Wall Street is not buying the math just yet, and shares of the online gaming company plunged nearly 30% following its third-quarter earnings report Thursday (Nov. 5) and investor call Friday (Nov. 6), where management slashed the company’s full-year profit forecast and outlined plans to spend as much as $700 million building its prediction markets business.
DraftKings reported third-quarter revenue of $1.33 billion, up 16% year over year but below analyst expectations of approximately $1.4 billion. The company’s quarterly losses also exceeded analyst forecasts. More consequential was the company’s reduction in 2026 adjusted EBITDA guidance to $175 million–$275 million, down from $700 million–$900 million.
Management attributed much of the decline to increased investment in Predictions, which is expected to consume $650 million–$700 million in adjusted EBITDA this year.
See also: DraftKings’ Prediction Markets Push Is Reshaping Its National Growth Strategy
The Price of Building a Second Business
DraftKings has spent years demonstrating that online sports betting can become profitable at scale. Now, it is reinvesting a substantial portion of those earnings into a business that must establish its economics almost from scratch, and across an emerging trading platform whose most lucrative products face unresolved legal challenges.
Management expects Predictions revenue to reach $650 million–$750 million in 2027, with approximately $500 million in gross profit. That would represent a significant improvement from 2026, when hundreds of millions of dollars in gross Predictions revenue are expected to translate into almost no net revenue.
CEO Jason Robins told analysts that approximately 90% of the gap between gross and net Predictions revenue this year reflects new-customer incentives. DraftKings said those economics are attractive. More than 1.6 million customers have engaged with Predictions year to date, and management expects its 2026 acquisition cohort to repay its acquisition costs in approximately 20 months.
After all, DraftKings owns its Predictions brokerage, DKeX exchange and market-making operations, allowing it to capture economics across several layers of trading activity. During September and October, the company reported an approximately 11.1% combined take rate across those functions, retaining roughly two-thirds of gross revenue.
Still, perhaps the most revealing part of the earnings call was management’s explanation of how it evaluates customers whose preferred products could disappear. Robins said DraftKings’ base-case planning assumes a Supreme Court ruling around mid-2028, while acknowledging that the outcome and timing remain uncertain. If sports prediction contracts were prohibited in July 2028, the company expects its 2026 customer cohort to have fully repaid its acquisition costs.
The 2027 cohort would be more than halfway toward repayment, with management estimating full recovery within four years through other products. DraftKings is not simply acquiring customers for sports prediction markets. It is acquiring relationships that it hopes to monetize across Pick6, Lottery, non-sports predictions and other offerings.
Robins suggested non-sports predictions could eventually reach 25%–30% or more of the current sports business’s size.
Read more: How Uncertainty Became the Engagement Engine of the Digital Economy
The Regulatory Risk Is Already in the Financial Model
In states without legalized online sports betting, company management stressed that its Predictions business can introduce customers to the DraftKings platform before conventional sportsbooks become available.
And although management considers a complete elimination of sports contracts a severe plausible scenario, the regulatory landscape could produce more complicated outcomes involving individual states, contract categories or operating restrictions. While the regulatory lines are drawn, DraftKings’ established sportsbook operations are not showing the same weakness as its consolidated profitability.
Sportsbook net revenue increased 36% year over year in the third quarter, while handle grew 12%. Net revenue margin expanded to 6.4%. Management expects its core business to generate approximately $1.2 billion in adjusted EBITDA during 2027, with margins reaching roughly 18%.
That performance is central to its investment thesis: an increasingly profitable core business can finance a new growth opportunity without requiring a comparable expansion in fixed costs.
The next test will be whether Predictions can deliver its projected $700 million in 2027 revenue while reducing acquisition spending and demonstrating sustained customer engagement.
The sell-off suggests Wall Street is no longer willing to value customer growth independently of the profits required to produce it.
