DraftKings (DKNG) Q3 2026 earnings review
DraftKings adds a million traders, but promotion costs slash profit
DraftKings is winning customers for its event-contract trading app while marketing bills erase most of this year's profit. Third-quarter revenue rose 16%, as combined betting and trading volume grew 22% and one million people tried Predictions. Chief executive Jason Robins cut the 2026 profit outlook by 72% at the middle of the range because promotional offers wiped out the new app's revenue.
| Revenue | $1,329M +16% from a year ago |
|---|---|
| Ebitda, excluding one-offs | -$317M -$126M a year ago |
| 2026 Ebitda outlook, excluding one-offs | Cut $575M middle of the range: $225M (was $800M) |
| 2027 revenue outlook | $7.35–7.75B +17% at the middle of the range |
⚖️ Verdict: 🔴 Bearish
The story got worse because building the Predictions business is costing almost three times what management planned three months ago, while the main betting and casino business is slowing down. DraftKings raised its 2026 Predictions loss to $650 million to $700 million, cut its core profit plan by $100 million, and projected 4% to 9% core revenue growth for 2027. The bright spot: the 2027 outlook puts a $650 million to $750 million revenue figure on Predictions for the first time.
The question now is whether the 1.6 million people who tried Predictions will generate $700 million of revenue next year once sign-up promotions fade, or leave when the free credits stop and state lawsuits advance. If traders stay, total profit rebounds to $900 million next year; if they leave or courts block key states, DraftKings spent $675 million on one-time promotions. Fourth-quarter trading volume and retention will provide the first test.
🐂 Bull Case
Betting Volume Accelerated and Added a Million Traders
DraftKings measures customer activity through Sports Consumer Volume, which combines settled wagers on its sportsbook and customer trades on Predictions, its app for trading federally regulated event contracts. That combined volume grew 21.9% from a year ago to $13.9 billion, picking up from 14.5% growth in the second quarter.
Monthly unique payers — customers who placed a paid bet or trade — rose 13% to 4.1 million, while users who tried Predictions this year jumped from 600,000 in July to 1.6 million. This shows the new app is bringing active traders onto the platform during the football season.
What to watch: annualized trading volume on Predictions when executives hold the conference call. A figure well above July's $11 billion pace would show that the one million new traders stayed active after using their sign-up offers.
Refinancing Pushed Out the 2028 Debt Wall
DraftKings carried $1.26 billion of convertible notes — debt that can turn into shares — coming due in March 2028. During the third quarter, the company borrowed $687.8 million in new term loans and spent $300.4 million of cash to buy back a portion of those notes at a discount.
The repurchase reduced the convertible debt balance to $942.1 million and generated an $18.6 million accounting gain. Because DraftKings replaced near-term notes with longer-term loans and kept $1.10 billion in cash, it eased a balance-sheet risk while funding its new product launch.
What to watch: further repurchases of the remaining $942.1 million in convertible notes over the next year. Continued buybacks at a discount would remove the 2028 refinancing hurdle before the maturity arrives.
Positives this quarter didn't test
Three standing drivers in our thesis depend on details that live in the conference call or quarterly filing rather than the press release.
- Nationwide brand marketing: whether partnerships with ESPN, NBC and Amazon lowered customer acquisition costs during the football launch.
- Parlay betting mix: the share of bets placed on multi-leg wagers, which carries a higher profit margin for the sportsbook.
- Overhead cost discipline: general and administrative spending excluding one-offs, to see if artificial intelligence tools kept headcount costs down while total overhead rose 14.3%.
🐻 Bear Case
Predictions Spending Nearly Tripled and Erased 2026 Profit
"The third quarter marked a pivotal moment for DraftKings, as the Predictions offering we have been building is now powering meaningful growth for our business," chief executive Jason Robins said. While bulls point to the $650 million to $750 million revenue plan for 2027, the company admitted that 2026 revenue from the app will be immaterial because "new customer promotions will offset the lion’s share of gross revenue generated."
To sign up those users, DraftKings nearly tripled its planned 2026 loss on Predictions to $650 million to $700 million, up from $100 million to $300 million previously. Sales and marketing spending jumped 14.1 percentage points of revenue from a year ago to 45.6%, or $605.7 million, which pushed third-quarter Ebitda (earnings before interest, taxes, depreciation and amortization) excluding one-offs down to a $316.9 million loss.
What to watch: fourth-quarter Predictions losses against the $175 million to $225 million plan. Another budget overrun would show that customer acquisition costs in competition with rival exchanges are higher than finance chief Alan Ellingson planned.
Core Growth Slows as Online Casino Stalls
"Our core business continues to generate significant free cash flow, which we are deploying to fund growth in our Predictions business at attractive payback periods," finance chief Alan Ellingson said. Yet the numbers show that the established sportsbook and online casino business is losing momentum.
- iGaming (online casino) revenue: $460.9 million, up 2.1% from a year ago after growing 7.5% in the second quarter.
- 2026 core Ebitda outlook, excluding one-offs: cut to $875 million to $925 million from roughly $1 billion.
- 2027 core revenue outlook: $6.7 billion to $7.0 billion, or 4% to 9% growth against the middle of the 2026 total revenue plan.
DraftKings said the 2026 core profit cut "reflects its decision to invest further in iGaming growth as well as the impact of modestly customer-friendly sport outcomes." Slowing to single-digit growth in the main business means the company now relies on Predictions to reach double-digit expansion.
What to watch: fourth-quarter iGaming revenue growth. A second straight quarter near 2% would show that extra marketing in online casino is not winning back market share.
Hold Margin Lags Despite Easy Comparison
Sports Net Revenue Margin — the share of total betting and trading volume that DraftKings keeps as revenue after paying out winners and promotional free bets — was 5.6% in the third quarter. A year ago that margin was 5.2%, when a string of winning bets by customers cost the company more than $300 million.
Beating that depressed comparison by just 0.4 percentage points leaves the margin well below the 6.8% to 8.0% range DraftKings recorded in the three quarters in between. Heavy promotional offers on Predictions and unfavourable game results kept the take rate low and forced a $250 million cut to full-year revenue.
What to watch: fourth-quarter Sports Net Revenue Margin against last year's 8.0%. Another reading below 6.5% would indicate that lower-margin event contracts and promotions are permanently diluting the take rate.
Risks this quarter didn't answer
Three standing risks in our analysis received no new figures in the earnings release and remain open until the quarterly filing and call.
- State lawsuits against event contracts: legal challenges in states such as California and Texas could block Predictions in markets without legal sportsbooks; the filing's legal footnote will update the case list.
- State gaming-tax increases: higher tax rates in Illinois, New Jersey and Louisiana still weigh on cost of revenue (67.7% of sales in the third quarter); the filing will show state tax expense.
- Sportsbook cannibalization: whether existing bettors are shifting bets to lower-margin Predictions trades; management does not split volume between the two products.
👓 Other Themes
Ballot Spending Excluded From Profit Reached $59 Million
DraftKings excluded $12.8 million of political advocacy and legal costs from its Ebitda excluding one-offs in the third quarter, bringing the nine-month total to $59.1 million against zero a year ago. The gaming group said the money funds ballot and legislative campaigns to legalize online casino and sports betting in new states, and including it would have widened the third-quarter Ebitda loss to $329.7 million by our math.
💲 Other KPIs
Swung from positive $250.0 million in last year's third quarter to negative $82.1 million by our math, as marketing losses drained cash. Nine-month operating cash flow fell from $342.4 million to $63.0 million, and DraftKings bought back zero shares under its repurchase programme in the third quarter after spending $154.2 million in the first half.
Rose by $357.8 million from the end of 2025 by our math, combining $942.1 million of convertible notes and $1,251.3 million of term loans. The online betting company borrowed $687.8 million in new term loans and used $300.4 million to retire convertible notes, leaving $1,100.9 million of unrestricted cash on the balance sheet.
Increased 3% from $106 a year ago, recovering from a 13% drop in the second quarter after rising 21% in the first quarter and 43% in last year's fourth quarter. The gain remained small because promotional credits for new Predictions users offset higher gross winnings per player.
🔮 Guidance
Cut. The middle of the range dropped by $250 million to $6.45 billion, or 6.5% growth for the year, after holding at $6.70 billion for three quarters. By our math, that leaves $2.03 billion for the fourth quarter, up just 2.1% from last year's record fourth quarter because promotional offers wipe out most gross revenue from Predictions.
Cut. Management lowered the middle of the range by $575 million, or 72%, after holding it at $800 million for three quarters. By our math, the outlook implies $259.4 million of Ebitda in the fourth quarter, down 24.4% from a year ago. DraftKings has now cut its full-year outlook in three straight years.
Cut. The sportsbook and online casino profit target fell by $100 million at the middle of the range from the roughly $1 billion target stated last quarter. The company cited extra spending to stimulate online casino growth and customer-friendly sport results.
Raised. Planned full-year losses on the Predictions app rose by $475 million at the middle of the range, with $175 million to $225 million of that loss set for the fourth quarter. By our math, that means DraftKings already spent about $475 million on Predictions during the first nine months of 2026.
New. The plan calls for 17% revenue growth at the middle of the range ($7.55 billion) compared with the new 2026 midpoint. It splits into $6.7 billion to $7.0 billion from the core business (up 4% to 9%) and $650 million to $750 million from Predictions.
New. The $900 million middle of the range equals an 11.9% margin by our math and combines $1.15 billion to $1.25 billion of core Ebitda with a $250 million to $350 million loss in Predictions. That total is $100 million above the original 2026 target that management just abandoned.
❓ Key Questions
Why did 2026 Predictions losses jump by $475 million?
Management raised the 2026 Predictions Ebitda loss from $100–300 million to $650–700 million in a single quarter. Investors need to know how much went to promotional sign-up credits versus permanent exchange technology and marketing deals.
What was annualized Predictions trading volume in October?
The press release reported 1.6 million customers year-to-date — up by one million in the quarter — but omitted the annualized dollar volume figure that reached $11 billion in July. Without the volume figure, investors cannot check trading activity per user.
How much Predictions volume comes from states suing DraftKings?
State lawsuits in California, Texas and other jurisdictions challenge the legality of sports event contracts. Management has not disclosed what share of the $650–750 million 2027 revenue plan depends on states with active litigation.
Why did online casino growth slow to 2.1%?
iGaming revenue growth fell from 7.5% in the second quarter to 2.1% in the third, and DraftKings cut core Ebitda to invest more in the segment. Did the company lose market share, or did promotional credits increase?