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. 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.
A Legal Ruling With Big Stakes
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.
Why This Matters for the Sportsbooks
Over the past year, both DraftKings Inc. 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
Institutional Positioning
Prior to the ruling, both companies’ institutional positions had deteriorated. DraftKings Inc. 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.
The Bull Case
The ruling reduces a significant structural threat to DraftKings and Flutter’s models. If Kalshi and similar platforms are required to comply with state-by-state gambling licenses in order to continue offering sports-outcome contracts, the regulatory and cost barriers that have protected traditional sportsbooks for years will now apply evenly across other players, eliminating the disadvantage DraftKings Inc. and Flutter Entertainment plc (NYSE:FLUT) have faced against platforms operating in a legal gray area. With 44 states already backing this view, the ruling might spur similar enforcement efforts elsewhere, potentially requiring prediction-market platforms to significantly reduce their sports-related activities.
The Bear Case
However, this is a single appeals decision, not a final, nationwide conclusion, and prediction-market platforms have the motive and means to continue contesting or seeking review in higher courts. Even if this ruling is upheld, there are greater structural pressures on traditional bookmakers. Sharp single-day rallies triggered by legal decisions could also prove to be overreactions if further developments, such as an appeal or a narrower-than-expected practical impact, fail to fully justify the market’s initial excitement.
Insider Monkey’s Verdict
The ruling is a significant, if not necessarily definitive, win for established sportsbooks facing a legitimate competitive challenge from prediction markets that operate outside of normal gaming regulation. Investors should keep an eye on Kalshi’s September 9 petition for rehearing and any eventual Supreme Court review, as well as whether prediction-market operators find other ways to continue offering sports contracts in states such as Nevada. Considering hedge fund ownership was already declining in both DraftKings Inc. and Flutter Entertainment plc (NYSE:FLUT) before the news, a sustained institutional bid, rather than a one-time price move, would be a more convincing sign that this decision fundamentally alters the long-term investment thesis for either stock.
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