DraftKings Could Benefit from BBB Legislation

The One Big Beautiful Bill (BBB) may benefit DraftKings stock by making it harder for professional gamblers to turn a profit, as they can only deduct 90% of losses from winnings. This change could lead to a decrease in professional bettor volume at DraftKings, pushing margins up and slowing revenue growth. However, the company may be fine with this, as pro bettor volume does little good if it is losing money on these bets anyway.

DraftKings Inc. (NASDAQ: DKNG), a leading player in the digital sports entertainment and gaming industry, may see its stock positively impacted by the One Big Beautiful Bill (BBB), which could make it harder for professional gamblers to turn a profit. The BBB proposes that professional gamblers can only deduct 90% of their losses from their winnings, potentially leading to a decrease in their volume of bets at DraftKings. This change could push up margins and slow revenue growth, but DraftKings might be fine with this as pro bettor volume does little good if it is losing money on these bets anyway.

The BBB's potential impact on DraftKings comes at a time when the company is navigating regulatory challenges and market competition. According to InvestingPro data, DraftKings has demonstrated strong momentum with a 16.6% return year-to-date, despite operating in a highly volatile environment [1]. The company reported mixed results for the first quarter of 2025, with revenue reaching $1.409 billion, representing a 20% year-over-year increase but falling 5% below consensus expectations. The company’s adjusted EBITDA for the quarter came in at $103 million, 16% below consensus estimates [1].

DraftKings has faced some pressure in recent months, losing approximately 300 basis points of market share to smaller competitors compared to the first quarter of 2024. However, its sports betting market share has remained relatively stable, demonstrating resilience in a highly competitive environment [1]. The company's market position is reflected in its premium valuation, with InvestingPro analysis indicating the stock trades at a high revenue multiple.

The regulatory landscape presents both challenges and opportunities for DraftKings. One of the most significant hurdles facing the company is the trend of increasing state taxes on online gaming operations. For instance, Illinois recently introduced a new handle tax that could impact DraftKings’ 2026 EBITDA by approximately $79 million or 5.4% [1]. These tax hikes pose a substantial threat to DraftKings’ profitability and may require the company to implement mitigation strategies such as reducing promotions, passing fees to customers, or altering bet mixes to optimize tax impacts.

Despite these challenges, DraftKings is pursuing several growth strategies to enhance its market position and drive long-term profitability. The company operates with a moderate level of debt, maintaining a debt-to-capital ratio of just 8%, according to InvestingPro data. This financial flexibility positions DraftKings well for future growth initiatives. One key focus area is in-play betting, which has been identified as a significant growth driver. The company’s acquisition of SimpleBet is expected to strengthen its capabilities in this area and contribute to profitability growth [1].

In conclusion, while the One Big Beautiful Bill may have short-term implications for DraftKings' revenue growth, the company's strategic initiatives and financial flexibility position it well to navigate the evolving regulatory landscape and market dynamics. Investors should closely monitor the company's performance and the impact of the BBB on its operations.

References:
[1] https://www.investing.com/news/swot-analysis/draftkings-swot-analysis-stock-faces-regulatory-hurdles-amid-growth-potential-93CH-4139888