Key Points
- DraftKings has slashed its 2026 adjusted EBITDA forecast down to $175 million to $275 million from a previous estimate of $700 million to $900 million.
- The company’s shares plummeted 21% in one day, with UBS, JPMorgan and Stifel all downgrading the stock the next Monday.
- Not one of these appeals court rulings is set in stone, and the Supreme Court has still not agreed to take up the case.
DraftKings Tosses A Huge $700 Million Bet On Predictions, 2026 Profit Takes the Hit
Just eleven months after launch, its new Predictions product is set to suck up a massive three-quarters of DraftKings core EBITDA this year, and the market is less than impressed. Investors pretty quickly sent the share price tumbling 21% in one day. But DraftKings CEO Jason Robins is still feeling pretty optimistic about the company’s future, stating that they are “set up for an exceptional 2027.” It remains to be seen whether a court battle will be the deciding factor or if customer demand will have the final say.
DraftKings Whacks Its Adjusted EBITDA Forecast By Nearly 72%
DraftKings let the cat out of the bag with its third-quarter results filing late on Thursday, 5 November, by which time US markets had already closed for the day. They dropped their 2026 adjusted EBITDA forecast from $175 million to $275 million, a long way off the $700 million to $900 million that had looked a lot more likely. This is not profit, or cash flow, but a metric the company uses to measure its performance. DraftKings also took a swipe at its revenue forecast, cutting it from $6.5 billion to $6.9 billion to $6.35 billion to $6.55 billion.
The new Predictions product is what’s behind this massive reduction, with the company now expecting to sink a huge $650 million to $700 million into the product this year. Of that figure a good chunk, between $175 million and $225 million, is expected to be spent in the fourth quarter. But to be clear, this is an investment, not a cash outlay.
Leave Predictions out of the picture and the company thinks its core business will still produce an adjusted EBITDA of $875 million to $925 million. In other words, Predictions is set to account for a massive 75% of that amount, leaving DraftKings with… well, not very much else at all.
Revenue Up 16%, but Net Loss Hits $468.7 Million
DraftKings revenue went up 16% to a very healthy $1.33 billion, but the company still managed to chalk up a net loss of $468.7 million. A year ago that loss had been “only” $256.8 million. The GAAP loss was a whopping 94 cents per share, while the adjusted loss was 53 cents. Analysts had been looking for an adjusted loss of 39 to 41 cents and revenue of $1.39 billion to $1.40 billion.
Sales and marketing expenses, incidentally, skyrocketed by 68%, reaching a staggering $605.7 million compared with just $360.4 million a year earlier. Adjusted EBITDA also took a pretty big hit, with the company reporting a loss of $316.9 million against a loss of $126.5 million in the same period last year.
Still, customer numbers continued to climb steadily. The company said the number of monthly unique payers went up 13% to 4.1 million. And Predictions, the product that’s costing DraftKings so much, is reportedly doing quite well too, Reported Sports Revenue, which includes Predictions, was up 31.5% to $783.6 million. In the sportsbook sector, net revenue went up 36% thanks to a 12% increase in handle.
DraftKings Shares Fall by 21% Following Downgrades by Three Brokers
DraftKings shares dropped 21% on Friday and closed at $18.51, as per the Boston Globe. According to Morningstar analyst Dan Wasiolek, the Predictions investment is “bigger than what people thought.”
The stocks were downgraded by three brokers UBS, JPMorgan, and Stifel on Monday and the price targets ranged between $21 and $22. DraftKings was referred to as a “show-me story” by Stifel analyst Jeffrey Stantial due to the company’s inability to meet its guidance in three consecutive years.
Some analysts maintained their Buy rating of DraftKings despite lowering their price targets. The Needham, BTIG, and Truist analysts maintained their Buy ratings. The 2027 adjusted EBITDA guidance for DraftKings has a midpoint of $900 million that is some 20% lower than the $1.12 billion expected by the whole company according to the Bloomberg analyst survey.
DraftKings Launched Its Predictions Project with a Railbird Purchase in October 2025
In October 2025, DraftKings acquired the Railbird, a CFTC-licensed exchange. The Predictions project was launched two months later in December. Its own exchange DKeX opened in late June 2026.
As early as in the company’s February forecast, DraftKings failed to meet analysts’ expectations as analysts estimated revenue to be at $7.29 billion and adjusted EBITDA to be at $981 million.
DraftKings Predicts Reduction of the Investment into Predictions in 2027
According to the company’s management, Predictions’ investment will reach $675 million at the 2026 midpoint, then drop to $300 million in 2027, resulting in a 55.6% drop.
Also, the company expects the Predictions’ revenue to increase from nearly zero this year to $650 million and $750 million in 2027. For comparison, if the $200 million in quarterly revenue is achieved in four quarters, then the annual revenue will be $800 million, against which the 2027 revenue midpoint would represent a decrease of over 60%.
The company predicts that its core business would account for most of the remainder of the growth in earnings. According to the company’s forecasts, the core revenue in 2027 would be at $6.7 billion to $7.0 billion and the core adjusted EBITDA at $1.15 billion to $1.25 billion. This means that the adjusted EBITDA margin would be close to 18% as per the company’s management.
Robins said that the customer group of 2026 should cover the acquisition costs in 20 months.
Two Appeal Courts Disagree, the Supreme Court however Hasn’t Yet Had a Say Yet
Two key appeals court decisions have come down at the very early stages, these are not the final word on the issue.
On the 6th of April, the Third Circuit came down in Kalshi’s favour in their battle with New Jersey. Then on the 28th of August, Nevada got a win at the Ninth Circuit, where a three-judge panel thought it unlikely federal law would trump state gambling laws.
New Jersey’s got a petition into the Supreme Court, it was filed on the 2nd of September and has got the docket number SC26 299. Meanwhile crypto.com has also petitioned the Supreme Court after losing at the Ninth Circuit. But so far the Supreme Court hasn’t decided to take either case.
Kalshi, who’s having to respond to New Jersey’s petition, are asking for a bit more time, until the 7th of December to get their response in. DraftKings is predicting that they’ll get a ruling by mid-2028 in its best guess. (Just to clarify, that’s not an actual court date but more of a management estimate)
DraftKings is saying that even if things happen and their sports contracts become null and void in July 2028, they are confident customers will be able to get back what they paid for their Predictions contracts. Those contracts, by the way, are for non-sports stuff too, about 20% of people who use Predictions are trading in non-sports markets, which are largely outside of the dispute going on.
Flutter, the company that owns FanDuel, also had to downgrade their outlook for 2026 on the 4th of November, they said its due to poor sport results, plus pulling out of Brazil, and also their investment in Prediction markets is going to remain similar to what they were doing last year, or possibly even higher, next year. They also said that adjustments in their FanDuel business here in the US came down by 94% to $3 million which, Flutter said, was mainly due to prediction market investments and a launch in Alberta.
DraftKings’ Claim to Third Place Has Got a Bit of a Catch
During the earnings call, Robins said that DraftKings was by far in third place for total volume, but the trick is in how you define volume. He gave the example of total volume for October being at $10.1 billion, for consumer volume. However that is not the same as the total traded volume which is $56.8 billion. This is a big difference, because it means that if you count that second figure, DraftKings has got a mighty long way to go before they can say they are the third biggest operator.
Sportico decided to look into this and they did an analysis of October’s rankings and it painted a rather different picture using a calculation known as notional volume, which factors in the full value of the contracts traded.
That calculation included trades made not just by customers but also by DraftKings’ own affiliated market maker, and if you take that into account, then retail customers accounted for less than 18% of the $4.7 billion of notional volume at DraftKings in October, according to Aldrin Research. Based on actual dollars that customers risked, Sportico has stated that DraftKings actually ranked fifth in October.
Expert Analysis: Who Is Actually Funding This Investment?
In addition, we must consider what kind of financial risk the company takes in case of an unfavourable court decision for DraftKings. According to management, the core business can finance Predictions via the cash flow generated. However, DraftKings had an operating cash flow of $63.0 million during nine months compared to $342.4 million a year ago. The company has cash of around $1.1 billion. It means that it is a good buffer, however, it is not an indicator that the core business will be able to fund this kind of investment until 2027.
The third-place ranking should be discussed as well. With a share of 18% of retail customers out of total notional volume, it does not mean anything. Investors must receive additional information regarding the activity of retail clients, in order to assess whether another $300 million investment in 2027 is justified.
Moreover, the company may find it hard to cut down the investment. Indeed, competitors will most likely not do this, and Flutter has already stated that its prediction market investment will remain at a similar or even a higher level next year. It will be quite challenging to decrease promotion activities and at the same time attract new traders.
One good point is the estimated core adjusted EBITDA in the amount of $1.15-1.25 billion, which is slightly above the expectations of $1.12 billion for the whole company. However, this estimate is also based on the assumption that Predictions’ investment will decrease and revenue will grow significantly.
Docket 26-299 is pending before the Supreme Court. This means that until the court decides to hear this case, the estimated 20-month customer payback period will be just a forecast.
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