DraftKings stock up after Bank of America rating upgrade amid prediction market growth
DraftKings’ stocks rose by around 5% after Bank of America analyst Julie Hoover raised the company’s rating from “Neutral” to “Buy”, while maintaining its US$27 price target. The move followed a 47% decline in the stock over the past year.
Hoover identified DraftKings’ prediction market offerings as a key factor behind the revised outlook. The Bank of America estimates that, if markets remain viable, the business could generate around US$400 million in fees in 2027, with an additional US$200 million to US$400 million potentially coming from market-making.
DraftKings had reported rapid growth in its prediction market business. The operator’s 2Q26 investment letter highlighted that over 600,000 customers had used its DraftKings Predictions platform by August this year.
The group also mentioned that annualized trading volume increased from US$2.3 billion in April 2026 to US$11 billion in July 2026. Annualized consumer trading volume reached US$3.6 billion, and market-making volume rose to US$7.4 billion over the same period.
The Bank of America decreased its 2026 EBITDA estimate for DraftKings to US$500 million from US$625 million, reflecting higher spending on prediction markets.
However, it increased its 2027 EBITDA estimate to US$1.15 billion from US$1.05 billion, mentioning stronger sportsbook performance and expected market-making revenue.
This upgrade comes as DraftKings faces separate legal scrutiny in Massachusetts, where the operator was sued last week over allegations that it used AI to target gamblers with promotions. The lawsuit followed a New York Times investigation into its use of machine learning.
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The Backstory
Prediction markets move into the sportsbook debate
DraftKings’ share-price rebound after Bank of America’s upgrade reflects a broader reassessment of what prediction markets could mean for U.S. online gambling companies. The upgrade followed a steep decline in DraftKings stock over the past year, but the bank’s focus was less on the company’s current sportsbook results than on the possibility that event contracts could become a meaningful adjacent business.
That shift has been building for months. Bank of America previously estimated that the U.S. market for sports-related event contracts could reach about US$1.1 trillion in annual volume, a scale that would put prediction markets in direct conversation with regulated sportsbooks. At a 1% average fee, analysts said the category could generate roughly US$10 billion in annualized revenue for event-betting companies, a figure comparable to the potential revenue base of a major operator such as DraftKings. The projection, detailed in Bank of America’s US$1.1 trillion sports event-contracts outlook, helped explain why investors are beginning to treat prediction markets as more than a niche trading product.
The central question is whether these markets can remain viable under federal oversight while avoiding the state-by-state constraints that have shaped sports betting since the U.S. Supreme Court struck down the federal ban in 2018. That distinction is why operators, analysts and regulators are now watching the category closely.
A regulatory gap creates the opportunity
The appeal of prediction markets starts with regulation. Kalshi, the dominant U.S. prediction market operator, is regulated by the Commodity Futures Trading Commission. That federal framework allows it to operate nationwide, including in states where online sports betting remains unavailable. Traditional sportsbooks, by contrast, must secure licenses in individual states and are still shut out of large markets such as California and Texas.
The model also reaches younger customers. Prediction market platforms can serve users aged 18 and older, while most regulated sportsbooks require customers to be at least 21. For DraftKings and FanDuel, that creates both a risk and an opening: prediction markets could siphon off sports wagering demand in states where sportsbooks cannot operate, but they also provide a way for established gaming brands to build national event-contract products if the legal structure holds.
Tax treatment is another driver. Sportsbooks pay gaming taxes that can consume about one-third of revenue in some jurisdictions. Prediction markets do not face the same state gaming-tax structure, which could support higher margins if volumes scale. That difference has sharpened the stakes for state regulators and tribal gaming interests, which have argued that sports event contracts look similar to sports betting even if they are structured as financial instruments.
For DraftKings, the Bank of America upgrade suggests investors may be willing to tolerate near-term spending if the company can capture part of that market. The bank lowered its 2026 EBITDA estimate because of higher prediction-market investment, but raised its 2027 forecast on expectations of stronger sportsbook performance and potential market-making revenue.
Kalshi and Polymarket test demand
The competitive landscape is developing quickly. Kalshi accounted for about 90% of activity on U.S. prediction-market exchanges, according to Bank of America’s earlier analysis, with sports representing 79% of its trading volume in March. Crypto.com held a much smaller share. That dominance gives Kalshi first-mover advantages, but it also provides a benchmark for companies such as DraftKings as they measure how much customer demand exists outside conventional betting channels.
Polymarket has shown both the upside and volatility of the category. Its international platform recorded a second consecutive monthly decline in May, with trading volume falling to just under US$7.1 billion from more than US$9 billion in April and a March peak of US$10.5 billion. Active users also declined. At the same time, Polymarket’s U.S. site grew to US$1.77 billion in monthly volume in May from US$1.26 billion in April, while Kalshi reported US$17.9 billion in May trading volume. The mixed results, outlined in Polymarket’s volume decline despite broader industry growth, underscore that prediction markets are not a straight-line expansion story.
Platform reliability, product design and liquidity will matter. Polymarket attributed some of its international slowdown to technology maintenance and a transition to a new token. Such operational issues are important because prediction markets depend on trading depth, speed and user trust. A sportsbook customer can place a fixed-odds wager without thinking about liquidity. An event-contract trader needs confidence that markets will remain active and fairly priced.
Data suppliers position for the next product cycle
The growth of prediction markets is also tied to the sports-data ecosystem. Live betting, micro markets and personalized engagement tools have already made data vendors central to sportsbook economics. Prediction markets could deepen that dependency by requiring accurate, real-time inputs across a wider range of outcomes.
Sportradar highlighted those dynamics at an April 1 investor day that drew DraftKings CEO Jason Robins, NBA Commissioner Adam Silver and NHL Commissioner Gary Bettman. Analysts focused on Sportradar’s plan to leverage sports data rights, artificial intelligence and product expansion to lift revenue and pricing power. The company said sports betting was forecast to grow 10% worldwide into a US$150 billion business, with faster expansion in North America and Latin America. U.S. proposition and in-play betting were expected to rise sharply as a share of wagers.
Those trends, covered in Sportradar’s investor-day outlook, help explain why prediction markets are emerging at this point in the industry cycle. Sports wagering has become more real-time, more personalized and more dependent on automated pricing. Sportradar said artificial intelligence had helped automate data collection for more than half the games it covers, cutting costs sharply compared with human labor. That same technological infrastructure can support new forms of sports trading, including event contracts.
For operators, data quality and pricing capability could separate large incumbents from speculative entrants. DraftKings already has a large customer base, a sportsbook technology stack and trading experience. The challenge is translating those advantages into a product that fits a federally regulated market without triggering the same state-level resistance faced by sportsbooks.
Legal and reputational risk remain central
The investor case is complicated by scrutiny of how online operators use customer data and automation. DraftKings is separately facing legal pressure in Massachusetts over allegations that it used artificial intelligence to target gamblers with promotions, following a New York Times investigation into its use of machine learning. That lawsuit is not about prediction markets, but it lands at a sensitive moment for the company.
If DraftKings expands in event contracts, regulators and plaintiffs’ lawyers are likely to examine how the company markets those products, identifies vulnerable users and applies algorithmic tools. Prediction markets are often framed as trading venues, but sports-linked contracts may attract the same consumer-protection concerns as online betting, particularly if they are promoted to younger users or available in states that rejected sportsbook legalization.
That tension will define the next phase. Bank of America’s upgrade signals that Wall Street sees a path to meaningful revenue if prediction markets remain intact. Yet the same features that make the sector attractive — nationwide access, lower taxes and younger eligibility — make it politically vulnerable. DraftKings’ opportunity is therefore substantial but conditional. The company must prove that prediction markets can add growth without worsening regulatory risk, cannibalizing sportsbook revenue or inviting a backlash that narrows the very advantages investors are now pricing in.
