DraftKings wants a bigger piece of the prediction market industry, and it's willing to spend a fortune getting there. The company revealed Thursday, November 5, that its growing investment in prediction markets is taking a serious bite out of its earnings outlook. Investors weren't particularly happy, sending shares down more than 20% in extended trading.
CEO Jason Robins isn't backing off, though. He says DraftKings has already climbed to third place among prediction exchanges by total trading volume, trailing only Kalshi and Polymarket.
Building an Exchange isn't Cheap
DraftKings plans to spend between $650 million and $700 million on prediction markets in 2026. That's a lot of money for a business the company expects to generate very little net revenue this year, largely because customer promotions will eat up most of what it brings in. The spending helps explain why DraftKings lowered its adjusted EBITDA forecast to $175 million to $275 million.
Its previous outlook called for $700 million to $900 million, making this a significant change in expectations. Wall Street wasn't impressed with next year's numbers either. DraftKings expects adjusted EBITDA of $800 million to $1 billion in 2027, compared with analyst expectations of roughly $1.1 billion.
There's More to This Than Football
It's easy to assume DraftKings is chasing Kalshi and Polymarket mainly for sports trading. Sports contracts are certainly part of the plan, but Robins says cryptocurrency-related markets have also helped drive growth. That could become especially important as states continue challenging sports event contracts in court.
Having other categories available gives DraftKings something to build around if restrictions on sports trading become more widespread. DraftKings also has a different setup than FanDuel Predicts. Rather than relying on another company's exchange and contracts, DraftKings operates its own infrastructure and creates its own event contracts.
The Early Trading Numbers Have Robins Encouraged
Robins says DraftKings has become the third-largest prediction exchange by total trading volume in just a few months. That's meaningful progress, although the company still has considerable ground to make up against Kalshi and Polymarket.
Here's a look at the numbers behind Thursday's announcement:
- $650 million to $700 million: Expected prediction market investment in 2026.
- No. 3: DraftKings' reported position among prediction exchanges by total volume.
- $1.33 billion: Companywide third-quarter revenue.
- 94 cents per share: Quarterly loss, compared with the 41-cent loss analysts expected.
DraftKings also reported that monthly customers increased 13% from a year earlier. The company is attracting users, but converting that activity into profits will take more work.
State Rules Could Make Things Complicated
DraftKings currently keeps its sports event contracts out of states where online sportsbooks are permitted. That approach could face complications after the CFTC issued an advisory calling for prediction market operators to remove domestic geographic restrictions. Some states have threatened to revoke gambling licenses from companies offering prediction market contracts. That leaves DraftKings trying to grow a new business without disrupting its established operations.
The Trade Handle Prediction Markets Take
DraftKings clearly doesn't want to watch Kalshi and Polymarket build this industry without getting involved. Spending up to $700 million shows just how seriously Robins views the opportunity. What interests us most is the decision to own the exchange rather than simply partner with another operator. DraftKings gains more control over its products, but it also takes on the expense of building the business itself.
For traders, another major exchange competing for customers could bring more choices and better promotions. For investors, though, a big question still hangs over the company. DraftKings says it has the trading volume to compete. Now it needs to prove that all this spending can eventually turn a profit.