Mizuho: DraftKings Stock Could Benefit from Prediction Market Court Cases

DraftKings (NASDAQ: DKNG) stock could catch tailwinds if various courts overtly rule against prediction market operators’ quests to continue offering sports event contracts.

That’s the take of Mizuho analyst Ben Chaiken who in a report out Monday, theorizes that sports derivatives– currently the largest volume drivers on yes/no exchanges — won’t be available over the medium-term and that could spark a rebound by DraftKings.

Citing 23 recent court rulings in which various states largely emerged victorious in sports-driven fights against prediction market operators, Chaiken says the industry won just a third of the time and even that isn’t encouraging.

He reiterated an “outperform” rating and $45 price target on DraftKings, implying upside of 73% from today’s closing print.

Prediction Market Legal Wrangling

Amid a slew of state-level cases against prediction markets, the bulk of which allege that those companies are acting as unlicensed sportsbooks, some analysts and legal experts believe the legal pathways are clear.

They contend that due to the number of cases, it’s highly probable that multiple U.S. appeals courts issue diverging rules, setting up a showdown at the U.S. Supreme Court. Chaiken believes that if the Supreme Court hears a prediction markets case, that’d be a catalyst for DraftKings stock.

Some market observers speculate that it’s unlikely that the Supreme Court wants the Commodity Futures Trading Commission (CFTC) – prediction markets’ federal regulator – overseeing sports wagering in this country.

It remains to be seen, but there may be something to that assertion because the high court’s 2018 ruling on the Professional and Amateur Sports Protection Act (PASPA) made clear the court believes states have the right to chart their respective sports wagering courses.

Why It Matters for DraftKings Stock

Over the past year, shares of DraftKings and FanDuel owner Flutter Entertainment (NYSE: FLUT) have been battered with prediction markets largely viewed as the culprit. Both operators have entered the event contracts space, but that hasn’t been enough to allay investor concerns.

Within the investment, legal and sports wagering communities, there’s a belief that if the Supreme Court hears a prediction market case and issues an unfavorable sports-related ruling, companies such as DraftKings and FanDuel benefit because they can get back to focusing on their competencies while losing a competitive threat.

For skittish investors, the issue is when the Supreme Court will take up a prediction market case. It’s highly unlikely that will happen this year, meaning 2027 is the earliest it could happen and that depends on how things play out at the appellate level.