Gambling Stocks Tumble as BofA Warns of 'Relentless Headwinds'
DraftKings and Flutter Entertainment slide after downgrades cite rising competition, tax risks, and volatile betting margins ahead of earnings.
Shares in the online gambling sector faced a broad sell-off Tuesday after Bank of America Securities downgraded industry leaders DraftKings (DKNG) and FanDuel-owner Flutter Entertainment (FLUT), citing a challenging outlook plagued by what it called “relentless headwinds.”
DraftKings saw its stock price fall by more than 6.4% in morning trading to $28.61, while Flutter Entertainment dropped 3.9% to $222.03. The downgrades, which cut both companies from “Buy” to “Neutral,” sent a cautionary signal across the burgeoning but increasingly volatile U.S. sports betting market.
In a note to clients, Bank of America analyst Shaun C. Kelley pointed to a confluence of risks that prompted a recalibration of long-term earnings expectations. “The combination of volatile betting margins, weakening 'structural hold' rates, rising state gaming tax risks and new competition are headwinds that are hard to ignore,” Kelley wrote. The analysis comes just days before DraftKings and Flutter are scheduled to report their third-quarter earnings.
The downgrade of DraftKings was accompanied by a significant price target reduction from $48 to $35. Bank of America highlighted several specific concerns for the Boston-based company, including unfavorable sports outcomes impacting margins and a notable decline in its U.S. iGaming market share, which slipped from 27% to 23% over the past two years, according to the research note.
Flutter Entertainment, the world’s largest listed gambling group, had its price target cut from $325 to $250. The downgrade reflects risks to its hold percentages—the amount of money a sportsbook keeps on wagers—along with potential tax increases and a slowdown in betting volume growth. The company has also faced operational challenges internationally, including a shutdown in India and a slower-than-anticipated launch in Brazil.
A key theme in the market analysis is the emerging threat of competition from prediction markets, which allow users to trade on the outcome of events. This new form of wagering could peel away customers from traditional sportsbooks. The pressure adds to existing headwinds, such as the aggressive promotional spending that has defined the sector’s race for market share since the U.S. Supreme Court struck down the federal ban on sports betting in 2018.
Investors are now closely watching for management commentary on these issues when DraftKings reports its quarterly results on November 6, followed by Flutter on November 12. The reports will provide a clearer picture of whether the concerns over slowing growth and margin pressure are materializing. While the online gambling industry has experienced explosive growth, Tuesday’s market reaction underscores a new phase of heightened scrutiny and recalibrated expectations for profitability.