymarket into the mix doesn't help, though.
Constrained by more-stringent regulations and changing laws, sportsbooks may have to turn to competitive marketing and lower prices to maintain market share. That's bad news for companies whose business models are already under pressure.
Others on Wall Street believe DraftKings and Flutter can bounce back from their recent selloffs. Last month, Berenberg analyst Jack Cummings reiterated Buy ratings for the stocks, arguing that the legal future of prediction markets was murky and that DraftKings, at least, would see strong profit growth in the years ahead. More than 85% of analysts polled by FactSet rate shares of both companies at Buy or an equivalent.
DraftKings will report earnings after the market closes on Thursday. Flutter reports on Wednesday, Nov. 12.
Write to Nate Wolf at nate.wolf@barrons.com
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November 04, 2025 11:32 ET (16:32 GMT)
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