Sports betting heavyweights DraftKings and Flutter Entertainment are staring down some real headaches. Bank of America just bumped both ratings to neutral, citing regulatory headaches, tax hikes, and cutthroat competition. It’s a rough mix for anyone running in the US market. Investors are jittery over shaky betting margins and unpredictable prediction markets. Still, the bank figures these two stocks will move in lockstep for now. Operators might crank up the marketing and slash prices to hang on.
DraftKings, for one, watched its US iGaming market share slide from 27% to 23% in two years. Taxes and promo costs keep chipping away at the bottom line. Analysts trimmed DraftKings’ 2026 EBITDA forecast from $1.26 billion to $1 billion and cut the price target from $40 to $35. That signals slim pickings for long-term earnings growth. Flutter’s FanDuel side has more global reach to lean on, but it’s wrestling the same slowdown—handle growth sitting at just 5% year-to-date.
Key Factors Behind the Downgrades
Bank of America is pointing to big shifts shaking up sports betting. Betting holds aren’t the sure thing they used to be, so models now bake in lower expectations to match the wild swings. DraftKings is all-in on the US, which leaves it wide open to whatever states cook up next on taxes. Analyst Shaun Kelley calls those risks “never-ending.” States are eyeing higher sports betting taxes for 2026 revenue boosts, and the market hasn’t fully priced that in yet.
Flutter spreads its bets beyond the US, but UK tax pressure is brewing too. Labor Party lawmakers want gambling hikes to pull half a million kids out of poverty. The bank slashed Flutter’s 2026 EBITDA outlook from $4.24 billion to $3.66 billion and dropped the price target from $325 to $250. Bottom line: both companies have to thread the needle through these storms. Ramped-up competition could spark fresh market-share fights, though Flutter’s diversification gives it a slight cushion over DraftKings.
Outlook for 2026 in the Gambling Sector
Come 2026, DraftKings and Flutter are bracing for another round of tax squeezes. US states keep hunting for gambling dollars, and that train isn’t slowing. It’ll likely keep gnawing at sportsbook margins. Prediction markets just add extra fog. Investors ought to keep an eye on how these players tweak their playbooks. Flutter’s footprint outside the US might soften some homegrown hits, but UK tax harmonization is a looming headache.
Labor’s push ties higher rates to social fixes like cutting child poverty. Either way, both need to rein in promo spending—those costs are already eating into profits. Smaller players could get squeezed hardest. Bank of America is waving a yellow flag on sports betting stocks overall, stressing the need for staying power in this shifting landscape. The whole sector has to stay nimble as regulators keep moving the goalposts.
