Key points
- DraftKings shares drop 26% after it raises prediction-market spending to $650m-$700m and cuts 2026 outlook.
- Robins says most of the spending is marketing to acquire customers and predicts those customers will generate $350m in gross profit next year.
- Robins says DraftKings wins regardless of the Supreme Court sports-contracts ruling while Polymarket and Kalshi need it to go their way.
DraftKings bets prediction markets pay off whatever the court rules
DraftKings is spending $650m to $700m on prediction markets, and the market treated it as a cost problem, sending the shares down about 26%. Robins says the money goes to acquiring customers rather than building the product, and that the cohorts already bought pay back even if the Supreme Court strikes down sports contracts. That leaves DraftKings as the only operator in its competitive set that does not need a particular ruling. Polymarket and Kalshi need the court to side with them, and FanDuel needs prediction markets shut down.
Takeaways
- DraftKings lifted prediction-market spend to $700m. The company guided to $650m to $700m, up from the $200m to $300m Robins had indicated months earlier. Shares fell about 26% after the 2027 forecast missed estimates, third-quarter revenue disappointed and the fiscal 2026 outlook was cut.
- The money is marketing, not build-out. Robins says DraftKings built a best-in-class sports offering cheaply, and most of the bigger budget goes to acquiring customers. He calls the paybacks unbelievable and says cohort payback and return data are disclosed in the company's earnings materials.
- This year's cohorts will add $350m gross profit. Robins says customers acquired so far this year will generate $350m of gross profit next year. He hopes investors do not take the higher spend as a signal that DraftKings will keep increasing it, since the planned investment is already large.
- Worst case still pays back in four years. If sports contracts are struck down, current cohorts pay back in roughly four years rather than the usual three-year target. Robins says the 26th cohort pays back before the projected court date, helped by cross-selling into Lottery and Pick Six.
- DraftKings wins under either court ruling. Polymarket and Kalshi need the court to rule their way or their whole business is in shambles. FanDuel and other traditional rivals, which Robins says have made less progress on prediction markets, need them shut down. DraftKings depends on no outcome it cannot control.
- Investors are reacting to lower earnings. Robins attributes the selloff to reduced earnings this year rather than fear of further increases. He compares the moment to 2022 and early 2023, when DraftKings was loss-making while investing in things skeptics doubted, and expects the bet to prove right within a year or two.
Election night on prediction markets
- DraftKings saw heavy traffic around this year's elections but little volume from people actually trading.
- Robins says the larger, more liquid markets probably reflect sentiment reasonably well.