After DraftKings expanded into prediction markets with the launch of its DraftKings Predictions platform last week, analysts from Truist have weighed in on the legal and operational risks associated with the launch, despite it providing DraftKings with expanded access to markets.
Key Takeaways
- Truist lowered its DraftKings price target to $43 while maintaining a buy rating following the prediction markets launch.
- Analysts cited regulatory uncertainty, conservative hold assumptions, and incremental costs as key risks tied to the new product.
- Ongoing legal disputes over whether sports prediction contracts constitute sports betting could materially impact DraftKings’ strategy.
While the sportsbook operator has described the product as an organic extension of their offerings, analysts from Truist were cautious about this move. They reduced their target price for DraftKings' shares and highlighted several risks associated with the launch.
The launch occurred as prediction markets continue to gain traction across finance and sports, despite their legal status remaining unresolved in several jurisdictions.
Truist analysts focused their assessment on downside risk after DraftKings formally entered the prediction markets space with DraftKings Predictions, a standalone app and web platform regulated by the Commodity Futures Trading Commission. The firm stated that the product introduces complexity to DraftKings’ business at a time when the legal framework for sports-related event contracts remains unsettled.
While Truist has acknowledged that sportsbook fundamentals have improved, including strong betting handle and more favorable outcomes for operators early in the NFL season, it cautioned that prediction markets may operate with more conservative holds than traditional sports betting.
A central concern remains whether sports event contracts will ultimately be deemed equivalent to sports betting under state law. Truist noted that several court cases involving states and prediction market operators are working through that question, with outcomes that could shape the industry.
The firm said the issue could escalate to the Supreme Court.
If sports prediction contracts are permitted, Truist believes DraftKings and Flutter, who this week launched FanDuel Predicts, could be well-positioned to emerge as market leaders, potentially accelerating the legalization of online sports betting and iGaming in additional states. If banned, DraftKings would revert to its prior market structure.
Truist said that the outcome still presents upside, provided spending tied to prediction markets remains limited and does not trigger regulatory penalties.
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Massachusetts ruling highlights operational and compliance exposure
Separate from its prediction markets push, DraftKings faced a costly regulatory decision in Massachusetts, tied to a trading system failure during MLB's 2025 American League Championship Series.
The Massachusetts Gaming Commission unanimously ruled that DraftKings must pay $934,137 in winnings connected to a set of flawed MLB wagers, rejecting the company’s request to void the bets.
The case is related to a customer who placed 27 connected parlays, all of which targeted Toronto Blue Jays outfielder Nathan Lukes. In the internal setup, Lukes was incorrectly listed as a non-participant, which disabled the prevention of bettors from combining a set of linked results within the same market.
As a result, the customer was able to combine several Lukes hit thresholds into a single parlay and several unrelated, high-probability results.
Lukes recorded nine hits across seven games, surpassing every listed benchmark and cashing 24 of the wagers. Regulators concluded the situation did not meet the definition of an obvious error and determined the issue stemmed from DraftKings’ internal systems.
Despite corrective actions and market removals, the commission required the winnings to be honored.
