DraftKings has not had the best build-up to Friday’s end-of-quarter earnings call after its shares plummeted to a two-year low following a stock assessment by Bank of America (BofA) Securities.
It was not alone though as Flutter Entertainment, the parent company of DraftKings’ sportsbook rivals FanDuel, found itself in the same boat.
In reality, share prices for DraftKings and other sports-betting equities had already been taking a hit throughout the past couple of months.
At the same time, interest in privately owned prediction market Kalshi has rocketed, with the news that it had raised $3 million to roll out globally, while its rival platform Polymarket will soon return to the US with a hefty $2 billion backing from Intercontinental Exchange, the owner of the New York Stock Exchange.
Share Prices Fall For Sports Betting Giants
The doom and gloom being forecast is a sharp contrast to the positivity emanating from DraftKings after declaring its earnings for April to June of this year.
DraftKings reported record Q2 revenue of $1.5 billion, a 37% increase year-on-year, generating a net income of $157.9 million.
The sportsbook division was the primary driver within that record revenue return, contributing $997.9 million.
But it appears that the uncertainty surrounding the potential affect of emerging sports prediction markets on the sports betting industry as a whole has dented confidence on Nasdaq.
At the end of August, DraftKings Common Stock (DKNG) closed at $47.98 by Monday of this week it was opening on Nasdaq at a significantly lower $30.415.
At close of play on Tuesday after the BofA assessment it was down to $28.61 and continued to drop still further into Wednesday, landing at $28.23 by midday.
Over the same period, Flutter Entertainment (FLUT) said goodbye to August at $307.17 but closed on Tuesday evening at $222.03.
DraftKings is due to release its Q3 2025 report tomorrow (Thursday, November 6) with a follow-up earnings call early on Friday.
Flutter Entertainment has said it will release its third quarter update on November 12.
Why Did The Bank Of America Downgrade Stocks?
In a new report to clients this week, BofA analyst Shaun Kelley downgraded shares of both sports betting specialists from Buy to Neutral, warning that hold levels are traditionally weak at this time of year.
Hold is the revenue remaining after sportsbooks have paid out winning bets.
Kelley also flagged up the “relentless headwinds” that lurk on the horizon for the betting industry.
Several states have looked at increasing tax duties relating to gambling while there is a real threat to market share presented by emerging prediction markets, even though their regulatory future in the US remains unresolved.
Kelley even warned that if prediction markets remained outside of state regulation while cannibalizing sports gambling revenue, “states could actually try to offset that cannibalization by raising taxes on incumbents.”
There is an additional headache for Flutter, which operates sportsbook giants Sky Bet, Paddy Power and Betfair in the UK and Ireland.
The sports betting industry in the UK is holding its breath ahead of Chancellor Rachel Reeves’ budget which is due to be delivered on November 26.
It is widely anticipated that the Labour government will be changing laws around tax duties for gambling in the UK which could see tax levels rise from 20% and 21% to a unified level of anything up to 50%.
Paddy Power has declared that its recent shop closures could be the first of many for the UK betting trade should the new laws be introduced, while British brand Betfred has fired a warning that 7,500 jobs are at risk due to the potential gambling tax hike.
Threat Posed By Sports Prediction Markets
The rapid rise of prediction markets platform Kalshi has caused uncertainty among investors of sports betting brands.
With Polymarket about to return to the US as well, there is a potential migration of customers who enjoy traditional sports wagering to this new way of trading in sports events contracts, with the offer of lower fees and dynamic pricing.
The financial impact in lost revenue could be devastating, or it may only be marginal, but as things stand analysts can only guess at what the future holds for prediction markets in the US.
The majority of sports betting companies are continuing to side with state legislators, who say that sports events contracts should be treated as forms of gambling and brought into line with other gambling products.
That was an opinion shared by both BetMGM and Caesars when they revealed their thoughts on sports prediction markets last week.
Kalshi founders Tarek Mansour and Luana Lopes Lara have taken all of this in their stride, continuing to operate freely while fighting off various court actions.
In the first six months of 2025, sports prediction markets traded over $2 billion at Kalshi and at present sports betting companies are missing out on having a piece of a very big pie.
Both DraftKings and FanDuel have at least ensured they can act swiftly once the legislative issues have been resolved through the courts.
Last month DraftKings acquired Railbird, a federally licensed exchange, with a view to offering event contracts across finance, culture and entertainment to its users.
Should sports prediction contracts become viable in future, it has positioned itself perfectly to take swift advantage.
In August, Flutter announced that CME Group and FanDuel had partnered to develop an innovative event contracts platform.
This again will steer clear of sports contracts until it gets the legal green light.
