Bank of America (BofA) upgraded DraftKings to Buy from Neutral on 5 October, citing the operator’s prediction markets business as a future source of revenue. The bank kept its $27 price target, and DraftKings shares rose about 5% to $19.46 in morning trading on Nasdaq.
The $27 target sits roughly 45% above the share price referenced in the note. DraftKings stock was down 44% year to date going into the upgrade. Flutter Entertainment, which owns FanDuel, rose about 1% the same morning.
The rating change follows a MoffettNathanson downgrade on 24 April, when the firm moved DraftKings to Neutral and cut its target to $27 from $38.
What BofA is modelling
The upgrade rests on DraftKings Predictions, the event-contract product DraftKings built after acquiring Railbird Technologies and its exchange subsidiary, Railbird Exchange, in October 2025.
BofA expects market-making on the platform to add between $200 million and $400 million in revenue. That estimate assumes prediction markets remain viable under the current US regulatory framework, with several states still contesting whether sports event contracts belong under federal or state oversight.
BofA described the regulatory outcome as a “win-win” for DraftKings and referred to the threat from prediction markets as a “terminal value overhang” on the shares. The logic runs both ways: if event contracts stay legal, DraftKings has a new revenue line; if regulators shut them down, the competitive pressure from rival platforms on its sportsbook goes with them.
EBITDA estimates cut for 2026, raised for 2027
BofA lowered its 2026 EBITDA estimate for DraftKings to $500 million, reflecting the cost of building the prediction markets business.
It raised its 2027 EBITDA estimate from $1.05 billion to $1.15 billion, citing stronger sportsbook performance and potential market-making revenue.
Predictions volume since launch
More than 600,000 customers had used DraftKings Predictions by August, according to the company’s Q2 2026 disclosures. Annualized trading volume rose from $2.3 billion in April to $11 billion in July.
Of the July figure, $3.6 billion came from consumer trading and $7.4 billion from market-making. Market-making accounts for about two-thirds of the volume, and it is the activity BofA expects to produce the additional $200 million to $400 million.
On its 7 August earnings call, DraftKings management said it had seen “no discernible impact” from prediction markets on sportsbook revenue. CEO Jason Robins set out the company’s ambition for the product in the Q2 release:
“We can win the category this NFL season and beyond.”
Why the shares fell
DraftKings reported Q2 2026 revenue of $1.44 billion, below analyst estimates, and adjusted EPS of $0.09, also short of forecasts. It kept full-year revenue guidance at $6.5 billion to $6.9 billion.
Competition from Kalshi and Polymarket, and uncertainty over how they will be regulated, weighed on the stock through the year. Kalshi operates nationally under Commodity Futures Trading Commission (CFTC) oversight and offers sports event contracts in states that have not legalized online sports betting. State regulators and gaming interests in several markets argue those contracts amount to sports betting and should fall under state licensing and tax rules.
Regulators outside the US are moving against the sector too. In the Netherlands, Polymarket is appealing a €420,000 penalty from the Dutch regulator after staying accessible past a ban deadline.
DraftKings also faces a lawsuit in Massachusetts alleging it used AI to target gamblers with promotions.
What comes next
DraftKings’ Q3 2026 results will be the first quarterly figures to include NFL-season trading on DraftKings Predictions, and the first test of whether volume keeps growing at the pace seen between April and July.
The BofA case depends on factors DraftKings does not control: how courts and the CFTC treat sports event contracts, and whether the states challenging Kalshi win. If the federal framework holds, BofA’s market-making estimate points to up to $400 million in new revenue. If it changes, the build-out costs stay in DraftKings’ 2026 numbers without the revenue the bank is modelling.
Source: Bank of America
