DraftKings is expanding a prediction market business from the client app to the exchange, even as the investment is set to absorb most of the Adjusted EBITDA expected from its established operations this year.
DraftKings has increased its expected 2026 Adjusted EBITDA investment in Predictions to between $650 million and $700 million, sharply reducing its group profit forecast despite continued profitability in its established sportsbook and iGaming business.
Overall third-quarter revenue rose 16% year over year to $1.33 billion. However, the quarterly Adjusted EBITDA loss widened to $316.9 million from $126.5 million.
The company now expects full-year Adjusted EBITDA of $175 million to $275 million, down from its previous forecast of $700 million to $900 million.
Its core business is still expected to produce between $875 million and $925 million, but most of that contribution is being absorbed by the expansion of prediction markets. Predictions will require another $175 million to $225 million of Adjusted EBITDA investment in the fourth quarter alone.
DraftKings also expects the unit’s 2026 net revenue to remain immaterial because promotions for new customers will offset most of the gross revenue generated. The company disclosed the revised guidance alongside its third-quarter results.
Owning DKeX Expands the Revenue Stack
To explain the larger investment, DraftKings provided its first detailed figures on how it earns revenue from trades on DKeX. During September and October, trades on DKeX generated an average gross take rate of approximately 11.1% across brokerage, exchange operations and market making.
DraftKings captured about two-thirds of that gross revenue, while external market makers received the remainder. Unlike a broker that only distributes contracts from another exchange, DraftKings controls the client interface, the DKeX exchange and its own market maker.
This allows it to earn revenue at several stages of a transaction, although the company is currently returning much of that income to customers through promotions.
DraftKings reported that more than 1.6 million customers had interacted with Predictions since the beginning of 2026. At October’s pace, customer trading volume would reach $10.1 billion on an annualised basis, almost three times July’s rate.
Total volume, which also includes market-maker activity, would annualise to $56.8 billion at October’s pace. That larger figure should not be treated as customer turnover when assessing retail adoption.
The company said its 2026 customer cohort was running at approximately $350 million in annualised Adjusted Gross Profit. It expects to recover the cost of acquiring those customers in about 20 months.
The run rate extrapolates recent performance; the projected payback has not yet been achieved. The operating metrics appear in DraftKings’ third-quarter business update.
DraftKings Models a Future without Sports Contracts
For 2027, DraftKings expects Predictions to generate between $650 million and $750 million in revenue while requiring another $250 million to $350 million of Adjusted EBITDA investment.
The company expects the unit to generate positive free cash flow in 2028 and to improve group Adjusted EBITDA that year. DraftKings separately modelled a less favourable outcome amid disputes over whether prediction markets can offer sports contracts without state gambling licences.
In a scenario where sports event contracts cease in July 2028, management estimates that customers acquired in 2026 would repay their acquisition costs before that date. The 2027 cohort would be more than halfway to repayment by July 2028 and could recover its costs within roughly four years even without sports contracts.
DraftKings says it will adjust its Predictions investment as the regulatory position develops, so its spending forecast is not fixed regardless of the outcome.
This article was written by Tanya Chepkova at www.financemagnates.com.
Source: Finance Magnates
