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Bank of America (BofA) has downgraded both DraftKings and Flutter Entertainment from Buy to Neutral, warning that the two biggest names in US sports betting are now facing a “perfect storm” of industry pressures that could limit growth through 2026. The bank’s analysts cited deteriorating betting margins, rising state tax risks, and increasing uncertainty surrounding the future of prediction markets as the leading factors behind the revised outlook.
Betting margins under pressure
In his note to investors, BofA analyst Shaun Kelley said that “the structural hold is not looking so structural anymore.” Sportsbooks rely heavily on consistent hold rates — the percentage of wagers they retain as revenue — but volatility across major sports, sharper customer pricing, and elevated promotional activity have disrupted historical patterns.
Kelley said the bank has now adjusted its revenue and margin expectations for both operators, reflecting a more conservative outlook on hold stability and promotional spend.
DraftKings: market share slipping, forecasts cut
DraftKings, which has led aggressive expansion efforts in both sports betting and iGaming, is now confronting several simultaneous challenges. BofA noted that DraftKings’ US iGaming market share has fallen from 27% to 23% over the last two years — a meaningful drop in one of the fastest-growing, highest-margin sectors of online gambling.
This, coupled with rising promotional costs and higher tax burdens, led the bank to reduce its 2026 EBITDA forecast from $1.26 billion to $1 billion. BofA also cut DraftKings’ price target to $35, down from $40, signaling reduced long-term earnings expectations.
DraftKings’ recent acquisition of Railbird, which brings the operator into the prediction market space, has also created new uncertainties. Several US states have warned that participation in event-based financial markets could jeopardize gaming licenses, depending on how regulators classify such products. Kelley said operators will need to navigate “regulation and legal maneuvering” carefully as prediction markets mature.
Flutter: diversification cushions the blow but risks remain
While Flutter, the parent company of FanDuel, remains more geographically diversified than DraftKings, BofA warned that it faces comparable challenges in the near term.
FanDuel’s handle growth slowed to 5% year-to-date, suggesting that even the market leader is feeling competitive and macroeconomic pressure. Additionally, Flutter faces looming tax concerns in two jurisdictions:
United States — A growing number of states are considering tax increases on sportsbooks to boost public revenues.
United Kingdom — Several UK Labour MPs have proposed raising gambling taxes to support anti-poverty initiatives, potentially impacting Flutter’s core domestic market.
BofA reduced Flutter’s 2026 EBITDA forecast from $4.24 billion to $3.66 billion, and lowered its price target from $325 to $250.
Tax and regulatory risks building into 2026
Kelley described state-level tax risk as “never-ending,” warning that operators may be underestimating how widely tax hikes could spread in 2026 as state budgets tighten.
At the same time, regulatory ambiguity around prediction markets poses a new frontier of risk. If states or federal regulators move to restrict or more tightly regulate these products, sportsbook operators exploring the space — including DraftKings — could see impacts on both strategy and compliance.
While both DraftKings and Flutter remain dominant operators with strong long-term fundamentals, BofA’s downgrade reflects a more cautious industry outlook: tighter taxes, rising regulatory scrutiny, margin pressures, and new competitive fronts may reshape the landscape heading into next year.
Source: Gambling News
