DraftKings prediction market push leaves stock tied to sportsbook risks

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DraftKings prediction market risks

Highlights

DraftKings shares surged over 7% after a 9th U.S. Circuit Court decision seen as a setback for prediction markets, benefiting sportsbook operators.
DraftKings stock remains down nearly 50% over the past year and over 16% in the past month, with continued headline-driven volatility until regulatory clarity emerges.
Bernstein projects DKeX platform volume could reach $1 billion by December, representing about 9% of DraftKings' market cap, yet the market is not fully pricing this potential.

Investor reaction tracks core betting business

As reported by CNBC, DraftKings CEO Jason Robins says the company sees a disconnect between its enthusiasm for prediction markets and the way the stock reacts to headlines around the sector.

Robins says the share response to the regulatory fight between states and the Commodity Futures Trading Commission does not reflect DraftKings' own view of prediction markets. He repeats that message at Front Office Sports' Asset Class event last week after saying the same on Sept. 10, even as the company launches its proprietary prediction market exchange, DKeX, in late June.

Analysts and investors, however, say the market reaction is logical because DraftKings still depends primarily on sportsbook revenue. Joel Shulman, chief executive of investment firm EntrepreneurShares, says investors are responding to DraftKings' current business rather than the one it is trying to build.

That view comes after a 9th U.S. Circuit Court of Appeals ruling last month that marks a major regulatory setback for prediction markets. After the decision, shares of DraftKings jump more than 7% and Flutter rises more than 6%, as investors interpret pressure on prediction markets as a relative positive for traditional sportsbook operators.

DKeX growth potential faces near-term volatility

DraftKings shares are down nearly 50% over the past year and more than 16% over the past month, and the rally following the court ruling does not last. Analysts say the stock remains vulnerable to headline-driven swings until there is clearer guidance on who regulates prediction markets, possibly from the Supreme Court.

Bernstein analyst Ian Moore agrees that investors are still focused on sportsbook fundamentals, but says the market is not fully valuing the upside from DKeX. In a note, he says investors have discounted the risk from prediction markets in DraftKings' share price but have not discounted the opportunity, including market-making activity and access to states where sportsbooks are banned.

Moore points to data showing DKeX ranks third in total prediction market volume last week, behind Polymarket and Kalshi by a wide margin. He estimates consumer volume on the platform could reach $1 billion by December, equal to about 9% of DraftKings' current market capitalization.

For now, Bernstein is watching how DKeX performs during football season and with basketball and ice hockey set to begin in the coming weeks. Moore says the period through the end of 2026 is critical for testing whether the exchange can take meaningful volume from larger rivals, and he keeps an outperform rating with a $29 price target, implying 32% upside from Monday's close.

In our earlier article, we covered Kalshi’s request for CFTC approval to introduce margin trading on selected U.S. event contracts via its clearing arm, Kalshi Klear. The proposal would limit leverage to eligible self-clearing members that meet capital requirements and would exclude sports, culture and “mention” markets, as Kalshi argues margin could deepen liquidity and attract more institutional participation.

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