KEY TAKEAWAYS
- DraftKings nearly tripled its 2026 Predictions investment and published a model showing how that spending pays back if sports event contracts end before July 31, 2028.
- The downside model assumes a Predictions customer generates 20% of today’s gross profit once sports contracts disappear, which stretches payback from 18 months to 41 months.
- The company leans on cross-sell into non-sports markets, Pick6 and Lottery to cover the gap, though more than four in five Predictions customers have only traded sports to date.
DraftKings wants investors to believe it can win the prediction markets fight even if it loses the legal one.
The company’s third-quarter shareholder letter and earnings presentation, released Thursday, revealed the company increased its 2026 adjusted EBITDA investment in predictions by $50m to $700m. In the same materials, DraftKings modeled what happens to that investment if sports contracts end on July 31, 2028.
“Even if sports contracts were to end in July 2028, we estimate our 2026 cohort would be fully paid back before that date,” CEO Jason Robins wrote in the letter.
He added that those Predictions customers acquired in 2027 would be more than 50% paid back by then and should be fully paid back “within four years without sports contracts.”
Much of Robins’s optimism appears based on the growth of the company’s non-sports products. But for now, Robins expects Predictions customers acquired this year will contribute “meaningful gross profit next year” and the current cohort is “outperforming two-year paybacks we targeted.”
Robins called the future of sports event contracts “a win-win position no matter how any future court ruling plays out.”
The company hosts its earnings call Friday morning. DraftKings traded at $23.52 at market close Thursday and shares dropped to $17.81 in after-hours trading amid a broader market sell-off.
DraftKings nearly tripled predictions bet in three months
The company’s hedge matters more because its bet became much bigger. In August, DraftKings maintained 2026 adjusted EBITDA guidance of $700m to $900m, and executives framed the gap to a roughly $1 billion core business as $200m to $300m of predictions investment.
New guidance calls for total 2026 adjusted EBITDA of $175m to $275m, as predictions investment now runs $650m to $700m. It updated its core business adjusted EBITDA dropped to $875m to $925m, according to Thursday’s release.
Third-quarter sales and marketing expenses reached $605.7m, up 68% year-over-year and nearly double the $322.5m DraftKings spent in the second quarter. Adjusted EBITDA came in at a loss of $316.9m, a year-over-year drop of 23.8%.
DraftKings tied the marketing increase to the returns it sees. More than 1.6 million customers engaged with predictions year-to-date, up from more than 600,000 reported in August.
DKNG downside model keeps 20% of value
The presentation spells out the assumption behind a no-sports case. From August 2028, DraftKings models adjusted gross profit per customer at 20% of the level it earns with sports contracts in place.
The company’s own fallback math assumes non-sports markets, Pick6, lottery and other cross-sell products recover about one-fifth of what a sports predictions customer generates today.
Under that assumption, the 2027 cohort pays back in Month 41 instead of Month 18. Sports contracts would end between Month 8 and Month 19 for those customers, depending on when each signed up, and in Month 13 for the average customer.
DraftKings did not explain why it picked July 2028. The date falls just after the end of the U.S. Supreme Court‘s next term, not the current one.
New Jersey petitioned the court in September to review the Third Circuit Court of Appeal‘s ruling for Kalshi. The Ninth Circuit denied Kalshi’s rehearing request in the Nevada case Wednesday. A decision this term would cut DraftKings projected cushion further.
The model also leaves out an upside. DraftKings assumes no future legalization of online sports betting or iGaming in its scenario, even as it spends to expand gambling markets. Adjusted EBITDA excludes $59.1m in year-to-date advocacy and related legal expenses, which the company said relate primarily to legislative efforts to legalize iGaming, a failed Nebraska ballot measure to legalize sportsbooks and other state advocacy.
Non-sports trading carries a small DraftKings share
Nearly 20% of predictions customers have traded non-sports markets, according to the letter. DraftKings said non-sports consumer volume per customer is on par with sports so far.
Crypto leads the category and approaches a double-digit share of total consumer volume in recent weeks, according to the company. DraftKings plans to move crypto markets onto DKeX, its own exchange, over the next month.
Other revenue, which DraftKings reports Friday separately from sports and iGaming, fell 12.5% year-over-year to $84.5m in the third quarter.
DraftKings take rate looks like sportsbook hold
The presentation also broke down DraftKings’ predictions economics for the first time.
Across all participants, trades on DKeX generated an 11.1% take rate on consumer volume in September and October, counting exchange fees, broker fees and market-making returns.
DraftKings kept 7.3% of consumer volume, by acting as exchange, broker and market maker. Third-party market makers captured the remaining 3.8%.
That 11.1% figure lands close to its sportsbook hold rate, which DraftKings said “eclipsed 11%” in the quarter. Sportsbook net revenue margin came in at 6.4%, just below the effective take DraftKings keeps on predictions before promotional expenses.
October annualized total volume traded hit $56.8bn, but market makers accounted for $46.7bn of it. Annualized consumer volume, the money customers actually traded, reached $10.1bn on a straight-line basis.
DraftKings paid for its iGaming acquisition surge
iGaming customer acquisition grew 76% year-over-year in the third quarter. Gross revenue grew 7%, but net revenue grew just 2.1% to $460.9m, as the company “invested in promotions to welcome those new customers.”
iGaming net revenue has held between $461m and $462m for three straight quarters.
That acquisition came in the same active footprint. DraftKings operates iGaming in five states covering about 11% of the U.S. population, so the growth reflects deeper penetration of existing markets, not new launches.
The company credited a revamped product, exclusive titles such as Rumble Kong Cashingo, and new rewards and merchandising. DraftKings did not say how many of the new casino customers arrived through predictions or its Super App.
Core business funds other experiments
DraftKings needs its traditional business to carry the investment, and the third quarter helped. Sportsbook net revenue grew 36% on handle growth of 12%.
Robins used those figures to argue that “prediction market operators are having no discernible impact on our Sportsbook business.”
DraftKings said its handle share improved year-over-year for the fourth consecutive quarter.
DraftKings also said it “maintained” its cash position at about $1.1bn through the investment cycle.
For 2027, DraftKings guided to revenue of $7.35bn to $7.75bn and adjusted EBITDA of $800m to $1bn. That includes $650m to $750m in predictions revenue and $250m to $350m in predictions investment.
