DraftKings stock down 27%: Why CEO is defending high predictions spend

DraftKings' Q3 results presented a familiar scenario: revenue grew 16% to $1.3bn, as net loss rose to $468.7m.

That's almost half a billion dollars!

But CEO Jason Robins is promising exactly that sum in prediction markets gross profit for 2027...

Robins, as ever, is a persuasive speaker. He may not have said much of note alongside Michael Jordan at September's SBC Summit, but he has always talked a good game in interviews with me – and during quarterly earnings calls.

Today was no different, as Robins portrayed a "pivotal third quarter, with more than 1.6 million customers now engaged with prediction markets."

He placed huge emphasis on prediction market growth, with a "highly engaged" customer base, promising an "exceptional 2027" with "meaningful profit."

In parallel, both he and CFO Alan Ellingson highlighted steady sportsbook growth and iGaming.

"Our 2026 predictions cohort is outperforming our two-year payback period," Robins said during the Q3 earnings call. "Our results are remarkable, we are the clear #3 in prediction markets."

An "easy-to-use interface and proprietary trading" allow for vertical integration, while the CEO added that "nearly 20% of our prediction customers also trade in non-sport. Crypto is leading the way."

Robins said DraftKings is "investing with discipline" and has "strong cross-sell into lottery and sports."

Crucially, Robins feels DraftKings is in a "win-win position no matter how the Supreme Court rules on prediction markets... We have never had more ways to win."

What does DraftKings' recent history tell us?

As the above graph demonstrates, DraftKings' high-revenue, high-loss story is a tale as old as time itself.

Across respective Q3 reports since the Covid-19 pandemic, DraftKings has worked and worked on its margins until, in 2024, it had shown significant improvement in its adjusted EBITDA levels.

But the shift to prediction markets has restarted the whole cycle. Marketing spend to compete with Kalshi has skyrocketed.

CFO Ellingson, though, was keen to reiterate his CEO's message: "As Jason mentioned, operating costs fell outside of prediction markets."

Today's investors, as Robins himself told me during his 2025 CEO Special, have lost patience with hyper-growth and low-profitability strategies.

But that is exactly why Robins is promising 2027 returns.

What were the highlights of Robins' analyst Q&A?

Robins on a prediction market Supreme Court ruling:

"Best-case forecast is a mid-2028 Supreme Court ruling. Even if there is a ruling that shuts down sports predictions in July 2028, we still think that cohort should pay back within four years."

"There is obviously a middle-of-the-road outcome with the Supreme Court. We looked at two outcomes (yes or no) to assess two ends of the spectrum when it comes to a Supreme Court decision."

Analysts apologized for "pulling on the thread of this sweater" and kept returning to questions about prediction markets and the Supreme Court...

"Overall, next year, marketing spend for the entire business is coming down – despite the fact that predictions marketing will increase. There is a lot of cost leverage, and we are very much focused on how we can make our cost structure as lean and efficient as possible."

Robins on marketing spend:

"You have to look at it from an acquisition point of view. We had a lot of states that were opening up. We spent a level to get us some of the best paybacks we're ever going to see. So it really is the time to invest. We've targeted shorter payback periods. But we really felt there was a justification to spend even more than we did. Our spend was based on pure data."

"It's the same type of approach as an online sports betting launch. We will do hundreds of millions of predictions gross revenue this year. Next year, the gross revenue is even higher and so is net. Gross profit will be half a billion on predictions. I know everyone is surprised how much we've spent and I wish you could see all the data points we see. There is no real increase in fixed costs, with mostly the same headcount as we have today, which is also down to AI."

Robins on leaving Utah and further potential exits:

"Obviously, we're always monitoring everything on a state regulatory level. We've managed to stay completely out of the litigation everywhere. This is all going to play out in the courts at some point so, one way or the other, it's going to be resolved one day. We've had a really good relationship with the CFTC."

Robins on whether DraftKings could retain its sports betting customers without this billion-dollar investment:

"I don't think we can count on every state suddenly legalizing online sports betting after a Supreme Court ruling. I think it's important strategically, and a huge financial opportunity, although I do agree that the sports betting product is a better product and attracts customers better.

"But we've put almost no effort into predictions and it's already at 10% of our sports volume. There's also a ton of upside for non-sports. It's a hidden gem. We'll have more to say about that in the coming quarters."

Robins on whether DraftKings is taking its eye off the ball in the core segment:

"I don't think we're pulling back at all. We have the ammo if we find things that are worth investing in. If you look at our performance. we're basically tied with FanDuel for #1 in the sports betting industry for this quarter. How many companies are able to maintain and grow their share in the core business, while becoming a #3 exchange in a new vertical? We are laser-focused on the core."

Robins on another wave of spending in the sports betting and iGaming industry:

"I would be surprised if we spend more in terms of total investment (than we've projected) in predictions next year. If there are early negative signals, we might even pull back. But, based on the baseline expectation, we feel pretty good about the budget next year. This year, as it was brand new, we really didn't know. I don't think we will spend more, barring any major regulatory developments. We've been able to grow adjusted EBITDA for the core business every year."

Robins on whether 2028 is the beginning of a "harvest" phase with lower acquisition costs:

"It's a great question. If you look at this year, the cohorts are going to generate $350m in gross profit next year. So, in 2028, we expect to see north of $1bn in gross profit from the 2026 and 2027 cohorts if there is a positive Supreme Court decision. If sports prediction goes away, we would significantly dial back the marketing and we would still be generating revenue on other products we've cross-sold them to."

No M&A or internationalization: The predictions path is laid out

DraftKings is good at adapting – and it's fair to credit a lot of this to Robins. Indeed, the operator is so open to new opportunities it even fully embraced NFTs after the pandemic, eventually admitting defeat in that department in 2024.

From daily fantasy sports, to sports betting, to online casino... to prediction markets, DraftKings will never shy away from pivoting when it needs to.

External strategizing often leads boardrooms to M&A. DraftKings has secured its fair share of acquisitions over the years: Jackpocket and, particularly, Simplebet were shrewd tactical moves.

Before this quarterly report, I might have asked whether internationalization or a big-name merger may have been DraftKings' next major play.

There is growth in Canada, with the opening of new regions, but still not on the scale DraftKings needs. Its US-centric brand has, in the past, also failed to make waves in the UK.

So staying close to home remains Robins play: he has firmly outlined the story of how DraftKings aims to overcome its profitability problem.

The question now, however, is whether we'll be hearing the same story in 2027, or whether every unfolding chapter justifies DraftKings' heavy predictions market spend.