Margin Squeeze and Forecasting Markets Lead to Rating Cuts Amid Volatile Sports Betting Industry
- Bank of America analyst Shaun Kelley downgraded DraftKings and Flutter to "Neutral," citing margin compression, rising taxes, and prediction market threats. - DraftKings shares fell 6.4% to a two-year low while Flutter dropped 3.9% as structural hold erosion and regulatory risks intensified. - Prediction markets like Kalshi and Polymarket challenge traditional sportsbooks with lower fees, prompting DraftKings and FanDuel to launch competing platforms. - Regulatory uncertainty and tax pressures could cost
Bank of America’s recent decision to lower its ratings on
Kelley’s analysis described the industry as facing a “perfect storm” of obstacles. The sector’s structural hold—the share of bets kept as revenue after payouts—has weakened as favorable sports results have led to higher winnings for bettors. This squeeze on margins is further intensified by rising state taxes, such as the recent hike in Illinois, and tighter regulations, especially in the UK where Flutter operates,
Prediction markets, which enable bets on everything from political races to economic trends, are increasingly seen as a real challenge to traditional sportsbooks. Platforms like Kalshi and Polymarket have secured major collaborations, including partnerships with the NHL and ICE, the parent company of the New York Stock Exchange, according to
The downgrades also highlight wider industry difficulties. DraftKings’ share of the U.S. online casino market has slipped from 27% to 23% over the past two years, and Flutter’s betting volume growth has slowed to 5% so far this year, according to
Experts warn that the road ahead will be challenging. Kelley projects that DraftKings could see a $150 million EBITDA reduction in the third and fourth quarters due to shrinking margins and investments in prediction markets, with Flutter facing similar issues. As tax pressures mount and prediction markets expand, the industry’s “structural hold” may not be as reliable as before, NewsNet5 reported. For now, DraftKings and Flutter are adjusting, but the evolving environment suggests a lengthy period of managing margins and navigating regulations is likely on the horizon.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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