Core Viewpoint - The stock ratings for DraftKings Inc. and Flutter Entertainment Plc have been unexpectedly downgraded by Bank of America due to multiple risks facing the sports betting market, including the rise of prediction markets like Polymarket, which may overshadow traditional operators [1][2]. Group 1: Stock Downgrade and Market Impact - Bank of America analysts led by Shaun Kelley downgraded the stock ratings of DraftKings and Flutter from "Buy" to "Neutral," citing concerns over structural hold earnings and significant pressure from taxation [1][2]. - Following the downgrade, DraftKings' stock fell by 6.4%, reaching its lowest level in over two years, while Flutter's stock dropped by 3.9% [6]. Group 2: Rise of Prediction Markets - Prediction markets, such as Kalshi Inc. and Polymarket, are gaining popularity among bettors, allowing them to place paid bets on various significant events, which poses a threat to traditional sports betting operators [2][6]. - The capital markets have become highly sensitive to the emergence of paid prediction markets, leading to long-term pressure on the valuations and business models of traditional betting companies [2]. Group 3: Future Risks and Legal Environment - Analysts express concerns about substantial risks ahead, including the launch of significant features by Polymarket in the U.S. and new funding rounds for Kalshi, alongside competition from traditional finance and cryptocurrency entrants [7]. - The current legal environment complicates the assessment of risk-return profiles for companies like DraftKings and Flutter, as state regulators appear to be limiting traditional operators, potentially benefiting disruptors and new entrants [8].