BofA Downgrades DraftKings and Flutter Amid Market Uncertainties
Bank of America Lowers Ratings on DraftKings and Flutter
Bank of America recently downgraded the shares of sportsbook operators DraftKings and Flutter to a neutral rating. The decision was influenced by ongoing challenges, such as fluctuating betting margins, potential increases in state taxes, and continued uncertainty around the development of prediction markets.
Shifts in Market Performance and Analyst Insights
Analyst Shaun Kelley pointed out that what was once considered a stable betting margin now appears uncertain, prompting a reassessment of financial models with lower expected margins amid current market volatility. The bank anticipates both companies’ stocks will likely move in tandem due to a “perfect storm” of regulatory, tax, and competitive pressures that may lead to intensified marketing and pricing competition in the US sports betting sector.
BofA also highlighted that the market presence of these operators is shrinking. DraftKings’ share in the US iGaming market has dropped from 27% to 23% over the last two years, which, combined with increased tax and promotional costs, has squeezed profit margins. Consequently, the bank reduced its 2026 EBITDA forecast for DraftKings from $1.26 billion to $1 billion and lowered its price target from $40 to $35, citing more limited long-term earnings growth.
Flutter, while more diversified especially outside the US, is facing similar challenges. Its handle growth has slowed to approximately 5% year-to-date. Additional concerns involve potential tax harmonization in the UK and rising state taxes in the US, which may further pressure margins. BofA adjusted its 2026 EBITDA forecast for Flutter downwards from $4.24 billion to $3.66 billion and cut its price target from $325 to $250.
Looking Ahead: Potential Challenges in 2026
Both DraftKings and Flutter could face increased tax pressures in 2026 as state governments aim to boost revenue. Shaun Kelley described the risk of state-level tax increases as ongoing and likely not fully accounted for in current market expectations.
For Flutter, which operates significantly outside the US, tax challenges may arise in its home country, the United Kingdom. The UK’s Labour Party has seen support among its members for raising taxes on gambling companies, with the intention of using additional revenue to alleviate child poverty affecting hundreds of thousands of children.
Uncertainty Surrounding Prediction Markets
Prediction markets remain a significant factor influencing the future outlook of DraftKings, Flutter, and other sports betting operators. DraftKings expanded into prediction markets recently by acquiring Railbird, an action that has already begun affecting its stock performance and ratings.
Kelley noted that operators still face challenges in the prediction market space, including risks of price wars and complex regulatory and legal issues. Some US states have expressed concerns that engaging in prediction markets could jeopardize sports betting companies’ gaming licenses, adding to the uncertainty these companies must navigate.
