DraftKings models downside for $700m predictions investment

DraftKings increased its 2026 adjusted EBITDA investment in Predictions by $50m to $700m, and published a downside model showing how that spend would pay back if sports event contracts end on July 31, 2028. The company disclosed the figures in its third-quarter shareholder letter and earnings presentation released Thursday, and CEO Jason Robins said the 2026 cohort would be paid back before that date under the model.

The headline numbers and timing

DraftKings said it raised its 2026 Predictions investment from the level disclosed in August by $50m to reach $700m. The company published a no-sports scenario that assumes sports event contracts terminate on July 31, 2028 and that, from August 2028, adjusted gross profit per Predictions customer falls to 20% of today’s level. DraftKings modelled payback timelines under that assumption and concluded the 2026 cohort would be fully paid back before July 31, 2028; the company estimated Predictions customers acquired in 2027 would be more than 50% paid back by that date and “should be fully paid back within four years without sports contracts.”

“Even if sports contracts were to end in July 2028, we estimate our 2026 cohort would be fully paid back before that date,” Jason Robins wrote in the shareholder letter.

DraftKings did not explain why it selected the July 31, 2028 date. The report notes that date falls just after the end of the U.S. Supreme Court’s next term and follows recent litigation developments: New Jersey petitioned the Supreme Court in September to review the Third Circuit Court of Appeal’s ruling in the Kalshi case, and the Ninth Circuit denied Kalshi’s rehearing request in the Nevada case on the preceding Wednesday.

How the downside math works

The presentation sets out the fallback arithmetic clearly. From August 2028 the company assumes each Predictions customer will generate 20% of the adjusted gross profit they produce today, with the shortfall made up by cross-sell into non-sports markets, Pick6 and Lottery. Under that assumption the payback period for the 2027 cohort stretches from 18 months to 41 months. Sports contracts for customers in the cohort would end between Month 8 and Month 19, depending on signup date; the average customer hits contract end in Month 13.

DraftKings also modelled an upside-less scenario: it assumed no future legalization of online sports betting or iGaming in the fallback math. The company excludes $59.1m in year-to-date advocacy and related legal expenses from Adjusted EBITDA; DraftKings said those costs relate primarily to legislative efforts to legalize iGaming, a failed Nebraska ballot measure to legalize sportsbooks and other state advocacy.

Investment and operating results in Q3

Third-quarter sales and marketing expenses rose to $605.7m, up 68% year-over-year and nearly double the $322.5m spent in the second quarter. Adjusted EBITDA for the quarter was a loss of $316.9m, a year-over-year decline of 23.8%.

August guidance had maintained 2026 adjusted EBITDA of $700m to $900m, with executives describing the gap to an approximately $1bn core business as $200m to $300m of Predictions investment. New guidance presented on Thursday called for total 2026 adjusted EBITDA of $175m to $275m, reflecting Predictions investment now running $650m to $700m. DraftKings updated core business adjusted EBITDA to $875m to $925m in the same release.

The company reported more than 1.6 million customers engaged with Predictions year-to-date, up from more than 600,000 reported in August. DraftKings linked the marketing increase to returns it expects from those customers.

Predictions economics and volume

For the first time DraftKings broke out Predictions economics. Across all participants, trades on DKeX produced an 11.1% take rate on consumer volume in September and October, counting exchange fees, broker fees and market-making returns. DraftKings retained 7.3% of consumer volume by acting as exchange, broker and market maker; third-party market makers captured the remaining 3.8%.

The 11.1% figure compares with the company’s sportsbook hold, which DraftKings said “eclipsed 11%” in the quarter. Sportsbook net revenue margin came in at 6.4%, slightly below the effective take DraftKings keeps on Predictions before promotional expenses.

October annualised total volume traded was $56.8bn, but market makers accounted for $46.7bn of that figure. Annualised consumer volume—the money consumers actually traded—was $10.1bn on a straight-line basis.

DraftKings said non-sports consumer volume per Predictions customer is currently on par with sports volume, and that nearly 20% of Predictions customers have traded non-sports markets. Crypto leads non-sports and has approached a double-digit share of total consumer volume in recent weeks. DraftKings plans to migrate crypto markets onto DKeX over the next month. The company reports Other revenue separately from sports and iGaming; Other revenue fell 12.5% year-over-year to $84.5m in Q3.

iGaming, core business and guidance

iGaming customer acquisition grew 76% year-over-year in Q3. Gross iGaming revenue grew 7%, while net iGaming revenue rose 2.1% to $460.9m, with DraftKings attributing the narrow net gain to promotional investment for new customers. iGaming net revenue has remained between $461m and $462m for three consecutive quarters. DraftKings operates iGaming in five states covering about 11% of the U.S. population, so the increase reflects deeper penetration of existing markets rather than new state launches.

DraftKings highlighted that its traditional business carried the investment in Predictions: sportsbook net revenue grew 36% on handle growth of 12%. The company said handle share improved year-over-year for the fourth consecutive quarter and that it “maintained” cash of 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, including $650m to $750m in Predictions revenue and $250m to $350m in Predictions investment.

Robins called the future of sports event contracts “a win-win position no matter how any future court ruling plays out.”