DraftKings' Prediction-Market Push Is Raising the Cost of Growth

DraftKings is gaining another growth channel through prediction markets, but the cost of building it is arriving before the profit. Jefferies cut its 2026 adjusted EBITDA estimate for the company by 15%, citing higher spending on prediction products and slower growth in online casino gaming.

The broker now expects roughly $100 million of additional prediction-market expense in the second half of 2026, taking total spending beyond DraftKings' initial $200 million to $300 million range. It reduced its full-year adjusted EBITDA forecast to $577 million from $678 million and trimmed its third-quarter revenue estimate to $1.37 billion.

Those estimates are Jefferies' forecasts, not company guidance. DraftKings maintained a 2026 revenue outlook of $6.5 billion to $6.9 billion and adjusted EBITDA guidance of $700 million to $900 million when it reported second-quarter results in August. The gap between management's range and the analyst's estimate is therefore a clear test for the next earnings release.

The company has genuine traction in the new business. A June regulatory filing said annualized consumer volume in DraftKings Predictions reached $1.3 billion in May, while annualized total trading volume reached $3.1 billion. The product launched in December 2025 under federal commodities oversight, giving DraftKings access to markets that can operate differently from state-regulated sportsbooks.

That opportunity also raises legal and operating costs. DraftKings' second-quarter filing said promotional investment increased around both Sportsbook and Prediction Markets, while advocacy and related legal expense rose by $19.9 million. The Commodity Futures Trading Commission has reminded exchanges that event contracts remain subject to federal market rules, and state gambling regulators continue to contest parts of the model.

The core sportsbook is still providing support. Jefferies cited early NFL betting volume growth in the low teens and state data suggesting DraftKings held about 31.8% of U.S. gross gaming revenue, narrowly ahead of FanDuel. But online casino growth has slowed, and newer competitors are spending aggressively.

Investors should separate volume from earnings. Prediction-market trading can grow rapidly while the product remains expensive to promote and defend. The next report needs to show whether DraftKings can keep its sportsbook share, improve iGaming growth and fund the exchange expansion without pushing adjusted EBITDA below its own range.