Key Moments:
- Bank of America shifted DraftKings and Flutter Entertainment from Buy to Neutral due to industry-wide challenges
- BofA reduced its 2026 EBITDA forecasts for both companies and cut their price targets
- Tax pressures, margin volatility, and regulatory uncertainties are weighing heavily on sportsbook operators
BofA Adjusts Outlook in Response to Intensifying Pressures
Bank of America (BofA) has revised its ratings for DraftKings and Flutter Entertainment, moving both from Buy to Neutral. According to the bank, these leading sports betting companies are facing a convergence of challenging trends that may constrain their growth prospects through 2026. The key concerns cited by BofA’s analysts include eroding betting margins, the rising threat of increased state taxes, and greater uncertainty surrounding the future of prediction-based gaming products.
Operating Margins and Promotional Expense Under Scrutiny
BofA analyst Shaun Kelley remarked to investors that “the structural hold is not looking so structural anymore.” With consistent hold rates—vital for sportsbook profitability—now under pressure due to heightened volatility in major sports, increasingly competitive pricing strategies, and sustained promotional spending, BofA has scaled back its revenue and margin forecasts. Both DraftKings and Flutter are expected to navigate a more unpredictable environment concerning margin stability and marketing investments.
DraftKings: Lower Market Share and Revised Projections
Once the leader in aggressive expansion for both sports betting and iGaming, DraftKings has begun to encounter headwinds. BofA highlighted that DraftKings’ US iGaming market share has dropped from 27% to 23% in the past two years, signaling a substantive loss in a sector considered lucrative and fast-growing. Rising costs for promotions and tax exposure have driven BofA to lower its 2026 EBITDA estimate from $1.26 billion to $1 billion for DraftKings. In tandem, the price target for DraftKings was trimmed from $40 to $35.
The company’s acquisition of Railbird has also introduced increased regulatory uncertainty as DraftKings enters the prediction market segment. Some states have warned of potential gaming license implications for operators involved in event-based financial markets, dependent on evolving regulatory interpretations. Kelley advised that operators must be cautious amid these “regulation and legal maneuvering” issues as this space continues to develop.
Flutter: Broader Exposure, but With Persistent Risks
Flutter, the parent company behind FanDuel, benefits from having a more geographically diverse portfolio than DraftKings. Nonetheless, BofA warned that Flutter is not immune to current industry difficulties. Growth in FanDuel’s betting handle has slowed to 5% year-to-date, an indication that market leaders are feeling the strain from heightened competition and macroeconomic pressures. In addition, tax risks have become prominent in two of Flutter’s major regions:
| Region | Tax Development |
|---|---|
| United States | States pursuing higher sportsbook taxes to support public finances |
| United Kingdom | UK Labour MPs proposing additional gambling taxes for anti-poverty measures |
BofA lowered its 2026 EBITDA forecast for Flutter from $4.24 billion to $3.66 billion, and decreased the price target from $325 to $250.
Ongoing Fiscal and Regulatory Uncertainties
BofA’s Kelley characterized state tax risk as “never-ending,” cautioning that sportsbook operators may be overlooking the extent to which tax hikes could spread in 2026 in response to state budget challenges. Additional uncertainty surrounds the regulatory treatment of prediction markets—should new restrictions or tighter controls emerge at the state or federal level, operators such as DraftKings may face further strategic and compliance burdens.
BofA’s downgrade, despite strong industry positions for both companies, reflects a shift toward a more conservative outlook. With tightening tax regimes, escalated regulatory concerns, pressurized margins, and a rapidly changing competitive environment, leading operators may see new constraints on growth as the industry evolves heading into 2026.
- Author
Daniel Williams
