DraftKings Has ‘Significant Downside,’ Could Tumble to $14, Says Short Seller
Posted on: October 3, 2025, 01:26h.
Last updated on: October 3, 2025, 01:26h.
- Spruce Point estimates stock could fall another 35% to 60%
- Short seller says analysts are reluctant to lower earnings estimates on DraftKings
- DraftKings, other gaming companies forced to wait as prediction market litigation plays out
DraftKings (NASDAQ: DKNG) is on pace to end an eight-day skid today, but the stock could be in for much more downside, according to a short seller.
In a report published today, Spruce Point Management said DraftKings analysts and investors aren’t fully appreciating “the gravity” and “long-term disruptive impact” on the gaming company’s business that could be inflicted by prediction markets such as Kalshi and Polymarket. Even with some recent buy-side support, DraftKings stock shed more than a quarter of its value over the past month. Spruce Point estimates additional downside of 35% to 60% awaits as prediction markets continue operating amid state-level litigation while gaming companies are in precarious positions of not being able to respond.
We believe DKNG and the other OSB operators are stuck between a rock and a hard place,” notes Spruce Point. “Our debate is not about what ultimately happens with sports prediction exchanges in the next year or two and who wins/loses the litigation. Our position is we do not believe DKNG or any other OSB operator would risk their gaming licenses by launching sports prediction exchanges in the next 3-6 months or in the next year or two while the Commodities Futures Trading Commission (CFTC) and the states are potentially embroiled in further litigation or a pending Supreme Court decision.
The short seller points out that the Arizona Department of Gaming (ADG) and the Ohio Casino Control Commission (OCCC) are among the state regulators that have warned gaming companies that if they pursue prediction markets entries, their sports betting licenses could be jeopardized.
Kalshi Handle Should Be Ringing Alarms for DraftKings
This week, there’s been considerable debate regarding surging volume on Kalshi, a substantial portion of which has been driven by Robinhood Markets (NASDAQ: HOOD), with that data contributing mightily to share price declines for DraftKings, Flutter Entertainment (NYSE: FLUT), and other sports betting stocks.
Some sell-side analysts argued those fears are overblown because it appears likely that football contract on volume Kalshi is being double-counted, meaning each side of a trade is counted towards handle — something that doesn’t occur in traditional sports wagering.
For its part, Spruce Point doesn’t appear to be using double-count data as the research firm estimates Kalshi generated an average NFL handle of $277 million per week through the first four weeks of the NFL season and $187 million per week through the first five weeks of college football. Those figures should be “setting off the fire alarm” for DraftKings, said the short seller.
“This represents ~79% of the weekly NCAA football handle that the online sports betting (OSB) operators generated during Sept.-Dec. ’24,” according to the bearish report. “In five weeks, Kalshi grew its NCAA football handle by 80% and in four weeks grew its NFL handle by 19%. Spruce Point believes the disruption is clear given DKNG’s NY sportsbook handle declined 8.9% from Week 3 to Week 4 of the NFL season in ‘25 vs 8.1% growth in ’24. Kalshi grew its NFL and NCAA football handle by 31% in the same week, a widening divergence that highlights Kalshi’s potential share capture at DKNG’s expense.”
Spruce Point adds that via its own research and confirmation by Kalshi, football contracts are not being double-counted. For example, a buyer of the “yes” side of a football derivative at 60 cents and a buyer of the “no” side at 40 cents are counted as $1, not $2.
DraftKings Analysts Missing the Boat, Alleges Spruce Point
In acknowledging that DraftKings has made some strides, including improved free cash flow generation, Spruce Point adds the evolution of sports prediction markets arrives at “an unfortunate time in DraftKings history” because states aren’t rushing to legalize iGaming and after Missouri and Alberta, Canada come on board later this year, options are limited for further North American OSB expansion.
In forecasting a potential decline to $14 to $22 for shares of DraftKings, Spruce Point notes sell-side analysts, though some have done so, are broadly reluctant to lower earnings estimates and price targets on the gaming equity.
“Spruce Point believes that analysts are downplaying the tectonic shift that we believe is occurring in the sports betting market and its impact on DKNG,” concludes the research firm. “Analysts are using emotionally charged language and softening concerns with words like “potentially challenging” to justify buying its shares. However, with some analysts still projecting a price target over $60, a dozen analysts making no recent price target change at all, and the consensus target at $53 per share, we still see a wave of downgrades and disappointment as likely to pressure the stock.”
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