Spruce Point Capital is short DraftKings Inc. (Nasdaq: DKNG) on the thesis that emerging prediction markets like Kalshi and Polymarket will take more sportsbook market share than investors and sell-side analysts predict. Spruce Point believes prediction exchanges will continue to operate while state litigation drags on, with the U.S. Supreme Court unlikely to decide on legality until summer 2027. DKNG is forced to sit on the sidelines as state gaming commissions have warned sportsbooks not to enter prediction markets. Kalshi appears to offer better odds than DKNG, driving rapid handle growth. The market has misinterpreted Kalshi's handle and hold rate, and sell-side analysts have been reluctant to lower consensus revenue estimates. Spruce Point estimates 35-60% downside risk.
We did not write this report. We catalogued it. The underlying research was published by Spruce Point Capital. The Forensic Ledger does not endorse its conclusions. Always read the original document.
The Core Allegation
DraftKings Inc. (Nasdaq: DKNG) faces a significant long-term disruptive threat from emerging prediction markets for sports betting such as Kalshi and Polymarket. Spruce Point believes investors and sell-side analysts are not fully understanding the gravity of the situation and the long-term disruptive impact on the Company's business.
The Prediction Market Threat
Spruce Point has serious concerns regarding the impact to DKNG's sportsbook market share given the significant volume, or handle, being generated by emerging prediction markets.
Despite the recent share price movement and other prescient short-seller critiques, Spruce Point believes there is still significantly more downside risk.
Extended Legal Timeline
Spruce Point believes:
- Kalshi and other sports prediction markets will continue to operate while state litigation drags on
- The U.S. Supreme Court will have to ultimately decide on their legality
- This may not happen until summer 2027
Legal challenges to the exchange model are unlikely to be resolved quickly.
DKNG Forced to the Sidelines
It appears DKNG will have to sit on the sidelines while the litigation continues:
- State gaming commissions have warned online sportsbooks such as DKNG not to enter the prediction markets
- DKNG cannot participate in this growing market segment
Kalshi's Better Odds
Kalshi appears to offer better odds than DKNG, which Spruce Point believes is driving:
- Kalshi's rapid handle growth
- Potential market share capture from DKNG
Misinterpreted Market Data
Spruce Point believes:
- The market has misinterpreted Kalshi's handle and hold rate
- Sell-side analysts have been reluctant to lower DKNG's consensus revenue estimates
This means the sell-side has not yet priced in the full extent of the prediction market threat.
The Downside
Based on Spruce Point's evaluation:
- 35% – 60% potential downside
- Material market underperformance risk
- Prediction exchanges will take more market share than predicted
subsequent events
- Pre-2025-10-03Prediction markets like Kalshi and Polymarket emerge and grow rapidly
“Significant volume, or handle, being generated by emerging prediction markets for sports betting”
- 2025-10-03Spruce Point publishes short report on DraftKings
“We estimate 35% - 60% potential downside and material market underperformance risk”
- By 2027-summerU.S. Supreme Court may ultimately decide on prediction market legality
“May not happen until summer 2027”
Source — https://www.sprucepointcap.com/research/draftkings-inc
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