DraftKings and Flutter Jump After Court Rules Prediction Markets Are Gambling, Not Federally Regulated Trading

Shares of DraftKings Inc. (NASDAQ: DKNG ) and Flutter Entertainment plc (NYSE: FLUT ) soared on August 28 after the Ninth Circuit Court of Appeals ruled that sports-related contracts at issue were not 'swaps' under federal commodities law, clearing the way for Nevada to apply its gaming regulations to them and handing a significant victory to states seeking to shut down platforms like Kalshi. DraftKings Inc. (NASDAQ:DKNG) gained up to 10%, while Flutter Entertainment plc (NYSE:FLUT) increased by up to 8%. The court denied Kalshi, Crypto.com, and Robinhood's requests for injunctive relief, all of which sought to prevent the Nevada Gaming Control Board from shutting down their sports-related event contract offers in the state.

The Ninth Circuit's core finding was straightforward: sports event contracts offered by prediction-market platforms are sports bets, not swaps subject to federal commodity law. That distinction is critical because it decides which regulator and set of regulations will control these products.

Prediction-market platforms and their federal regulator, the Commodity Futures Trading Commission, have argued that event contracts, including those based on sports outcomes, are subject to exclusive federal jurisdiction as a type of derivative known as a swap, preventing individual states from regulating or prohibiting them. Forty-four states have objected, claiming that these products are essentially sports betting disguised in financial terms and should be subject to the same state-level gambling regulations that govern licensed sportsbooks such as DraftKings.

Over the past year, both DraftKings Inc. (NASDAQ:DKNG) and Flutter Entertainment plc (NYSE:FLUT) have faced sustained valuation pressure, with analysts citing the rapid emergence of prediction markets as a major headwind. Kalshi and other platforms have been able to offer sports-outcome betting products in places where traditional sports betting is still outlawed or heavily restricted by designating those products as federally authorized financial contracts rather than state-regulated gambling. If the Ninth Circuit's reasoning is adopted more broadly, it could erode much of Kalshi's structural advantage by allowing states to apply their own gaming laws and licensing requirements to sports-related event contracts

Prior to the ruling, both companies' institutional positions had deteriorated. DraftKings Inc. (NASDAQ:DKNG) saw hedge fund ownership dip from 61 in the first quarter to 54 in the second. Flutter Entertainment plc (NYSE:FLUT) experienced a greater loss, with hedge fund holdings falling from 57 to 37 during the same period. The decline in ownership for both names, despite a ruling that ultimately benefited them, shows that institutional investors were generally wary of the threat posed by prediction markets prior to the court's ruling.