Key Takeaways
- DraftKings fell as much as 27% on Friday after more than doubling its 2026 prediction-markets spending and guiding 2027 EBITDA below expectations.
- CEO Jason Robins expects this year’s predictions customers to pay back in about 20 months.
- Predictions should bring in about $700 million in 2027, nearly two-thirds of guided growth.
- An earlier court ruling is the main risk, but at 17x forward earnings, the stock prices in plenty of doubt.
DraftKings (DKNG) crashed 27% and closed down 21% on Friday after more than doubling its planned 2026 adjusted EBITDA investment in prediction markets. It also guided 2027 adjusted EBITDA to $800 million to $1 billion, short of the $1.12 billion analysts expected.
CEO Jason Robins isn’t worried. On the third-quarter call: “Our recent performance reinforces our belief that we are in a win-win position no matter how any future court ruling plays out.”
That’s bold from a company that just cut its 2026 adjusted EBITDA outlook to $175 million to $275 million, from $700 million to $900 million. But his math mostly holds up.
What $700 Million Buys
Robins said predictions will bring in hundreds of millions of gross revenue this year but close to zero net, with about 90% of the gap going to new-customer promotions. More than 1.6 million customers have used it so far.
Next year, he expects about $700 million of predictions revenue and about $500 million of gross profit. The revenue alone roughly matches this year’s spending, and those numbers assume no product improvements and no cheaper customer acquisition than today.
Gross profit is what pays the spending back. Robins said this year’s customers should bring in about $350 million of gross profit next year, about half of this year’s bill. To hit its 20-month payback, DraftKings needs the rest by mid-2028, around when its base case has the Supreme Court ruling on sports contracts.
Predictions Does the Heavy Lifting in 2027
DraftKings guided 2027 revenue to $7.35 billion to $7.75 billion, 17% growth at the midpoint. The $700 million from predictions makes up nearly two-thirds of that increase:
The $7.53 billion consensus for 2027 is close to the $7.55 billion guidance midpoint. Analysts expect $8.48 billion in 2028, but an adverse ruling on sports contracts could put that forecast at risk.
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DraftKings Can Afford to Wait
The core business can fund the wait. Free cash flow went from $658 million burned in 2022 to $648 million generated in 2025:
Cash has held at about $1.1 billion. Next year’s predictions investment drops to about $300 million at the midpoint, while core adjusted EBITDA grows to about $1.2 billion. Robins expects predictions itself to generate free cash flow in 2028.
Nor is predictions eating the core: sportsbook net revenue grew 36% in the third quarter, and Robins said prediction market operators are having “no discernible impact on our Sportsbook business.”
Pick6 and Lottery Are the Backstop
If sports contracts end in July 2028, this year’s customers would be fully paid back by then, and next year’s more than halfway, with full payback within four years.
That’s because those customers also play Pick6, the lottery and non-sports prediction markets. Robins said DraftKings put “basically no effort” into non-sports, yet it’s already approaching 10% of sports volume. A four-year payback is longer than DraftKings’ three-year target for its core business, but that is management’s modeled downside scenario if sports contracts end in July 2028.
The Supreme Court Sets DraftKings’ Clock
Sen. Elizabeth Warren is likely to chair the Senate Banking Committee in January, Reuters reported, which adds headline risk. The bigger risk is an adverse Supreme Court ruling before mid-2028, which could delay payback on this year’s customers; Robins acknowledged that the timeline could speed up.
At about 17x forward earnings on Friday, DraftKings sits near the bottom of its 16x-31x quarter-end range since early 2025. The market doubts the payback. Robins showed how it gets there, even in the bad case, and I’d side with him. The fourth-quarter report in February will show whether those 1.6 million customers are turning into gross profit.
So What Is DraftKings Stock Actually Worth?
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
