Bank of America has upgraded DraftKings to a “buy” rating, signaling a shift in how Wall Street views the fast-growing world of prediction markets. The bank’s research arm, BofA Securities, now argues that these markets—where people trade contracts tied to real-world outcomes—are turning from a competitive threat into a potential profit engine for the sports betting giant.
The upgrade comes after a period of anxiety among investors. During the FIFA World Cup, volumes at prediction market rivals like Kalshi and Polymarket jumped sharply, fueling fears that bettors might abandon traditional sportsbooks in favor of these newer platforms. But BofA now believes that cannibalization risk is fading. The bank points out that prediction-market activity hasn’t grown as fast as sportsbook “handle”—the total amount wagered—and that DraftKings has rebuilt its lead in active users, suggesting many bettors still prefer the sportsbook experience.
What are prediction markets?
Prediction markets allow people to buy and sell contracts whose payouts depend on the outcome of future events—ranging from election results to sports championships. They’ve existed for years, but platforms like Kalshi and Polymarket have brought them into the mainstream, attracting both casual traders and institutional money. For a company like DraftKings, which already operates a popular sportsbook, prediction markets could be a natural extension—offering a new way to engage users and generate revenue.
BofA’s upgrade is notable because it comes with a specific financial forecast: the bank predicts DraftKings could generate $400–500 million in fees from prediction markets by 2027. That’s a significant number when stacked against the company’s projected earnings. The bank also lifted its 2027 earnings forecast to $1.15 billion, up from $1.05 billion, partly because fee-based revenue from prediction markets can scale with lower variable costs than the promo-heavy betting that dominates the sportsbook business.
Why the upgrade matters
For everyday investors, the key takeaway is about profit margins. Traditional sportsbooks often spend heavily on promotions and bonuses to attract and retain customers, which eats into profitability. Prediction markets, by contrast, typically operate on a “take a cut of activity” model—the platform earns a fee on each trade, much like a stock exchange or a casino taking a rake. That model can produce more profit per new dollar of revenue, which is exactly the kind of operating leverage investors like to see.
BofA kept its price target at $27 while upgrading the stock, even as it trimmed its 2026 earnings expectation. That suggests the bank sees the longer-term story improving, not the immediate quarter. The bigger question, as BofA frames it, is whether DraftKings can turn those prediction-market fees into steadier profit growth while also demonstrating cost discipline in its core business.
This isn’t just a story about one company. Prediction markets have been heating up across the industry—Kalshi recently neared a $40 billion valuation as the sector attracts more attention and capital. That broader trend is part of why investors were worried about DraftKings in the first place. But BofA’s analysis suggests the threat may have been overblown, and that DraftKings could actually benefit from the same wave.
What it means for investors
For those holding DraftKings stock, the upgrade is a positive signal, but it’s not a guarantee. The $400–500 million fee estimate is a projection, not a certainty. Prediction markets are still relatively new, and regulatory and competitive dynamics could change. However, if even part of those fees prove to be incremental profit, it could materially change how the market judges DraftKings’ margin durability and its ability to deliver operating leverage in 2028 and beyond.
Investors should also keep an eye on the broader market environment. Rising bond yields have been pressuring growth stocks globally—New Zealand stocks fell recently as yields climbed—and DraftKings, as a high-growth company, is sensitive to those moves. Similarly, quieter trading periods can hurt betting volumes, as seen with other gaming firms—IG Group recently slashed its outlook due to quiet markets. But BofA’s upgrade suggests the firm sees enough momentum in DraftKings’ user base and the prediction market opportunity to outweigh those headwinds.
Ultimately, the story here is about a company adapting to a changing landscape. Prediction markets were once seen as a rival to traditional sports betting; now, they may become a complementary revenue stream. For investors, that’s a shift worth watching—not just for DraftKings, but for the entire online gaming sector.
