Gambling stocks rally as US lawmakers target prediction markets

Shares of major gambling companies rose on Monday after US senators introduced legislation aimed at restricting sports betting through prediction markets, a move investors see as supportive of traditional sportsbooks.

Flutter Entertainment, the parent of FanDuel, climbed 5%, while DraftKings gained 2.7%.

Both stocks have faced steep declines this year, down roughly 50% and 32% respectively, amid concerns that emerging prediction markets could erode their dominance in online sports wagering.

Other operators with exposure to sports betting also advanced.

Penn Entertainment rose more than 6%, while MGM Resorts gained 5.5%.

Bipartisan bill targets prediction market expansion

The rally follows the introduction of a bipartisan Senate bill led by Adam Schiff and John Curtis.

The legislation seeks to ban sports-related betting contracts offered through prediction markets, marking the third such proposal introduced in Congress this month.

The bill also aims to prohibit “casino-style games” such as blackjack, slot machines and poker from being listed on these platforms, tightening regulatory oversight over what lawmakers see as a growing grey area.

"Too many young people in Utah are getting exposed to addictive sports betting and casino-style gaming contracts that belong under state control, not under federal regulators," said Curtis, the proposed bill's co-sponsor.

Analysts see regulatory push as positive for sportsbooks

Market participants have largely welcomed the move, viewing it as a potential safeguard for established betting operators.

Jordan Bender, an analyst at Citizens, told Barron's that a ban on sports prediction markets would be “the ideal outcome” for traditional sportsbooks and online gaming companies.

Both DraftKings and Flutter have already begun investing in their own prediction market offerings, seeking to keep pace with the rapid growth of the segment.

Bender said eliminating those investments could drive up earnings estimates for this year and the next.

"Additionally, the removal of this overhang in general would serve as a positive catalyst for the stocks," he said.

Prediction platforms emerge as key disruptors

Prediction markets have gained traction in recent months, with Kalshi reporting more than $1 billion in trading volume last month, driven in part by sports-related contracts.

DraftKings launched its own prediction platform late last year, signalling the scale of the opportunity.

Chief executive Jason Robins previously described the segment as a “massive” incremental growth area.

However, a ban could significantly impact platforms like Kalshi, where a large portion of revenue (about 89%) is tied to sports trading.

"Banning sports on regulated prediction markets would just push this behaviour offshore, where no regulation exists," Kalshi spokesperson Elisabeth Diana said in a statement.

"It's clear this bill is motivated by casino interests that are threatened by competition. They're more worried about protecting their monopolies than protecting consumers."

Polymarket, another key player, also offers sports-related contracts, although a larger share of its activity takes place outside the United States.

Political uncertainty clouds outlook

Despite bipartisan backing, the bill’s future remains uncertain.

Political dynamics could play a role, particularly given links between prediction market platforms and figures close to the administration.

Donald Trump Jr. serves as an advisor to both Kalshi and Polymarket, raising questions about whether the legislation would gain executive approval if passed by Congress.

Analysts note that this connection introduces an additional layer of uncertainty, as policymakers balance regulatory concerns with industry interests.

For now, however, the prospect of tighter rules on prediction markets has provided a boost to gambling stocks, which have struggled this year amid fears of shifting competitive dynamics in the rapidly evolving online betting landscape.