DraftKings rolls the dice

DraftKings is making a costly bet on the future of gambling, and Wall Street isn’t liking the odds.

The sports betting giant reported third-quarter earnings yesterday, with revenue rising 16% to $1.33 billion even as its net loss nearly doubled to $469 million. But its outlook was the dealbreaker: DraftKings slashed its full-year adjusted profit forecast, once $700 million to $900 million, to just $175 million to $275 million, sending shares plunging 21.30%.

The massive cut largely reflects the company’s plans to invest up to $700 million in its prediction-markets business this year as it races to compete with upstarts Kalshi and Polymarket. Unlike traditional sportsbooks, which primarily take bets on sporting events, prediction markets allow users to trade contracts tied to everything from football games to interest-rate decisions. They can also potentially reach customers in states where traditional sports betting remains illegal.

A betting bonanza

But before accusing DraftKings of having a gambling problem, consider the potential payout. Prediction markets are booming, and this week’s midterm elections offered a glimpse of just how lucrative the opportunity could become.

• Kalshi recorded more than $2.5 billion in election-related trading volume, nearly double its total during the 2024 presidential election.
• Polymarket handled nearly $700 million in election-related trading.

Both platforms correctly anticipated Democrats taking control of Congress, and Kalshi touted a 98% success rate for its favored candidates across hundreds of races. But the platforms still underestimated the scale of Democrats’ victories, earning them a less-than-perfect review from Wake Forest University economics professor Koleman Strumpf. “I’d give the markets a B,” he told Bloomberg.

Elections are just one piece of the business: Over the 10 days surrounding the midterms, Kalshi processed $25.3 billion in parlay trading, mostly tied to sports, compared with $1.1 billion in election contracts over the same period. That puts prediction markets squarely in competition with DraftKings’ core sports betting business.

High stakes ahead

DraftKings expects its prediction-markets business to generate $650 million to $750 million in revenue next year, but turning those sales into profits could take longer.

“We expect to generate significant excess free cash flow in 2027, even after funding our Predictions investment, and we expect Predictions itself to generate free cash flow in 2028,” CEO Jason Robins said on a call with investors. For investors, perhaps all that’s left is to cross their fingers, watch the roulette wheel spin, and hope portfolios land in the green.—SY