DraftKings CEO Jason Robins has repeatedly voiced enthusiasm for prediction markets, but the company’s share price tells a more complicated story.
After the 9th U.S. Circuit Court of Appeals issued a major ruling against the CFTC’s regulatory reach last month, DraftKings rose more than 7% and Flutter climbed more than 6%. The court held that contracts based on sports-related events traded on prediction markets are not swaps and therefore do not fall under the commodities regulator’s jurisdiction. The CFTC argues that all event contracts are swaps subject to its oversight.
Robins told CNBC on Sept. 10 that investors’ reaction to the regulatory fight between states and the CFTC does not reflect DraftKings’ view of prediction markets. Speaking at Front Office Sports’ Asset Class event last week, he described as a “disconnect” the fact that shares of one of the world’s largest sports operators have declined despite positive prediction-market headlines. DraftKings launched its own exchange, DKeX, in late June.
Analysts and investors say the market’s response is rational because DraftKings’ sportsbook remains its primary source of revenue. “The markets are being completely rational,” Joel Shulman, CEO of investment firm EntrepreneurShares, told CNBC. “Investors are responding to the current business DraftKings is in, not the one they’re moving into.”
DraftKings shares have fallen nearly 50% over the past year and more than 16% in the past month. The gains following the prediction-market ruling also failed to last. Analysts say that until the Supreme Court or regulators clarify who has authority over prediction markets, the stock could remain vulnerable to short-term swings driven by headlines.
Ian Moore of Bernstein agreed with Shulman’s assessment but said investors may not yet be assigning value to the opportunities available to DKeX. He cited data showing that DKeX ranked third in total prediction-market volume last week, trailing Polymarket and Kalshi by a wide margin.
“Investors have fully discounted the risk from prediction markets in DraftKings’ stock price but have not discounted the opportunities,” Moore said in a research note. He pointed to market making and access to states where sportsbooks are banned as potential benefits.
Moore estimated that consumer volume on DraftKings’ prediction platform could reach $1 billion by December, roughly 9% of the company’s current market capitalization. Bernstein is watching how DKeX performs during football season and the upcoming basketball and ice hockey campaigns.
“Sustainability of DKeX through the fall is going to be huge,” Moore said. “Around December, you’ll have a good idea of how sustainable that growth has been.”
Moore rates the stock outperform and has a $29 price target, implying 32% upside from Monday’s close.
