DraftKings Inc. (DKNG): A Bear Case Theory

We came across a bearish thesis on DraftKings Inc. on The Bear Cave’s Substack by Edwin Dorsey. In this article, we will summarize the bulls’ thesis on DKNG. DraftKings Inc.'s share was trading at $42.32 as of September 26th. DKNG’s forward P/E was 19.42 according to Yahoo Finance.

DraftKings (NASDAQ: DKNG — $21.2 billion) is a leading provider of real-money gaming, offering sports betting, fantasy sports leagues, lotteries, and online casino games. The company, together with FanDuel, has long been viewed as an effective duopoly, using aggressive signup bonuses to build a high-margin base of repeat customers. However, DraftKings now faces a growing competitive threat from prediction markets such as Kalshi and Polymarket, which allow users to trade binary outcome events without a house, offering potentially better odds and deeper liquidity.

These platforms, available nationwide to adults over 18, cover a broad range of events from sports to elections and economic indicators, and are increasingly attracting users who seek more favorable payouts than traditional sportsbooks provide. Real-world comparisons show that Kalshi often delivers higher returns on bets than DraftKings, highlighting its potential to erode DraftKings’ market share. For instance, during a Monday Night Football matchup, a $50 bet on the Buccaneers paid $107 on DraftKings but $115 on Kalshi, illustrating Kalshi’s superior odds and liquidity. Analysis of upcoming NFL games showed Kalshi offered better odds in the majority of markets, and the platform’s transaction fees and bid-ask spreads are expected to improve further over time.

This emerging trend signals a shift in the competitive landscape, transforming what was once a duopoly into a more contested marketplace. While DraftKings remains a major player, the rise of prediction markets represents a significant headwind, challenging its pricing power and customer retention strategy and creating a dynamic environment that could pressure margins and market positioning going forward.

Previously we covered a bullish thesis on DraftKings Inc. (DKNG) by LongTermValue Research in April 2025, highlighting its dominant sports betting position, state expansion, and strong EPS growth potential. The stock has appreciated about 27% since coverage as the thesis partly played out. The thesis still stands given ongoing market strength. Edwin Dorsey takes a contrarian view, emphasizing competition from prediction markets that could pressure DraftKings’ duopoly.

DraftKings Inc. is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 66 hedge fund portfolios held DKNG at the end of the second quarter which was 70 in the previous quarter. While we acknowledge the potential of DKNG as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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Disclosure: None.