Concerns over structural hold, state taxes and prediction markets led Shaun Kelley of Bank of America to downgrade DraftKings and FanDuel parent Flutter to neutral.
Kelley also lowered his targets to $35 (from $48) for DraftKings and $250 (from $325) for Flutter in his notes released Tuesday. Multiple analysts have recently lowered targets on both companies but maintained their positive ratings.
Along with the shared issues, Kelley notes recent online casino declines for DraftKings. FanDuel, meanwhile, has seen year-to-date handle growing around 5% compared to its ~8% expectation in same-store states.
DraftKings is scheduled to release its third quarter earnings report after the market closes on Thursday and will hold its earnings call at 8:30 am Eastern Friday. Flutter will release its Q3 report and hold its call at 4:30 pm Eastern Tuesday.
Structural hold looks shaky
Kelley notes in both reports that he has commented on structural sports betting hold issues three times since June and is now taking a “harder look” at the model. The misses are not a new trend as both operators have come in under structural hold expectations since 2023.
Every quarter of a percentage point difference is equal to $100 million in annual EBITDA, Kelley said.
He expects a $150 million EBITDA impact for DraftKings in both the third and fourth quarter. Kelley projects around a $100 million impact each quarter for Flutter.
He lowered 2026 EBITDA estimates based on each company investing $75 million in prediction markets as well as lowering structural hold by 0.75 percentage points. He now expects $1 billion in 2026 EBITDA for DraftKings and $3.66 billion for Flutter.
Ask again later: predictions path unknown
Neither company would have been downgraded without the structural hold and tax issues facing them, Kelley said.
There are still risks related to the market, though. Both Kalshi and Polymarket took their marketing deals with the NHL as a substantial positive for predictions.
” … Near-term event path around PMs is challenging, with chances of a competitive marketing and price war rising, while [online sports betting] operators’ decisions are constrained by regulation and legal maneuvering,” Kelley said.
A worst case scenario would be states raising taxes on sportsbook operators to account for tax dollar losses from a competitive predictions market industry.
DraftKings slipping on iGaming
DraftKings has seen its share of the US online casino market fall to 23% from 27% over the past two years.
Some of that is from FanDuel focusing more on the segment, but Kelley said the results have likely underperformed DraftKings’ internal expectations.
Data from state revenue reports shows DraftKings still “materially lags” its peers.
