BofA Upgrades DraftKings as Sport Books and Prediction Markets Play Nice
DraftKings caught an updraft yesterday when its shares soared more than 8%. Bank of America analysts upgraded the sports-betting stock from “neutral” to “buy,” predicting DraftKings has upside ahead after falling more than 40% this year.
The analysts expect DraftKings could rake in $400 million in fees next year and an additional $200 million to $400 million from market making. The upgrade comes amid concerns about prediction markets crowding out traditional sports books.
Playing Both Sides
Trading volume on prediction markets has surged in recent years, and the top two platforms, Kalshi and Polymarket, have seen most users’ money flowing into sports-related wagers. The proliferation of prediction markets posed an existential threat to traditional sports books including DraftKings and FanDuel, which faced more restrictions on where they could operate compared to federally regulated prediction markets.
To hedge their bets, DraftKings and FanDuel both launched prediction markets of their own, sparking concerns the new business could cannibalize their existing sports books. That hasn’t been the case, and at the same time, the massive popularity of placing sports wagers seems to have made room for both markets:
While prediction markets have notched massive inflows, so have sports books. The US sports betting industry hit a revenue record last year as Americans placed nearly $167 billion worth of bets, according to the American Gaming Association. This last Sunday, DraftKings saw its event contracts biz hit record trading volume of $218 million, up more than 50% from the NFL’s first Sunday this season.
The business of sports wagers could keep growing as Gen Z comes into its full financial strength. Two-thirds of Gen Z investors surveyed by Betterment said they place sports bets. Similarly, the Bank of America Institute attributed nearly half of all online betting in July to Gen Z, surpassing millennials’ share for the first time.
Plenty of Turf: Bank of America analysts also expect legal challenges surrounding prediction markets could benefit DraftKings — though DraftKings offers prediction markets, its main biz is still traditional sports books. In the meantime, the opportunity that is prediction markets outweighs the risk of cannibalizing its sports books, according to the analysts. And for now, the massive demand to make trades while watching Monday Night Football could mean there’s room for old and new players on the field. New prediction market platform Novig recently saw its trading volume jump 94% following its controversial ad campaign featuring Sydney Sweeney.
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