BofA Downgrades DraftKings and Flutter Amid Market Uncertainties

Sportsbook operators DraftKings and Flutter’s shares have dropped to neutral, after Bank of America lowered its ratings on both companies to that level recently. The bank highlighted renewed challenges from fluctuating betting margins, potential state tax headwinds, and ongoing uncertainty surrounding the development of prediction markets as a reason for its decision.

DraftKings and Flutter’s Shares Downgraded

Analyst Shaun Kelley noted that the “structural hold is not looking so structural anymore,” adding that the team is now taking a closer look at the model and factoring in lower hold assumptions given the current volatility. Meanwhile, BofA noted that both stocks are expected to move in tandem in the near term, as operators confront a “perfect storm” of regulatory, tax, and competitive pressures that may trigger renewed marketing and pricing battles in the US sports betting market.

However, for now, said stocks may fall, as does the relative size of the operators on the US market. BofA noted that DraftKings’ US iGaming market share has declined to 23% from 27% over the past two years, while tax and promotional expenses continue to pressure margins. The bank also lowered its 2026 EBITDA estimate for DraftKings from $1.26 billion to $1 billion. Additionally, it cut its price target to $35 from $40, citing more constrained long-term earnings potential.

For Flutter, BofA highlighted that FanDuel remains relatively more diversified but faces comparable challenges. Handle growth has slowed to roughly 5% year-to-date, and potential UK tax harmonization, along with rising US state-level taxes, could further impact margins. The brokerage revised its 2026 EBITDA forecast for Flutter down to $3.66 billion from $4.24 billion and reduced its price target from $325 to $250.

What Else Could DraftKings and Flutter Expect in 2026?

DraftKings and Flutter may encounter renewed tax pressures in 2026 as states seek to increase revenue. Kelley described state-level tax risk as “never-ending,” noting that the market has yet to fully factor in the likelihood that several states could raise sports betting taxes next year.

For Flutter, which operates extensively outside the US (unlike DraftKings), the company could encounter tax challenges in its home market of the United Kingdom. This is more so the case now that many UK Labor Party MPs support a rise in taxes on gambling companies, as they want the increased revenue could be used to help lift around half a million children out of poverty. 

We should also mention prediction markets when it comes to discussing DraftKings, Flutter, and other sports betting companies’ financial future. DraftKings entered the prediction markets scene by buying Railbird last month, and it seems this is already having an effect on its shares and ratings. 

Kelley noted that sportsbook operators are still contending with challenges in prediction markets, including the risk of a potential price war, while navigating “regulation and legal maneuvering.” Some states have cautioned that entering prediction markets could put sports betting companies’ gaming licenses at risk.