Morgan Stanley Says DraftKings & Flutter Stock Drop Is an Overreaction

Morgan Stanley analysts are urging investors to “buy into weakness” in DraftKings and Flutter Entertainment, arguing that recent stock declines sparked by prediction market rival Kalshi are overstated.

Market Reaction to Kalshi’s Entry

DraftKings shares fell roughly 12% and Flutter, parent company of FanDuel, slipped 10% after Kalshi’s weekend rollout of sports prediction contracts. The new products, which allow users to wager on highly specific outcomes similar to same-game parlays, rattled investors who saw them as a disruptive threat to established sportsbooks.

However, Morgan Stanley contends the selloff reflects short-term jitters rather than long-term fundamentals.

Morgan Stanley’s Case for Stability

In its October 1 investor note, the bank highlighted several factors supporting its bullish stance:

• Regulatory Advantage: DraftKings and Flutter already operate under state-level licenses, while Kalshi’s model still faces regulatory uncertainty.
  
• Product Breadth: Both sportsbooks offer diversified betting menus, iGaming, and daily fantasy, providing insulation from niche competition.
  
• Adaptability: If prediction-style betting gains approval and traction, DraftKings and Flutter are well-positioned to replicate or scale similar products.
  

Morgan Stanley’s confidence reflects the depth of both platforms. DraftKings, for instance, has expanded aggressively into parlays, iGaming, and media partnerships — areas we break down in detail in our DraftKings Sportsbook Review Flutter’s U.S. brand, FanDuel, continues to lead the market in handle and promotional reach, something covered in our FanDuel Review.

The Bigger Picture

The volatility underscores how sensitive investors are to competitive threats in the U.S. betting sector. Kalshi, originally known for political prediction markets, is testing the limits of CFTC-regulated contracts that look increasingly like sports wagers.

Industry observers note that DraftKings and FanDuel remain market leaders with powerful brand loyalty, national marketing muscle, and established sportsbook infrastructure.

“Prediction markets may nibble at the edges, but they don’t yet have the scale, trust, or reach of licensed sportsbooks,” one analyst told Barron’s.

What to Watch

• Regulatory Decisions: Whether regulators allow Kalshi’s sports-style contracts to operate without intervention.
  
• Operator Response: If DraftKings or FanDuel move to launch copycat products once legal clarity emerges.
  
• Investor Sentiment: How stocks perform during the NFL betting season, which typically drives peak sportsbook revenue.
  

For now, Morgan Stanley believes investors should view the dip as a buying opportunity rather than a red flag.

Citations

• MarketWatch – Morgan Stanley says buy into weakness in Flutter and DraftKings after Kalshi enters parlays market, Oct. 1, 2025.
  
• Barron’s – DraftKings, Flutter Stocks Sink. Prediction Markets Are Gaining Momentum., Sept. 30, 2025.
  
• Financial Times – Prediction market with Trump ties threatens U.S. sports bet sector, Sept. 29, 2025.