Shares of DraftKings Inc. (NASDAQ: DKNG) and Flutter Entertainment plc (NYSE: FLUT) climbed sharply after a federal appeals court delivered a landmark ruling on the future of prediction markets.
The Ninth Circuit Court of Appeals ruled on August 28 that sports-related event contracts are not “swaps” under federal commodities law, allowing states to apply their own gaming regulations.
DraftKings Inc. (NASDAQ: DKNG) gained as much as 10% following the decision, while Flutter Entertainment plc (NYSE: FLUT) rose by up to 8% on the same day.
The court denied injunctive relief requests from Kalshi, Crypto.com, and Robinhood, all of which had sought to block the Nevada Gaming Control Board from shutting down their sports-related event contract offerings.
At the heart of the ruling is a straightforward but consequential distinction: sports event contracts offered by prediction-market platforms are sports bets, not federally regulated financial derivatives known as swaps.
Prediction-market platforms and the Commodity Futures Trading Commission had argued that event contracts based on sports outcomes fall under exclusive federal jurisdiction, preventing individual states from regulating or banning them.
Forty-four states have pushed back, arguing that these products are essentially sports betting repackaged in financial terminology and should face the same state-level regulations that govern licensed sportsbooks like DraftKings.
Over the past year, both DraftKings Inc. (NASDAQ: DKNG) and Flutter Entertainment plc (NYSE: FLUT) faced sustained valuation pressure as analysts flagged the rapid rise of prediction markets as a significant competitive threat.
Platforms like Kalshi were able to offer sports-outcome products in markets where traditional sports betting remains restricted, by classifying those products as federally authorized financial contracts rather than state-regulated gambling.
If the Ninth Circuit’s reasoning gains broader adoption, it could force prediction-market operators to obtain state-by-state gambling licenses, leveling the regulatory playing field with traditional sportsbooks.
Institutional sentiment heading into the ruling had already weakened for both companies, with DraftKings Inc. (NASDAQ: DKNG) seeing hedge fund ownership fall from 61 in the first quarter to 54 in the second quarter.
Flutter Entertainment plc (NYSE: FLUT) experienced an even steeper decline, with hedge fund holdings dropping from 57 to 37 over the same period, reflecting broad investor caution around prediction-market competition.
The bull case for both stocks rests on the argument that this ruling eliminates the structural disadvantage DraftKings and Flutter faced against platforms operating in what many state regulators considered a legal gray area.
With 44 states already aligned with the court’s view, the ruling could trigger similar enforcement actions across the country, potentially forcing prediction-market platforms to curtail their sports-related activities significantly.
However, this remains a single appeals court decision rather than a final nationwide resolution, and prediction-market platforms retain both the motivation and financial resources to pursue further legal challenges.
Sharp single-day stock rallies triggered by legal outcomes can also represent overreactions, particularly if appeals, narrow practical impacts, or regulatory workarounds limit the ruling’s real-world effect on competitors.
Investors should monitor Kalshi’s September 9 petition for rehearing and any potential Supreme Court review, as well as whether prediction-market operators find alternative ways to continue offering sports contracts in states like Nevada.
A sustained increase in institutional ownership of DraftKings Inc. (NASDAQ: DKNG) and Flutter Entertainment plc (NYSE: FLUT), rather than a single-day price spike, would provide stronger evidence that this ruling has genuinely shifted the long-term investment case for either stock.
