DraftKings

The industry's regulatory environment is evolving. In September, Brazil's president signed an order to ban online gaming, which followed a halt in India, and hesitancy to legalize online betting in states like Ohio. Also, the legality of predictive sport wagers have seen split court decisions.

Why it matters: The growth potential of online gaming remains attractive. That said, we are applying an updated probability methodology tied to trends in the legislation landscape to account for the lack of visibility around timing of new legalizations in the US and changes in overseas opportunities. We still expect a handful of states to launch sports and online gaming by 2030. This drives our updated 2030 industry online gaming sales estimate of $48 billion versus $50 billion previously, up meaningfully from $27 billion in 2025. For Flutter, we are removing its Brazil business (about 4% of total sales) and increasing the company's cost of capital estimate to 8.9% from 8.2% to account for elevated uncertainty in international regions. This cost of capital change better harmonizes with DraftKings' 9.2% level.

The bottom line: We have decreased our fair value estimates to $187 ($220 previously) and $39 ($45), respectively, for narrow-moat-rated Flutter and DraftKings. Investors are pricing in a dire environment, which could cap shares until a ruling on predictive sports is served by the US Supreme Court in 2027. We now model Flutter's 2026-35 revenue growth to average 6.3% (6.6% prior) with 2035 EBITDA margins of 24.1% (25.1%). Our 2026-35 sales growth and EBITDA margins for DraftKings are 8.1% (9.6%) and 24.9% (25.4%). We think shares currently price in flat US sales and low-20% margins. We see predictive markets expanding the gaming opportunity for online firms, as evidenced by DraftKings' core sportsbook producing double-digit handle growth in recent months. That said, shares have not responded, driving our view that investors could await court rulings for clarity.

After reviewing recent regulatory and legislative updates, we have lowered our fair value estimate to $39 per share from $45 to account for lower revenue and EBITDA growth. Our valuation implies a 21 times 2027 enterprise value/adjusted EBITDA multiple. Key drivers of our intrinsic value are revenue, marketing expense, and product and technology costs.

The industry's regulatory environment is evolving, with some states like Ohio having incremental hesitancy to legalize online betting. Also, the legality of predictive sport wagers have seen split court decisions.

The growth potential of online gaming remains attractive. That said, we are applying an updated probability methodology tied to trends in the legislation landscape to account for timing and visibility uncertainty around new legalizations in the US.

We now model DraftKings 2026-35 sales growth and EBITDA margins of 8.1% (9.6% previously) and 24.9% (25.4%). Our 2026 revenue growth estimate is 12%. We don't see prediction competition taking much of DraftKings' low-20% share of the US online gaming market by 2030, as the firm has launched its predictive events platform in states where sports bets aren't legal (including California in 2026), and offers its superior online sports product (parlays and in-play).

We expect the company's marketing, as a percentage of sales, to average 18% over the next 10 years as spending increases to compete with predictive-event sports betting. That said, we see marketing as a percentage of sales finishing at 14% in 2035, down from 22.8% in 2025, as it becomes more efficient at obtaining and retaining customers by leveraging data. We forecast 2026 product and technology as a percentage of sales at 8.0%, as the company invests in a predictive event product, with it averaging 6%-7% of sales during 2026-35, ending 2035 at 6.0% versus 7.5% in 2025, helped by its in-house capabilities. We expect DraftKings’ growing customer data scale to enable operating margins to expand to 12.8% by 2030, from negative 0.3% in 2025.

We forecast capital expenditures to average 3% of sales during 2026-35.

We see DraftKings holding a narrow Morningstar Economic Moat Rating, as we think its strong position in the US digital gaming landscape will endure amid ongoing competition and regulatory pressures. We expect DraftKings’ stout US revenue share to last amid ramping operating profits, leading to economic profits for at least the next 10 years.

We believe DraftKings’ narrow moat is driven by a brand intangible asset. Following a 2018 Supreme Court ruling, the company has been leveraging its early mover advantage in daily fantasy sports (platform launched in January 2012) to gain a leading share position in online sports and i-gaming betting. DraftKings holds the number-two revenue share position in the regulated states in which it competes, at about 30%. This is behind online peer FanDuel’s leading 40% share but ahead of other top retail/mobile operators including no-moat MGM (10%), no-moat Caesars, no-moat Penn, Fanatics, and narrow-moat Wynn (which each control a single-digit percentage of the market). With its strong and established presence, we think DraftKings is well suited to obtain sports betting and i-gaming licenses. We see this as a particularly acute opportunity in some states where multiple licenses are only given to physical retail gaming operators, before being sold to online only operators like DraftKings in exchange for a percentage of winners.

To ensure its brand intangible asset edge endures, DraftKings is making prudent technology, asset, and product investments. This includes the acquisition of SBTech in 2020, which provided the gaming operator with an in-house platform. We believe that having a vertically integrated technology is important to buoying competitive advantages in the industry, as it offers companies control in leveraging customer data and launching new product offerings. After the SBTech acquisition, DraftKings acquired Golden Nugget’s casino customer database and online i-gaming offering in 2022, which helped drive further improvement in customer acquisition costs. This can be seen in the pace of its sales per marketing dollar, which increased to $4.39 in 2025 from $1.75 in 2019. In 2024, the firm acquired Jackpocket, a leading online lottery app in the US. In 2025, DraftKings acquired the predictive event platform Railbird and launched an offering in December 2025 to compete with Kalshi and Polymarket. We think DraftKings’ healthy liquidity profile affords it latitude to invest further behind its brand, buttressing its intangible asset. The company operates in a net cash position (which equated to $349 million at the end of 2025), with an untapped $500 million credit facility, and positive adjusted EBITDA and free cash flow to the firm in 2025.

While the space is rife with competition, we are seeing growing evidence that DraftKings’ critical mass US digital revenue share is proving durable. In fact, DraftKings’ online sports betting revenue grew 31% in 2025, above the market's 22% increase, while its 2025 adjusted EBITDA margin expanded to 10.2% from 3.8% in 2024. Elsewhere, peers with smaller digital scale have folded as the hurdles to replicating DraftKings’ brand edge prove too challenging. Indeed, narrow-moat Wynn scrapped its plans to take its online sports and i-gaming business public in late 2021 and has since moved investment away from the segment, leading to just low-single-digit revenue share.

We think predictive sports betting can take a low-single-digit percentage of sales share from the US online sports betting market during the next few years, mostly from smaller online sports companies. We think predictive sports betting will expand DraftKings' reach into the 18-20-year-old cohort, new sports states, and nonsport events. This view is based on the company offering a superior sport betting experience, with decades worth of risk management capabilities (pricing events accurately) and liquidity ($650 million in free cash flow in 2025) to make events positioning DraftKings well in predictive markets, which expand reach into the 18-20-year-old cohort, new sports states, and nonsport events.

DraftKings also faces the threat of regulation in the US gaming industry; however, we think the company’s competitive position can strengthen relative to peers with smaller scale under a landscape of increased regulation. Our view is premised on narrow-moat peer Flutter’s experience in the UK and Australia. Flutter continues to boast leading revenue share and healthy margins in those markets, despite regulatory headwinds and maturing industry growth. For one, we see the UK gaming market as a good proxy for the US, given a similar competitive profile, tax structure, and propensity to gamble. In this context, the UK online betting market has around 200 online license operators versus about 40 in the US and places a 25% levy on operator gaming profits, which is above the average tax placed on sports betting revenue in the US. The UK market has implemented several regulations that are headwinds to operators and paint a picture of what eventually could be introduced in the more nascent US gaming market. These include slot betting and marketing limitations, adding a tax to fund education toward gambling addiction, and instituting safeguards to help identify problem wagering (flagging losses, doing credit checks). In our view, such restrictions make it harder for smaller competitors to invest in their still-developing brands. Despite the heightened stringency around UK gaming activity, we expect Flutter’s UK and Ireland adjusted EBITDA margins to settle in the mid-20s long term, while it retains its leading revenue share.

Against this backdrop, even if the US institutes regulatory policies on gaming like those seen in the UK over the next several years, we think DraftKings can hold its brand advantage in the region. This stance is seen in our expectation for DraftKings’ adjusted EBITDA margins to expand to 25% by 2035 from 10% in 2025.

We see DraftKings’ online platform as well positioned to participate in the $60 billion North American sports betting, i-gaming, and prediction market revenue opportunity by 2030.

DraftKings’ in-house technology platform affords it more control over leveraging customer data and developing and launching products.

DraftKings’ financial profile is strong, positioning it to invest further in its online bookmaking platform.

Online gaming operators face intense competition for regulated online sports betting, with more than two dozen state licenses in some states, and from predictive event offerings.

Switching costs are minimal, and market position can sway if promotional activity intensifies.

Political agendas can delay or prevent legalization of sports betting and i-gaming, reducing the addressable market opportunity, and approve new markets like predictive betting. Also, states can increase tax rates on online gaming revenue to meet budget needs.