Thursday’s MoffettNathanson fireside chat with DraftKings CFO Alan Ellingson provided a handful of intriguing insights into the planned next evolution of the U.S. online gaming giant.
In a one-on-one fireside chat with senior research analyst Robert Fishman, Ellingson talked about his company’s full-speed approach to prediction markets, how sports betting and iGaming correlate for modern players and why an active M+A playbook might be closed for a while.
Here are three key takeaways from Ellingson’s conference sitdown:
DraftKings sees sportsbook edge in building prediction markets
In a largely upbeat Q1 earnings call on May 8, DraftKings CEO Jason Robins did not mask his enthusiasm for next steps with his DraftKings Predictions product and what it could mean for future growth of the Boston-based company.
“Our core business is strong, and profitability is inflecting. That gives us the firepower to press our advantage in Predictions,” Robins said.
Ellingson expressed similar excitement about how DKNG will compete with not only chief rival FanDuel, but prediction market natives Kalshi and Polymarket as well.
“Predictions is an opportunity, a huge opportunity, and it aligns very closely with where we’re already strong on the sportsbook side,” Ellingson said. “We see it as the next evolution of DraftKings.”
From where, then, does the DraftKings C-suite draw its confidence? Its sports betting product, which is consistently among the top-ranked apps reviewed by industry consultants Eilers & Krejcik, provides the foundation.
“They have a lot of room to catch up to where we are today,” Ellingson said of prediction markets competitor sportsbook products. DraftKings co-founder Matt Kalish gave an even stronger opinion on social media this weekend on the standard prediction market interface:
The DraftKings Q1 earnings report highlighted that volume traded per customer now outpaces sportsbook handle per customer. Annualized volume traded in April increased 43% month-over-month, eclipsing $2.3bn. DraftKings is touting up to $300 million of its guided $700-900 million adjusted annual EBITDA coming from prediction markets.
Ellingson also pointed toward the demonstrated ability of regulated online sports betting companies to generate hold from operator-friendly parlays. He noted that parlay revenue in regulated markets this year could reach $10 billion, while prediction markets trend toward a $300 million annual run rate for the bet type.
Does iGaming go as sports betting goes?
Just a couple of years ago, discussion of cross-sell between online sports betting and iGaming claimed a seemingly permanent spot on gaming earnings calls. However, both the rise of prediction markets and the stall of iGaming legislation through U.S. states quieted much of that talk in recent quarters.
An interesting nugget from Ellingson, though, brought the evolving question of how the two verticals affect each other back to the fore. Fishman asked whether shorter seasons for NFL and other sports teams that either do not make the playoffs or lose earlier in them affects OSB and iGaming in their states.
“There is some correlation between the sports activity in certain states and iGaming activity,” Ellingson said.
Ellingson sounded an optimistic tone about legislative efforts toward near-term iGaming expansion, as prediction markets loom as a threat to siphon online sports betting tax revenue and states beyond the eight with iGaming seek new streams.
“Resistance is shifting,” Ellingson said. “People are looking at this and saying maybe it’s time … the momentum toward legalizing iGaming is real.”
DraftKings shuts M+A playbook after Railbird purchase
A final question to Ellingson about future M+A activity drew what longtime observers of DraftKings might consider his most surprising answer of the session.
Fishman referenced the company’s run of acquisition in the legal U.S. sports betting era, capped by DraftKings buying prediction market Railbird Exchange last year for up to $250 million, as pretext to a question about potential upcoming purchases. Ellingson referred to the DraftKings plan for continued investment in and pivot toward prediction markets as reason for putting away the checkbook in the near term.
“To spend anything anywhere else and forfeit that opportunity, that would not be the right decision for this company at this time,” Ellingson said.
As DraftKings previously moved from daily fantasy sports into online sports betting and eventually iGaming too, it followed a fairly consistent path of acquisitions with two main designs: minimize third-party integration by owning its technology from top to bottom and own additional customer acquisition channels:
- During its initial post-PASPA push for online sports betting market share, DraftKings acquired SBTech and went public via SPAC in a combined $3.3bn transaction in 2020.
- The following year, DraftKings made a play for media dominance through a $70 million purchase of VSIN. It sold VSIN back to its founders three years later as in-house content fell out of favor throughout the industry.
- As its iGaming ambitions grew, DraftKings made a reported bid of more than $20bn for global giant Entain in 2021 shortly after agreeing to buy Golden Nugget Online Gaming for more than $1.5bn.
- In 2024, DraftKings closed its acquisition of online lottery courier Jackpocket for $750 million, as well bolstering its live and microbetting capabilities in a $195 million deal for Simplebet.
The Railbird buy puts DraftKings in position to draw more profit from the entire prediction market ecosystem, which the company sees as more profitable than the deeply regulated and taxed sports betting and iGaming markets. Ellingson said DraftKings wants the “complete tech stack for prediction markets, to capture as much of the economics as the markets will bear, which on the sportsbook side will be a pretty decent percent.”
