DraftKings Would Feel Little Impact from College Prop Betting Ban, Say Analysts

Posted on: March 28, 2024, 03:34h. 

Last updated on: March 29, 2024, 11:19h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

A proposed ban on college proposition wagers would likely have minimal impact on DraftKings (NASDAQ: DKNG), according to sell-side analysts covering the company.

DraftKings
Employees at DraftKings headquarters. Analysts say the threat of a ban on college prop bets will have minimal impact on the gaming company. (Image: CNBC)

Several analysts chimed in on the matter on Thursday. That was a day after shares of the online sportsbook operator and rival Flutter Entertainment (NYSE: FLUT), the parent company of FanDuel, slumped on news that NCAA President Charlie Baker said the organization wants to halt prop bets on college athletic events to bolster integrity.

Analysts acknowledged that while investors overreacted to Wednesday’s news, as highlighted by the slumps endured by DraftKings and Flutter, the overall effect of lost college prop bets is likely minimal to those operators and their rivals. In a note to clients on Thursday, Bank of America analyst Shaun Kelley said alterations in the college prop betting landscape are “de minimus” for DraftKings.

Rather, he views the specter of higher taxes on online sports betting as potentially more concerning to the young industry.

Other Analysts Defend DraftKings

With New Jersey policymakers floating a plan to potentially raise taxes on iGaming and sports betting, and Sen. Richard Blumenthal (D-CT) saying more federal oversight of how operators target “high-value” bettors is needed, this week’s news flow for DraftKings, Flutter, and the industry at large has been negative.

However, Wall Street is still in DraftKings’ corner. JPMorgan told clients that Wednesday’s sell-off was overdone, while reiterating an “overweight” rating and $55 price target on the stock. That implies upside of 21% from Thursday’s close.

MoffettNathanson has a similar view. The research firm acknowledged there is some headline risk threatening online gaming stocks. But it reiterated a “buy” rating on DraftKings while boosting its price forecast on the stock to $55 from $52.

Of the 32 analysts with ratings on DraftKings, 24 grade the stock the equivalents of “strong buy” or “buy.”

A Different View

JMP Securities analyst Jordan Bender had a somewhat different take on the college prop betting ban. In a note to clients on Thursday, he pointed out that in 2023, college sports drove $1.6 billion of revenue for regulated U.S. online sportsbook operators, while accounting for about 15% of the overall handle.

He added that with prop wagers increasing in popularity, $200 million in revenue could be at risk, based on 2023 figures, if a ban is enforced.

At the end of the day, bettors will find a way to wager on events and players, and we believe the effort to ban individual player betting will likely only push players back offshore, while we estimate over 50% of wagers today are in the United States,” wrote Bender.

He did note that the mix of player prop bets on college games is lower than what’s found on professional sports.