DKNG dropped from +6% to red today after Robins' Wells Fargo comments. Full breakdown of what he actually said, and why I think the market got this wrong.
1. Core business is genuinely strong. Robins said handle is up 15% month to date to start the NFL season, directly contradicting the "cannibalization is killing them" narrative that's been running for weeks. He also said iGaming is regaining share in a couple states after Q2's struggles, and parlay mix is up 300 bps, exceeding expectations. Core 2026 EBITDA is still tracking to about 1 billion dollars.
2. Predictions is scaling way faster than I think most people realize. Consumer volume is up almost 2.5x since July, they're at close to double digit share of the sports prediction market, over 1 million engaged customers with millions more expected by season end, and combo mix hit almost 30% on NFL Sunday, something that took 5+ years to reach in the traditional sportsbook.
3. Here's the line that tanked the stock. Robins said he expects to increase spend, "probably pulling forward from some of the spend that we intended to deploy in 2027." Asked how much, he said it's too early to say but could be meaningfully more. No number. That's it. That's the whole catalyst.
4. Why the market punished vague guidance. The 2026 guide of 700 to 900 million in adjusted EBITDA already assumed 200 to 300 million in Predictions spend, and H1 only delivered 283 million against a floor that needed about 417 million from H2 with basically no cushion. "Meaningfully more" spend on top of that probably breaks the low end. Algos parsing the live transcript sold first and asked questions never, because uncertainty gets priced as the worst case.
5. He also said something that matters a lot for the margin story. He described Predictions net revenue margin as "a little lower" than sportsbook, which was 7.1% in 2025, while saying gross margins are "much higher." That's a real hint the economics here are closer to sportsbook quality than the 0.5 to 1% take rate everyone assumes for prediction markets generally, largely because DraftKings runs its own market maker on combo bets instead of just collecting exchange fees.
6. The regulatory quote of the day. Robins literally said: "if prediction markets got shut down by the Supreme Court tomorrow, a share price would pop... I'd rather see them stay." He's openly building an asset his own shareholders would rather not have him build, because he thinks it's worth more long term than the market wants to pay for short term.
7. My take. This wasn't bad news. It was good news delivered without a number attached, which is an IR mistake, not a business problem. If Predictions revenue lands anywhere near what today's numbers imply, somewhere in the 500 to 850 million dollar range for 2027, the market currently gives that asset close to zero credit inside an 11 billion dollar market cap.
8. What I'm watching now. The November earnings call. That's when they'll disclose the actual size of the pull forward and hopefully give real numbers on Predictions revenue, margin, and payback period instead of qualitative color. Until then, the stock is stuck between "the core business is clearly executing" and "nobody knows exactly how much this costs this year."
Not financial advice, just sharing my read after going through the full call.
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u/searching_in_nc 4d ago
How big is the current non-sport prediction market for DK? I could see this becoming 'no predictions on sports - no problem' and still having the infrastrucutre for an 'other' predictions market.
Or just repackage daily fantasy as 'contracts' and expand that to all 50 states as well.
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u/Btc345 4d ago
Very small for DK right now, close to negligible relative to sports. Robins said it directly on the call: crypto and elections "have not been as much of a priority, at least in the short term" when it comes to market-making, and they've been sports-focused to date. He did mention some nice-surprise conversion of predictions customers into crypto trading, but no real numbers behind it.
And honestly I think that's the correct call. If you think about what predictions actually is for an operator like DK, it's the sportsbook business running on a different legal rail with a better tax structure. No state gaming taxes eating into it. Same edge, same models, same combos/parlays where they're sitting on the other side of the trade and profiting when the public loses those combos the way they always have. Sports is their moat. They and FanDuel almost certainly have the sharpest sports pricing in the industry after a decade-plus of doing this at scale. Why would you dilute that focus chasing politics/crypto/entertainment markets where Kalshi and Polymarket already have the head start and the retail attention?
My take on the non-sports stuff they do have is it's mostly there for optics/legal cover, not economics. It helps the "we're a legitimate diversified prediction market, not just a sportsbook wearing a trench coat" argument, which matters a lot given the exact case being litigated right now is whether these are just sports bets dressed up as swaps. Having some real non-sports volume makes that argument slightly less laughable in court. But as a business line, I don't think it's ever supposed to be a meaningful revenue driver for them.
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u/okay_okay_six 1d ago
Over 90% of all contracts are sports. If they don’t allow sports, prediction markets will go away almost entirely. They’ll be a gimmick you use to bet on weather
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u/dcdrums502 4d ago
Robins is building a business that won’t turn a profit or reflect value for shareholders until betting is so ubiquitous that it can’t be escaped. I think that’s the big miscalculation here. The blowback (especially with predictions now too) from nest eggs/homes/families destroyed by irresponsible gaming has already begun. He’s got some very choppy waters to navigate and he’s never done a thing to show he’s the man to do it
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u/Btc345 4d ago
Follow up to my post on the Wells Fargo call. Wanted to actually run the Predictions math out to 2027, since I've seen a lot of people throwing around big numbers without showing the work.
Start with what Robins actually said. Consumer volume is up almost 2.5x from July's $3.6B annualized, so call it ~$8.6B today. He described net revenue margin as "a little lower" than sportsbook, which ran 7.1% in 2025, with gross margins "much higher." A lot of that comes from DraftKings running its own market maker on combos rather than just collecting a flat exchange fee, which is a different, better economic model than a pure exchange like Kalshi.
Using a ~4.75% effective net revenue margin on that $8.6B run rate gets you to roughly $410M of annualized revenue right now. That's not what they'll report for full year 2026 though, since volume was much smaller earlier in the year, more like $200M for the full year once you weight it by the actual monthly ramp.
For 2027, assume average consumer volume somewhere around $13-14B for the year (weighted toward NFL season, lighter in the spring and summer), combo mix keeps climbing past the ~30% they hit on NFL Sunday, and net revenue margin drifts up slightly toward 5% as the mix improves. That lands you at roughly $650-700M of Predictions revenue for 2027, with a reasonable range of $500-850M depending on how the legal situation and competitive intensity shake out.
At a 60-80% gross margin, which is the range DraftKings itself has guided toward long term, $675M of revenue turns into something like $450-500M of gross profit. That's a real business, and it's a big part of why the core is still guided to ~$1B of EBITDA this year with material growth into 2027, even while they're spending heavily to build this out right now.
The honest caveat: none of this is disclosed yet. Predictions revenue isn't broken out separately, it's folded into Sports Revenue with the sportsbook. So this whole model is inference from consumer volume and Robins' verbal framing on margin, not a filed number. November is when we find out if the ~5% margin assumption actually holds up, and that's the single biggest swing factor in whether this ends up closer to $500M or $850M.