Shares of Flutter Entertainment (FLUT) and DraftKings (DKNG) are both adding to Monday’s losses after BofA Securities downgraded both betting platforms as state gaming tax risks in the U.S. and challenges within the prediction market present headwinds for further growth.
“Structural hold is not looking so structural anymore,” BofA’s Shaun Kelley said in his note to clients, as concerns about structural hold abated this summer, but have re-emerged in September and October which will ultimately pressure both the third and fourth quarter results for DraftKings (DKNG) and Flutter (FLUT).
In the last two years, DraftKings’ (DKNG) iGaming has declined from 27% to 23%, and although Flutter’s (FLUT) FanDuel is more diversified than DraftKings (DKNG), the latter’s focus on iGaming has also driven some share loss.
Following a miss in Q1, Kelley was hopeful that iGaming execution would improve, but recent state data still materially lags peers.
In addition, 2026 could again bring state-level tax headwinds, with Flutter (FLUT) also adversely impacted by the UK tax harmonization. This has already pressured margins for both DraftKings (DKNG) and Flutter (FLUT) by 200 basis points “and the street has been slow to account for this.”
The prediction market is not an isolated concern for Kelley, however, the near-term event path around prediction markets 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.”
In consideration of these factors, BofA downgraded DraftKings (DKNG) and Flutter Entertainment (FLUT) to Neutral from Buy, and trimmed the price target of Flutter (FLUT) by 23% to $250 and DraftKings (DKNG) by 27% to $35.