Published on: October 3, 2025, 01:26h.
Updated on: October 3, 2025, 01:26h.
- Spruce Point forecasts a potential stock decline of 35% to 60%
- Short sellers indicate analysts hesitate to adjust earnings forecasts for DraftKings
- DraftKings and other gaming firms face delays as prediction market lawsuits progress
DraftKings (NASDAQ: DKNG) appears poised to break an eight-day losing streak today, yet a short seller warns of further declines ahead.
In today’s report, Spruce Point Management asserts that analysts and investors fail to grasp the “seriousness” and potential “long-term disruptive effects” that prediction markets like Kalshi and Polymarket may impose on DraftKings’ operations. Despite receiving some support from buyers recently, DraftKings has lost over 25% of its value in the last month. Spruce Point anticipates an additional decline of 35% to 60% as these prediction markets thrive amid ongoing state litigation, leaving gaming companies unable to react effectively.
Spruce Point states, “We think DKNG and other online sports betting operators are caught in a precarious situation. Our discussion isn’t merely about the outcomes of sports prediction exchanges in the next year or two or the litigation results. We believe DKNG or any other operator will not risk their gaming licenses by launching prediction exchanges in the near future while the Commodities Futures Trading Commission (CFTC) and state regulators navigate further legal challenges or a potential Supreme Court ruling.”
The short seller highlights warnings from state regulators like the Arizona Department of Gaming (ADG) and the Ohio Casino Control Commission (OCCC), cautioning that pursuing entries into prediction markets might jeopardize their betting licenses.
Surging Kalshi Activity Should Alarm DraftKings
This week brought significant discussion around rising transaction volumes on Kalshi, largely propelled by Robinhood Markets (NASDAQ: HOOD), which has negatively impacted share prices for DraftKings, Flutter Entertainment (NYSE: FLUT), and other sports betting companies.
Some analysts contend that these apprehensions may be exaggerated due to the likelihood that football contract volumes on Kalshi are being counted twice, which differs from traditional sports betting practices.
However, Spruce Point does not appear to rely on double-counting figures, estimating that Kalshi achieved an average NFL handle of $277 million weekly in the first four weeks of the NFL season and $187 million weekly during the first five weeks of college football. The short seller suggests these figures should be “raising alarms” for DraftKings.
“This amounts to approximately 79% of the weekly NCAA football handle collected by online sports betting operators from September to December 2024,” states the report. “In just five weeks, Kalshi’s NCAA football handle surged by 80%, and its NFL handle saw a 19% increase over four weeks. Spruce Point believes the disruption is evident as DKNG’s New York sportsbook handle dropped by 8.9% from Week 3 to Week 4 of the 2025 NFL season compared to an 8.1% increase in 2024. Kalshi’s NFL and NCAA football handle expanded by 31% in the same period, underscoring its potential to capture market share at the expense of DKNG.”
Spruce Point also adds that its own research, corroborated by Kalshi, indicates that football contracts aren’t double-counted. For instance, a buyer picking the “yes” side of a football derivative at 60 cents and a buyer on the “no” side at 40 cents collectively count as $1, not $2.
Spruce Point Critiques DraftKings Analysts
While acknowledging DraftKings’ improvements, such as enhanced free cash flow, Spruce Point indicates that the emergence of sports prediction markets presents challenges at a “poor time in DraftKings’ timeline,” with states showing reluctance to legalize iGaming. Following Missouri and Alberta, Canada’s legalization later this year, opportunities for further online sports betting expansion in North America are limited.
In projecting a potential drop to $14 to $22 for DraftKings shares, Spruce Point observes a general hesitation among analysts to revise down earnings projections and stock price targets, despite some exceptions.
“Spruce Point asserts that analysts are underestimating the considerable shifts happening within the sports betting landscape and their influence on DKNG,” the research firm concludes. “Analysts are using emotionally charged terminology and downplaying concerns with phrases like ‘potentially challenging’ to support stock purchases. Meanwhile, some are still anticipating price targets exceeding $60, while a dozen others haven’t changed their targets at all, maintaining a consensus of $53 per share. We foresee a wave of downgrades and dissatisfaction that could further strain the stock.”