The legal sports betting market is under attack from prediction markets like Kalshi and PolyMarket, which offer traders contracts on everything from pro sports games to election outcomes to temperature highs in specific cities.

The rise in prediction markets has been driven by a favorable regulatory environment from the Trump Administration and a change to gambling taxation in last year’s One Big Beautiful Bill Act (OBBBA), which limited loss deductions to 90% instead of 100%.

The big losers in this political shift are sportsbooks and casinos, which now face competitors offering the same bets at much more generous rates to potential customers.

Here are four gambling stocks caught in the crossfire to avoid.

DraftKings Inc.

You might still see an endless barrage of DraftKings (NASDAQ:DKNG) commercials during the NBA playoffs, but the company’s ubiquitousness belies its financial condition. DraftKings began as a daily fantasy sports site and grew into one of the premier online sports betting companies following the 2018 Supreme Court decision that legalized wagering on professional and college sports.

But now a new legislative framework is hurting the company’s bottom line: the federal government’s embrace of prediction markets and the OBBBA’s changes to tax laws on reported gambling losses. DKNG shares are down more than 30% this year, and its Q1 2026 earnings report earlier this month suggests the company is struggling to sustain profitability. DraftKings reported Q1 revenue of $1.65 billion but just $21 million in income, highlighting the funds that must be redeployed into customer acquisition and promotional spending.

DraftKings Predictions was launched earlier this year following the company’s acquisition of Railbird, but prediction market revenue won’t be included in 2026 revenue guidance.

DKNG shares recently poked their head above the 50-day moving average, but there’s evidence that this is merely a bull trap and not a breakout. Aside from the fundamental headwinds, DKNG stock faces slowing momentum despite recent technical strength. The Relative Strength Index (RSI) is in bullish territory above 50 but has begun trending back toward the bearish range.

This momentum shift is confirmed by the Moving Average Convergence Divergence (MACD) indicator, which also highlights fading momentum after the stock appeared to have found a bottom.

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Flutter Entertainment PLC

The main competitor to DraftKings and the parent of the FanDuel Sportsbook, Flutter Entertainment (NYSE:FLUT), faces challenges similar to those of its industry peers. The company reported a top- and bottom-line earnings beat in its Q1 2026 report, but its guidance projections caused consternation among analysts and investors alike. The trimmed guidance was driven by weak betting growth: U.S. sportsbook revenue grew just 1% in the quarter, while the handle fell 9% year over year (YoY).

CEO Amy Howe also announced an abrupt departure, and the stock hit a new 52-week low in the trading days following the Q1 earnings news. Like DraftKings, FanDuel has launched its own prediction market exchange, but it’s currently an expensive investment that generates very limited revenue.

As you might expect from a stock down more than 50% this year, the chart is an ugly one. The price is firmly below both the 200-day and 50-day moving averages and has been repeatedly rejected at the 50-day moving average when trying to break out. The RSI and MACD indicators both confirm the strong downward momentum, and the bears continue to have a stronger stranglehold on the stock than the Knicks do on the Cavaliers.

Churchill Downs Inc.

Churchill Downs (NYSE:CHDN) is home to the racetrack that hosts the renowned Kentucky Derby thoroughbred horse race, but the company itself is a diversified racing and gaming firm with a full calendar of events. Churchill Downs might have the best bull case of the stocks on our list, thanks to the “prediction market proof” nature of horse racing, but the nearly $6 billion company has a heightened valuation and is weighed down by extensive debt.

Q1 2026 was a solid one for Churchill Downs, beating on revenue and EPS, including a 20% EPS upside surprise. But Gaming revenue was basically flat YoY, and the company’s net debt pile grew to $4.87 billion. Now that the Kentucky Derby has passed, the company lacks meaningful catalysts to reverse its downtrend, which has clipped more than 25% off shares so far in 2026.

A false breakout around the time of the Derby race (first Saturday in May) gave investors some hope, but the narrative quickly flipped back to bearish when the momentum failed to hold. The share price quickly dipped back below the 200-day moving average and now trades below the 50-day moving average once again. The MACD isn’t giving investors any reason for optimism either, following a bearish crossover that drove both the MACD and the signal lines below the histogram.

Las Vegas Sands Corp.

If you think traditional casinos are safe from the prediction market craze, you might want to check the charts of some of the casino and gaming staples. Las Vegas Sands (NYSE:LVS) is a megacap resort operator with properties in Singapore and Macau, having sold its Las Vegas assets in 2022.

Margin compression in the Macau segment was the biggest red flag in the company’s Q1 2026 earnings report back in April, and the stock sold off nearly 10% the following day. Now that the majority of the company’s assets are located in China, the strength of Chinese consumers and geopolitical relations between Beijing and Washington, D.C., have an outsized influence over the company’s bottom line.

Despite good overall Q1 numbers, the Macau slowdown has the market worried, and analysts at JPMorgan Chase and Deutsche Bank lowered price targets following the April 22 earnings news.

LVS shares had attempted a breakout above the 50-day and 200-day moving averages before the Q1 2026 earnings release, but the Death Cross proved to be a harbinger of the poor news. The stock quickly receded below the 50-day and 200-day moving averages, and the downward momentum is now exacerbated by bearish signals on both the MACD and RSI. Shares are down more than 20% YTD, and LVS investors could face more losses over the rest of the year.