DKNG and FLUT Surge up to 10% as Ninth Circuit Rules Prediction Markets Are Gambling

Shares of DraftKings Inc. (NASDAQ:DKNG) and Flutter Entertainment plc (NYSE:FLUT) rallied significantly on August 28 after the Ninth Circuit Court of Appeals ruled that sports-related contracts offered by prediction-market platforms are gambling, not federally regulated swaps. DraftKings gained up to 10% in response to the decision, while Flutter increased by up to 8%. The ruling hands a major legal victory to state regulators seeking to enforce gaming laws against platforms like Kalshi, Crypto.com, and Robinhood, which had previously operated under the assumption that their products fell under exclusive federal jurisdiction.

Market Context

The surge in DraftKings and Flutter comes after a period of sustained valuation pressure driven by the rapid emergence of prediction markets. Analysts had cited the ability of these platforms to offer sports-outcome betting in states where traditional sports betting is restricted or banned as a significant headwind to established sportsbooks. By designating these products as federally authorized financial contracts, competitors like Kalshi were able to bypass state-level licensing requirements, creating a structural advantage that threatened the market share of licensed operators.

Analysis

The core of the Ninth Circuit’s decision rests on the classification of sports event contracts. The court found that these contracts are sports bets, not swaps subject to federal commodity law. This distinction is critical because it determines the regulatory framework: if they are swaps, the Commodity Futures Trading Commission (CFTC) has exclusive jurisdiction; if they are gambling, individual states can regulate or prohibit them. Forty-four states have objected to the federal interpretation, arguing that prediction markets are essentially sports betting disguised in financial terms. The court denied requests for injunctive relief from Kalshi, Crypto.com, and Robinhood, effectively allowing the Nevada Gaming Control Board to proceed with shutting down their sports-related event contract offers in the state.

Key Numbers

- DraftKings Inc. (DKNG) share price increased by up to 10% following the ruling.

- Flutter Entertainment plc (FLUT) share price increased by up to 8%.

- Forty-four states have objected to the classification of prediction markets as federally regulated swaps.

- Hedge fund ownership of DraftKings dipped from 61 funds in Q1 to 54 in Q2.

- Hedge fund holdings of Flutter fell from 57 to 37 during the same period.

- The Ninth Circuit denied injunctive relief for Kalshi, Crypto.com, and Robinhood.

What to Watch

Investors should monitor whether the Ninth Circuit’s reasoning is adopted by other federal circuits, which could erode the structural advantage of prediction-market platforms nationwide. If states begin applying their own gaming laws and licensing requirements to sports-related event contracts, it may force competitors to either comply with stringent state regulations or withdraw from those markets. Additionally, market watchers will be looking for any potential appeals or legislative responses from the CFTC or Congress to clarify the regulatory status of these products.