DraftKings bets $700M on Predictions payback

• DraftKings cuts 2026 adjusted EBITDA guidance to $175 million to $275 million.
• Predictions to reduce group adjusted EBITDA by $650 million to $700 million this year.
• Q3 revenue rises 16% to $1.33 billion as net loss nearly doubles.

DraftKings is giving up most of its 2026 adjusted EBITDA to build its prediction markets business. The operator cut its full-year guidance by up to $625 million on November 5, alongside third-quarter results showing revenue up 16% and a net loss of $468.7 million.

What changed

DraftKings now expects 2026 adjusted EBITDA of $175 million to $275 million. Its previous range was $700 million to $900 million.

Revenue guidance also slips, to $6.35 billion to $6.55 billion from $6.5 billion to $6.9 billion.

The company attributed the cut primarily to Predictions. It now expects the product to reduce group adjusted EBITDA by $650 million to $700 million this year, a figure DraftKings labels adjusted EBITDA investment.

Predictions will also contribute little net revenue in 2026. New customer promotions will offset most of the gross revenue it generates, according to the company.

The core still pays

Strip out Predictions and the picture looks very different. The core sportsbook and iGaming business is guided to adjusted EBITDA of $875 million to $925 million.

In other words, DraftKings is using roughly three-quarters of its core earnings, at the midpoint, to fund the new product.

The sportsbook itself had a solid quarter. Sportsbook net revenue margin expanded by approximately 120 basis points to 6.4%, and handle grew 12%.

Total Sports revenue, which includes Predictions, rose 32% to $783.6 million. Monthly unique payers grew 13% to 4.1 million.

iGaming was flatter. Revenue rose just 2% to $460.9 million, and DraftKings says it has decided to invest further in iGaming growth.

Where the money went

The cost of that push shows up clearly in the third quarter. Sales and marketing expenses rose 68% to $605.7 million.

The adjusted EBITDA loss widened to $316.9 million, from $126.5 million a year earlier. Net loss nearly doubled from $256.8 million.

Across the first nine months, adjusted EBITDA has swung from a positive $276.8 million to a loss of $34.4 million.

Why DraftKings is doing it

Predictions lets customers trade event contracts, including in states where traditional sports betting is not legal. That gives DraftKings a route to customers its licensed sportsbook cannot reach.

Growth has been fast. More than 1.6 million customers have used Predictions this year, and annualized consumer volume reached $10.1 billion in October, nearly three times July’s level.

DraftKings describes itself as the clear number three predictions exchange by total volume.

The economics are also starting to take shape. Trades on its DKeX exchange generated a take rate of about 11.1% in September and October, according to the quarterly business update.

DraftKings kept roughly two-thirds of that. Third-party market makers took the rest.

Management estimates customers acquired in 2026 will pay back their acquisition cost in approximately 20 months, inside its two-year target.

Jason Robins, CEO and co-founder of DraftKings, said:

“The third quarter marked a pivotal moment for DraftKings, as the Predictions offering we have been building is now powering meaningful growth for our business. More than 1.6 million customers have engaged with Predictions year-to-date, and combined with the strength of our core, we believe we are set up for an exceptional 2027.”

The weak spot

The business still runs largely on sports. Nearly 20% of Predictions customers have traded non-sports markets, which means most rely on sports contracts alone.

Those contracts face legal challenges. DraftKings recently pulled back in Utah after the state charged Kalshi, and Florida’s Seminole Tribe has taken the company to court over its Predictions product.

DraftKings has modeled a downside case in which sports event contracts end in July 2028. Under that scenario, it estimates customers acquired this year would be fully paid back before that date.

Customers acquired in 2027 would be more than half paid back by then, and fully within four years. Management expects Predictions to generate free cash flow in 2028.

Non-sports markets are the hedge. Crypto is approaching a double-digit share of total consumer volume, and DraftKings plans to move those markets onto DKeX.

The 2027 math

DraftKings expects the investment phase to ease next year. It introduced 2027 revenue guidance of $7.35 billion to $7.75 billion, up 17% at the midpoint, and adjusted EBITDA of $800 million to $1.0 billion.

Predictions is expected to bring in $650 million to $750 million of revenue. Its adjusted EBITDA investment falls to $250 million to $350 million.

The core business is guided to adjusted EBITDA of $1.15 billion to $1.25 billion, on revenue of $6.7 billion to $7.0 billion.

Alan Ellingson, CFO at DraftKings, said:

“Our core business continues to generate significant free cash flow, which we are deploying to fund growth in our Predictions business at attractive payback periods.”

What it means

DraftKings has now put a number on what it costs a major US sportsbook to compete in prediction markets at scale. In 2026, that cost is $650 million to $700 million of adjusted EBITDA.

For the 2027 plan to hold, two things need to happen. Predictions investment must fall to about $300 million at the midpoint, and core adjusted EBITDA must grow by roughly a third on 4% to 9% revenue growth.

The competitive pressure is not easing. Kalshi and Polymarket remain the established exchanges, and the sector posted its first $11 billion weekend in October.

For other operators weighing their own move into event contracts, DraftKings’ next few quarters will show whether that bill buys a lasting customer base. A court ruling that ends sports contracts before July 2028 would test that case far sooner.