DraftKings Prediction Markets Entry Could Soon Materialize, Says Analyst

• DraftKings considering variety of prediction market avenues, news could soon emerge, says Jefferies analyst
• State regulators loom large in that equation

With DraftKings (NASDAQ: DKNG) stock down 16% over the past week and September hold likely to disappoint amid a spate of NFL outcomes that benefited bettors, investors are understandably pensive about what’s next for the battered gaming equity.

Regarding the emerging competitive threat from Kalshi and other prediction markets, there’s a sense among sell-side analysts that those fears are overblown as they relate to sports betting stocks, but investors are looking for responses from the likes of DraftKings, particularly as Kalshi fine tunes its football parlay menu.

What DKNG is doing to prepare for entry into prediction markets; our impression is that a range of strategies are under consideration that could manifest in the immediate term should regulatory bodies at the state level permit,” observes Jefferies analyst David Katz.

In a new report, he reiterated a “buy” rating on DraftKings while cutting his price target to $51 from $54 and removing the stock from Jefferies’ Franchise Picks list. The revised price objective implies upside of 44% from the stock closed on Friday, Oct. 3.

Prediction Markets Carry Risk for DraftKings

While there’s no shortage of rumors, including those of the acquisition variety, DraftKings’ prediction market entry isn’t as cut-and-dry as simply buying an event contracts business or organically growing its own related entity.

Despite all the commotion and stock-level shocks induced by reports of prediction markets volume, some sell-side data indicate event contract football volume won’t be anywhere close to regulated sportsbook handle this season, indicating the prediction market juice might not be worth the squeeze for DraftKings and some of its competitors.

Prediction Markets Have DraftKings in Tough Spot

Some market observers believe the rise of prediction markets has online sportsbook operators, DraftKings in particular, between a rock and a hard place. Bearish views on the stock center around prediction markets growth and DraftKings not being able to respond due to the aforementioned state-level regulatory risks.

Conversely, DraftKings’ restraint on the event contracts could pay long-term dividends by ensuring compliance in vintage states while not running afoul of regulations in coveted jurisdictions where sports betting is not yet legal, namely California.

Add it all about and the best elixirs for the stock’s recent woes would be a reversal of bettors’ NFL luck and DraftKings leveraging its buyback program to buy shares at what are now favorable prices.