To The Moon

$DraftKings Inc.(DKNG)$

We just got some big news—potentially game-changing—for DraftKings stockholders. The state of Illinois has passed new legislation as part of its 2026 fiscal year budget that introduces a fresh layer of taxation on online sports betting operators. This change targets high-volume platforms like DraftKings and FanDuel directly and could materially impact DraftKings’ profitability in one of its most important markets.

In this articles, I’m going to walk you through exactly what this legislation entails, what analysts are saying about the financial impact, and most importantly, what this means for DraftKings stock going forward. Is the recent 6% selloff a buying opportunity? Or is this a red flag that investors should take seriously? I’ll cover all that—and more—so let’s dive in.

Earning Overview

For the current quarter, DraftKings is projected to report earnings of $0.40 per share, representing a 233.3% increase compared to the same quarter last year. Notably, the Consensus Estimate for this figure has been revised upward by 11.9% over the past 30 days.

Looking at the full fiscal year, the consensus earnings estimate stands at $1.40 per share, also reflecting a year-over-year increase of 233.3%. However, this estimate has seen a downward revision of 23.7% in the last month.

For the next fiscal year, analysts expect earnings of $1.89 per share, implying a 34.8% increase over this year’s expected earnings. That said, the estimate has declined 3.6% over the past 30 days.

Despite the strong projected growth, recent downward revisions have weighed on sentiment. backed by a history of externally audited accuracy—the combination of recent estimate trends and other earnings-related metrics has resulted in a(Sell) for DraftKings.

The chart below illustrates the trajectory of DraftKings’ forward 12-month consensus EPS estimate:

DraftKings Drops on New Illinois Tax Law

DraftKings shares took a significant hit following Illinois’ announcement of a new wager-based fee structure for online sportsbooks. Over the weekend, Illinois lawmakers finalized their FY26 budget, and tucked inside that budget is a newly implemented wager fee system that will increase costs substantially for the state's largest betting platforms.

Under the new law, Illinois will impose:

• $0.25 per wager on the first 20 million annual wagers, and

• $0.50 per wager beyond that threshold.

Now here’s the key point: according to Bank of America analysts, only two operators currently exceed 20 million wagers per year in Illinois—DraftKings and FanDuel. That means this tax essentially targets these two companies, raising their effective tax burden while leaving smaller rivals mostly untouched.

The new fees could raise DraftKings’ effective tax rate in Illinois from about 35% to over 50%, which is a massive increase, especially for a company already reinvesting heavily to expand market share.

Financial Impact: $70–80 Million EBIT Hit Projected

Bank of America estimates this new tax could cut DraftKings’ EBIT by $70 million annually starting in 2025, with the impact growing to $80 million by 2026. To put that in perspective, that’s roughly 6% of the company’s projected EBIT for those years.

This comes on top of an earlier tax increase—DraftKings and FanDuel had already seen their tax rate in Illinois rise from 15% to around 35% not long ago. Now, just a year or two later, lawmakers are going back to the well again.

Now, the company isn’t standing still. DraftKings could attempt to mitigate this impact through various strategies:

• Reducing promotions or marketing spend in Illinois,

• Rebalancing customer acquisition budgets,

• Or even attempting to pass some of the additional cost onto users via odds adjustments or platform fees.

However, all of these responses carry risks—especially when it comes to competitiveness. Smaller operators not subject to the higher fee tier will be able to offer better odds or more generous promotions, potentially taking share from DraftKings in one of its strongest markets.

Regulatory Risk on Full Display

I’ve long considered regulatory risk the single greatest long-term concern for DraftKings investors—and this news is a textbook example of why.

DraftKings operates at the mercy of state legislatures. Its growth hinges on regulatory approval from state to state. But even after it earns that approval and invests heavily into local operations, that approval can be modified—sometimes radically—without warning. Just like we’re seeing now in Illinois.

And it’s important to understand the dynamics at play here: Politicians aren’t necessarily focused on what makes economic sense. They’re often motivated by public sentiment and what plays well to voters. Taxing gambling platforms is an easy win politically. It sounds good in a press release: “We’re taxing big gaming companies to fund essential programs.” But in practice, these taxes can backfire.

For one, they make legal platforms less attractive compared to black market operators, who don’t pay taxes at all and can offer better odds and payouts. The more expensive it becomes to operate legally, the more market share illegal sportsbooks stand to gain.

So while small legal operators might benefit a little from DraftKings' higher costs in the short term, they’re also now just as vulnerable to future legislative targeting. And the real beneficiaries, ironically, are the illegal platforms.

Revenue Growth Outlook

While earnings growth is often viewed as the most definitive measure of a company’s financial health, sustained earnings improvement is rarely possible without a corresponding rise in revenue. In essence, revenue growth is the engine that powers long-term earnings expansion. For investors evaluating DraftKings, analyzing its revenue trajectory is critical to understanding the company’s broader growth potential.

According to the latest consensus estimates, DraftKings is expected to generate $1.39 billion in revenue this quarter, reflecting a 25.6% increase year-over-year. Looking ahead, analysts project full-year revenue of $6.29 billion for the current fiscal year, which would represent a 31.8% year-over-year increase. For the next fiscal year, revenue is expected to rise further to $7.37 billion, translating to a more moderate—but still healthy—17.3% annual growth rate.

Recent Results and Earnings Surprise History

In its most recently reported quarter, DraftKings delivered revenue of $1.41 billion, a 19.9% increase from the same period a year ago. The company also posted earnings per share (EPS) of $0.12, a significant improvement from a loss of $0.30 per share in the prior-year quarter.

However, the results slightly missed analyst expectations. Revenue came in 0.98% below the Zacks Consensus Estimate of $1.42 billion, while EPS also missed expectations by 33.33%. This marks a continuation of DraftKings’ mixed performance in recent quarters.

Over the past four quarters, DraftKings has only exceeded EPS expectations once and has failed to surpass revenue estimates in any quarter during that period. This pattern of underperformance against consensus estimates may be a concern for some investors, particularly those focused on earnings consistency and near-term momentum.

Is DraftKings Still a Buy? Here’s My View

Now, I’ve had DraftKings rated as one of my top 9 stocks to buy in 2025. My intrinsic valuation model pegs the stock’s fair value at around $53 per share. Even after this new tax is factored in, the current share price—hovering around $33—still reflects a meaningful margin of safety.

Yes, this legislation is a setback. But it’s one that, in my view, the company can absorb. The stock is still undervalued. The business is still growing. And the longer-term upside remains intact if DraftKings continues gaining share in existing states and expands into new markets.

Still, this situation highlights the one thing that DraftKings investors need to monitor closely going forward: the regulatory landscape. The company doesn’t control it, but its margins and growth potential are hugely influenced by it. And unfortunately, political decisions often aren't guided by the same logic or financial discipline that governs businesses.

Lawmakers may eventually realize that pushing legal operators too hard results in lower tax revenues, not higher ones—because it drives bettors back to unregulated markets. But that realization might take years—and in the meantime, DraftKings and its shareholders will bear the burden.

Final Thoughts: My Investment Thesis Is Intact

So where do I stand after this news?

• I still like DraftKings long term.

• I still believe it's one of the best-positioned players in the space.

• I still rate the stock a buy, even with this regulatory headwind in Illinois.

But this is a reminder: regulatory risk is real, and it's not going away. The business model depends on the goodwill—or at least the cooperation—of state governments, many of which are running budget deficits and looking for politically safe ways to raise revenue.

DraftKings offers a long-term opportunity to participate in the legal transition of sports betting from the black market to the mainstream. But like any transition, there will be friction—especially from lawmakers who see the industry as a cash cow.

If you're investing in DraftKings, make sure you're doing so with eyes wide open. There's upside, but there's also real political risk. For now, the stock remains undervalued, and I’m holding firm on my rating.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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