Why DraftKings might not be a big gamble with Aganju's Tolu Bukola $DKNG

Summary

• Tolu Bukola pitched DraftKings ($DKNG, ~$25, roughly cut in half from the $30s and from the $45-$50 level in late August) as a base-case two-to-three-year double; Walker said he believed the pitch placed third in the SumZero 2026 Stock of the Year competition. His view: data-driven short-term traders see prediction-market volumes going “up up up” while DKNG’s top line slows, and many are not looking two or three years out at end-state economics.
• The under-appreciated asset is iGaming — over 20% of revenue, growing 20%-25%, and, based on Bukola’s cost-breakout assumptions, realistically already doing $300-$500M of EBITDA while sports betting roughly breaks even. iGaming is legal in states covering only 11% of the population versus 60% for sports betting; if legal coverage reaches 50% and DraftKings holds share, “that’s a $5 billion business” that could be worth the entire enterprise value.
• On whether the prediction-market threat is overblown, Bukola’s core evidence is Betfair: a betting exchange that has existed in the UK for 20-plus years and stabilized at about 5% market share. A sell-side estimate puts Kalshi at 10% of U.S. sports betting, but that includes effectively 100% share in California, Texas, and other illegal states — “it doesn’t actually mean that they’re making a big impact” where they compete head-to-head.
• He is candid that prediction markets currently enjoy “massive unfair advantages”: no state gaming taxes (about 20% on average, approaching $10B), betting at 18 versus 21, nationwide reach, and none of the costly integrity and problem-gambling compliance. The Kalshi transaction fee is about 7% versus a sportsbook’s structural spread and tax burden, including Illinois’s added per-bet fee.
• The legal path he leans on hardest: state litigation is “basically guaranteed to get to the Supreme Court” — he previously thought 2028, now possibly 2027 — and the prediction markets’ claim “kind of borders on the absurd in the way that it violates 100 years of American law.” The CFTC’s election-contract case held that elections were not gaming while implicitly assuming it could regulate gaming contracts, using the Super Bowl as the example; enforcement is absent while the commission is down to one commissioner, an ex-crypto lawyer.
• Valuation math: $6B revenue this year compounding 12%-15% gets to roughly $9B by 2029; underwriting just 15%-20% EBITDA margins (versus the 30% investor-day guide and UK/Australia precedent) yields $1.5B-$2B, and 15x on even the 15% case “gets you into the 40s.” A favorable SCOTUS ruling would re-rate faster — Walker said DraftKings would “double overnight.”
• The honest bear case: if prediction markets stay unregulated and reach roughly 50% of the market, “I don’t think there’s any situation where I wouldn’t see that as a disaster” — exchanges are network-effects businesses, DraftKings is already behind, and there’s no reason to bet it lands in the top three or four.
• Walker flagged the asymmetry in the thesis — relying on government to crack down on prediction markets but not on predatory 20-leg parlays — and Bukola’s resolution is that the motive differs: “It’s revenue, right? It’s revenue,” not moral panic, and “given that this is the United States and we refuse to regulate guns when they kill kindergarteners,” he doesn’t expect super-regulation, including a parlay crackdown.

Deep dive

1. A halved stock, a slowing top line, and one existential thesis

• Bukola’s setup: DraftKings, an online sports betting operator that SPAC’d in 2020 after years as a “super high growth” land-grab story, has been “absolutely trashed” over six months — it started the year in the $30s, is now roughly $25, and was trading at $45-$50 in late August before the prediction-market scare. Part is natural maturation of growth metrics; the rest is “this big existential thesis” about prediction markets.
• His mechanics primer: unlike a sportsbook that takes everyone’s bets, a prediction market is an exchange where “the value of a contract represents the probability of a binary event happening” — buy at 30 cents, sell at 50, and lock in a profit without waiting. Kalshi (launched in 2018) and Polymarket (2020) took off in the last year after Kalshi registered with the CFTC claiming to be a derivatives exchange rather than a betting venue, “which has allowed it to bypass a lot of regulation.”
• Why the mispricing exists, in his telling: “the market is increasingly dominated by short-term traders” who trade data points — private prediction-market volumes show up daily going up, DKNG’s growth is slowing — “they’re not necessarily looking out 2 or 3 years,” and they’re not considering the risks to the prediction markets themselves.

2. iGaming: the best part of the business nobody models

• Because everyone fixates on sports betting, Bukola argues they ignore iGaming: a bit over 20% of revenue, growing 20%-25%, and — since “the overwhelming majority of the costs” including prediction-market spending sit on the sports-betting side — “realistically already doing 300 to 500 million dollars of EBITDA” at above-billion-dollar scale.
• Bukola’s structural case is that sportsbooks require sophisticated risk management and can blow up when they misprice risk. Walker adds that sportsbooks are also price-takers — “DraftKings can’t set the odds of the Eagles winning the Super Bowl at a completely different place from everyone else.” By contrast, table games carry a built-in house edge — “when people say you can’t lose money running a casino, they’re not actually talking about sportsbooks.” Online, that edge can be adjusted “instantly, automatically,” and the customer base self-selects: if you’re playing slots, “you’re not necessarily someone that’s trying to win money.”
• The sizing kicker: iGaming is legal in states with only 11% of the population versus 60% for sports betting. He doesn’t think it reaches sports betting’s eventual 80%+, but “if it gets to 50%, that’s 5x of the business” — a $5B business “already dramatically more profitable than the sportsbook,” conceivably worth the whole enterprise value.

3. Walker’s pushback: is iGaming really an oligopoly?

• Walker’s worry: the bull case on OSB was the “rational oligopoly” — FanDuel, DraftKings, and MGM after everyone else incinerated money in the 2021 land rush — but iGaming looks like seven to ten players per legalized state, a smaller market, and a demographic mismatch: “my mom and grandma love going and pulling the slot physically. They don’t gamble on their phones.”
• Bukola’s rebuttal — worth keeping: “you could have made that same argument, and people did make that same argument, about sports betting with respect to Caesars,” and it turned out to be “mostly a financial land grab to get the customers onboarded.” Once acquired, iGaming customers are far more profitable — it becomes their account and “you just monetize them,” without event-by-event competition for wallets.
• Walker’s own concession from the March investor day: DraftKings built its own games from scratch — “who do I think’s going to make more creative games… Caesars, who can’t even update their own properties in Vegas, or this online-native business?” And the proof is somewhat in the pudding: they’re doing very well in deployed states.

4. “Overblown” versus the friend who switched everything to Kalshi

• Walker’s anecdote against the bulls: a Trotter-transcript bull opened with “the prediction markets are overblown,” then immediately admitted, “I’m a sports bettor and I’ve moved all my sports betting from FanDuel and DraftKings to Kalshi.” Walker: a better, more liquid, cheaper product “is screaming to me that it’s going to murder these people unless the government steps in.”
• Bukola won’t disagree the product is better — he’s an Intrade veteran who “ran a Google group for Intrade refugees” and calls tradeable odds “a no-brainer” — but that’s exactly the trap: “it’s one of those things that happens to play very well to the bias of the people who end up making the investments.” To finance people it’s “dude, throw these sportsbooks in the trash. It’s over” — the inverse of the classic Midwest-retailer trade where investors hate what customers love.
• The evidence he leans on: Betfair has coexisted with UK sportsbooks for 20-plus years at about 5% share, and Kalshi’s estimated 10% U.S. share rolls up near-100% share in states where sports betting is illegal (40% of the country) — head-to-head displacement is “really hard to see in the data,” though BetMGM’s CFO is openly blaming prediction markets for share loss. Bukola’s explanation for Betfair’s ceiling is that it was a small operation without the capital to match competitors’ marketing; on an even regulatory footing, the contest would revert to the usual LTV/CAC, promotions, and marketing-scale land grab. His hedge, verbatim: “there’s a tendency to make up a number and I’m just not going to… we really just don’t know” — trading has become part of the cultural zeitgeist, so the UK precedent may not hold.
• A subtle offset if regulation never comes: if prediction markets can operate in California and Texas, “that pretty much guarantees that those states will immediately legalize OSBs so that they can at least collect taxes” — unregulated competition could become the thing that pushes legalization.

5. The unfair advantages — and the scandals accumulating against them

• The cost stack: exchanges have no spread (winners collect exactly what losers pay, minus Kalshi’s roughly 7% fee), no sportsbook-style pricing-technology or risk-management burden, no 21-plus age floor (18 suffices), no state gaming taxes averaging about 20% and ranging from 5%-10% to 50% — approaching $10B in aggregate — and none of the problem-gambling monitoring or sports-integrity compliance state commissions require. Walker’s reminder of what taxes mean in practice: he believes Illinois’s unilateral hike led DraftKings and FanDuel to impose 5-cent-per-bet surcharges and pull promotions.
• What’s drawing legislative heat, per Bukola: members of the U.S. and Israeli militaries bet on when operations against Iran and Venezuela would begin “based on their insider knowledge, which is a national security risk… it’s absurd” — some went to jail — plus dumber cases like a Bad Bunny insider betting on a Super Bowl outcome and a MrBeast market. Walker’s game-theory riff: an unmonitored market means $10,000 well-placed could send a foreign government to a “five-alarm, red-alert fire.”

6. Three legal paths, and why the CFTC is the sleeper

• Path one, Congress: proposals from Nevada and others to ban prediction markets from sports exist, and the Iran insider betting makes intervention likelier, but “our Congress is kind of dysfunctional and so I don’t bet money on what they’ll do.” Path two, the courts: prediction markets are suing or being sued by 20-plus states, with one circuit split already and several more “basically guaranteed” this year — SCOTUS previously looked like 2028, “maybe 2027 is possible.”
• Path three, the one people miss: Bukola argues that the CFTC is complicit because crypto donors to Trump got regulation moved from the SEC (“some of the best return on money people could ask for,” Walker interjects). The CFTC has 700 employees and 250 lawyers; Walker adds that its enforcement division has effectively disappeared and that it is down to one commissioner, an ex-crypto lawyer.
• The load-bearing precedent: when the CFTC sued Kalshi over election contracts in October or November 2024, the court ruled elections aren’t “gaming” — but the court, Kalshi, and CFTC implicitly assumed that if it were gaming, “and they literally used the exact example of the Super Bowl,” the CFTC could regulate it. So even under the legal status quo, “a future Democratic CFTC could just be like: all of this is over.”

7. Valuation: normalize 2029, get a double, maybe a triple

• The framework: mature markets (the UK and Australia) settled at roughly 30% EBITDA margins, matching DraftKings’ investor-day long-term guide, which Bukola thinks is achievable — iGaming is already well over 20% while sports betting barely breaks even under land-grab and prediction-market-defense spending.
• The math: $6B revenue this year growing 12%-15% — “not a very aggressive rate of growth” given legalization tailwinds from 60% to 80% of the population plus iGaming upside — reaches roughly $9B by 2029. Haircutting margins to 15%-20% gives $1.5B-$2B of normalized EBITDA; at 15x even the 15% case “easily gets you into the 40s.” Base case a double; with a profitability bump from ending the prediction-market fight plus a multiple re-rate, “there are cases where you get a triple or more.” Walker: a SCOTUS ruling tomorrow would make DraftKings “double overnight.”
• Walker’s worry about the path, even granting the endgame: the major catalysts are two to three years away, prediction markets are the superior product in the interim, every broker is launching one, and a superior product could keep taking share. Bukola’s reframe: that daily drip “is why you get to buy it at these valuations.”

8. The disaster scenario, the parlay asymmetry, and why SCOTUS should bite

• No sugar-coating the tail: if prediction markets stay unregulated and reach roughly 50% of the market, DraftKings’ entry doesn’t save it — “I don’t think there’s any situation where I wouldn’t see that as a disaster.” Exchanges are network-effects businesses where user count is the moat; “they’re already behind” and there’s no reason to bet on a top-three finish.
• On Walker’s parlay question — long-shot 20-leg bets going viral, house take compounding per leg, and calls to ban them as predatory — Bukola isn’t worried beyond general regulatory risk: “the vast majority of people are going to lose money sports betting… there’s a case that the entire thing is predatory,” and “given that this is the United States and we refuse to regulate guns when they kill kindergarteners,” he doesn’t expect super-regulation. When Walker notes the irony of wanting a crackdown on one side but not the other, Bukola’s distinction is that the state’s motive against prediction markets isn’t moral panic — “It’s revenue, right? It’s revenue. The government is using the sportsbook as a conduit.”
• His closing emphasis: the prediction markets’ legal claim “borders on the absurd” — handing regulation crafted over a century to “basically one guy at the CFTC” — before a Court that revisited sports gambling in 2018. Add briefs from every league, state attorneys general, and a powerful constituency: Native American tribes, whose case is “even more straightforward” given no federal preemption and a canon of construction favoring tribes. “I would be shocked if it flies.”