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DraftKings (DKNG) shares rose over 5% after Bank of America upgraded the stock to Buy, citing prediction markets as a possible $400 million fee stream in 2027.
- Bank of America moved DraftKings to Buy from Neutral on Monday, October 5, 2026.
- Prediction markets could generate about $400 million in 2027 fees, with $200-400 million more from market-making.
- The shares gained more than 5% after falling roughly 47% over the past year.
Lead
DraftKings (NASDAQ: DKNG) climbed more than 5% on Monday after Bank of America upgraded the sports betting operator to Buy from Neutral. The bank argued that prediction markets, the event-contract platforms that let users trade on sports and other outcomes, are now a larger opportunity than a threat. It estimates they could add about $400 million in fees in 2027. Shares had fallen roughly 47% over the past year, which the bank said left risk and reward better balanced.What Did Bank of America Say About DraftKings?
Bank of America said prediction markets are shifting from a perceived cannibalization risk to a "win-win" for DraftKings. The company is now established as the third-largest player in the category, and concerns that event contracts would erode its core sportsbook business have eased.
Beyond the roughly $400 million in 2027 fees, the bank sees a further $200 million to $400 million from market-making, in which a firm quotes prices and supplies liquidity on event contracts. It raised its 2027 adjusted EBITDA estimate to $1.15 billion from $1.05 billion, reflecting firmer core trends and expected market-making contributions.
Why Did DraftKings Stock Jump?
DraftKings stock jumped because the upgrade removed an overhang that had weighed on the shares for a year: uncertainty over whether prediction markets would take share from licensed sportsbooks. The shares traded higher through the Monday session, with intraday gains running above 5% and at times approaching 8%. Flutter Entertainment (FLUT), the parent of FanDuel and DraftKings' main US rival, also edged higher in sympathy.
The bank also lowered its 2026 adjusted EBITDA estimate to $500 million from $625 million. It framed the cut as a de-risking step, arguing that Wall Street expectations for the company are bottoming out. Lower near-term estimates paired with a higher 2027 figure form the core of the revised thesis.
How Big Can Prediction Markets Get for DraftKings?
Prediction markets could become a meaningful fee line within a business whose 2027 adjusted EBITDA is now forecast at $1.15 billion. A $400 million fee estimate is large against that base, though fees are not profit, and the margin on event contracts has yet to be established.
The two product lines may also reinforce each other. A sportsbook customer base gives DraftKings a ready audience for event contracts. Market-making would add a second income stream tied to trading volume rather than to bettor losses.
Strategic Context
The sector faces regulatory and competitive questions. State gaming regulators and federal commodities authorities have not settled how event contracts on sporting outcomes should be treated. Larger prediction platforms are also expanding quickly. DraftKings' position as the third-largest participant gives it scale to compete, but the fee estimate depends on volumes holding up and on rules remaining workable.
Outlook
The upgrade shifts the debate over DraftKings from defending its sportsbook to monetizing prediction markets. The next tests are the company's next earnings report, where management is expected to update guidance and prediction market volumes, and any regulatory clarity on sports event contracts. A 5% move on one rating change after a 47% annual decline reflects how sensitive the shares remain to shifts in sentiment.
Mentioned tickers: DKNG, FLUT
