Higher taxes to crimp DraftKings earnings but not Rush Street’s, Jefferies analyst says

David McKee

3 July 2025 at 12:15pm UTC-4

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New, state-level tax increases and the cost of entering the prediction markets will be a squeeze on DraftKings’ revenue in the near future. That’s the forecast of Jefferies Equity Research analyst David Katz, in a 2 July investor note.

“We reiterate our bullish view on the online gaming sector, while reflecting recent state tax increases in our estimates,” Katz wrote. Lower late-2025 and 2026 earnings for DraftKings, he said, would be partly offset by a positive second quarter.

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Describing his views of DraftKings as “conservative,” Katz said they were relatively unchanged in the wake of higher levies and Kalshi’s incursion into sports betting. He predicted second-quarter revenue of US$1.4 billion and cash flow of US$212 million, only slightly varying from Wall Street’s consensus.

Katz expected tax increases in Illinois, Louisiana, New Jersey and Maryland to diminish third- and fourth-quarter cash flows by US$25 million apiece. The cost of the fourth-quarter Missouri launch of sports betting would dim that quarter’s cash flow by an additional US$10 million.

The analyst projected break-even cash flow in the third quarter and US$460 million in the fourth, for full-year cash flow of US$775 million. DraftKings had indicated it might be as high as US$900 million and no lower than US$800 million, while Wall Street’s consensus was US$839 million.

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Looking ahead to 2026, Katz forecast that DraftKings’ player surcharge on individual bets would neutralize the Illinois impost on handle. But other tax increases would crimp cash flow by US$80 million over the year. Other cash-flow hindrances would be US$75 million related to launch costs in Alberta and Missouri, as well as a US$100 million “placeholder” for whatever it would cost to venture into prediction-market wagering.

Turning to Rush Street Interactive, Katz did not make “major changes to estimates, as tax impacts, FX movement, and strong igaming results will net out, in our view.” He predicted US$253 million in second-quarter revenue, followed by US$1.1 billion for all 2025 and US$1.2 billion for 2026. His numbers were largely in accordance with Wall Street estimates.

Katz was optimistic about Rush Street. He forecast US$29 million in second-quarter cash flow, US$133 million for all 2025, rising to US$172 million in 2026. Wall Street consensus predictions were slightly lower on all fronts.