DraftKings' Strategic Position Amid Regulatory Shifts in the U.S. Online Gambling Market

The U.S. online gambling sector in 2025 is defined by a dual narrative: rapid expansion of legal markets and intensifying regulatory scrutiny. For DraftKings, a leader in sports betting and daily fantasy sports (DFS), navigating this landscape requires balancing innovation with compliance. Recent developments in state licensing, federal policy shifts, and investor sentiment underscore both the opportunities and risks inherent in the company's growth strategy.

Regulatory Evolution and Market Expansion

DraftKings has solidified its presence in 25+ states for sports betting and DFS, with
full operations in key markets like New York, New Jersey, and Pennsylvania. Its expansion into Missouri in late 2025-secured through a direct mobile sports betting license-marks a strategic pivot to avoid reliance on land-based partnerships, a move that
could streamline operations in newly legalized states. Beyond sports betting, the company has ventured into federally regulated prediction markets via DraftKings Predictions, a CFTC-approved platform now operating in 38 states
according to industry reports. This diversification into event-based trading, a space also contested by crypto-native platforms like Polymarket, reflects DraftKings' ambition to capture a broader audience while leveraging federal regulatory clarity.

However, regulatory risks persist. The company's exit from the American Gaming Association (AGA) to pursue prediction markets has
drawn criticism from states like Nevada, where such platforms are deemed illegal under current gambling laws. This divergence highlights the fragmented nature of U.S. gambling regulation, where state laws often clash with federal frameworks. For instance,
Illinois' per-wager tax structure, which could reduce DraftKings' 2026 EBITDA by $79–80 million, exemplifies the financial pressures operators face as states seek to maximize revenue from expanding markets.

Taxation and Cost Mitigation Strategies

To counter rising tax burdens, DraftKings has implemented customer surcharges in high-tax states.
Starting January 1, 2025, bettors in jurisdictions with tax rates exceeding 20% face low-to-mid-single-digit percentage fees on winning wagers. In Illinois, the company introduced a $0.50 transaction fee per sports bet in September 2025,
mirroring a similar move by FanDuel. While these measures aim to offset operational costs, they
risk alienating users or driving them to unregulated markets.

The federal tax code also poses challenges. A new law limiting gambling loss deductions to 90%-effectively taxing the remaining 10% as income-has drawn industry pushback.
Nevada Representative Dina Titus' proposed FAIR BET Act seeks to restore the 100% deduction, but its passage remains uncertain amid the ongoing U.S. government shutdown, which has disrupted regulatory oversight and tourism-driven revenue streams.

Investor Sentiment and Valuation Dynamics

Investor perceptions of DraftKings remain mixed. On one hand,
the company's projected free cash flow of $3.8 billion by 2035, as modeled by DCF analysis, suggests an intrinsic value of $95–$96 per share-well above its current price of $33–$35. This premium reflects optimism about its expansion into prediction markets and live betting,
bolstered by the acquisition of SimpleBet. On the other hand, regulatory and competitive risks have tempered enthusiasm. Jefferies and BMO Capital remain cautiously bullish, citing DraftKings' ability to innovate without cannibalizing core sports betting revenue
according to market analysis, while bearish analysts like Northland downgraded the stock to "Underperform," warning of threats from Polymarket and Kalshi
according to analyst reports.

The stock's volatility-down 10.9% to 24.9% over the past year-reflects these divergent views. A price-to-sales multiple of 3.07x–3.24x, above industry averages, indicates a conservative valuation relative to growth prospects. However,
the consensus analyst price target of $50.74 (reduced from $51.20) underscores lingering concerns about near-term profitability.

Strategic Resilience and Future Outlook

DraftKings' ability to adapt to regulatory shifts will be critical. Its integration of Railbird Technologies to enhance prediction market offerings and its proactive approach to tax mitigation demonstrate operational flexibility. Yet, the company must also contend with broader industry trends, such as state-level tax hikes and the potential for federal regulatory convergence under the CFTC and SEC
according to industry experts.

The path forward hinges on balancing innovation with compliance. While prediction markets and DFS provide growth avenues, DraftKings must navigate state-specific legal ambiguities and competitive pressures. For investors, the key question is whether the company's strategic resilience can offset regulatory headwinds and sustain long-term value creation.