DraftKings CFO Sees ‘Huge’ Opportunity in Prediction Markets, Strength in Core Biz
Alan Ellingson, CFO of DraftKings (NASDAQ: DKNG), is trying to allay investor concerns after the firm disclosed that its entry into prediction markets could reduce its 2026 adjusted EBITDA estimates by as much as $300 million.
The DraftKings financial head described the prediction market possibility as "huge" and stated that the company's main sportsbook business is in "fantastic" form during a speech on Thursday at MoffettNathanson's Media, Internet & Communications Conference.
DraftKings Predictions was introduced by the Boston-based gambling startup in December of last year.
"So, we see Predictions as a monstrous opportunity as a great way for us to leverage experience that we already have, understanding the concerns and the skepticism of the investment community as we are engaging and building up our product to be the best,” said Ellingson in a fireside chat with MoffettNathanson analyst Robert Fishman. “But we see it as the next evolution of DraftKings, and we’re excited to see what it comes out of it.”
The financial community generally sees DraftKings as an iGaming/sports betting business, but there is growing confidence that DraftKings Predictions can support the operator's current range of betting alternatives and spur long-term growth.
DraftKings Super App Expands Its Prediction Market Offering
The potential client overlap between online sportsbooks and platforms like Kalshi and Polymarket has alarmed some analysts, but it may also present opportunities.
Ellingson notes that many iGaming, prediction market, and sports betting users "have a lot of the same mentality framework," which may highlight the importance of DraftKings' super app, which unifies the operators' diverse offers under one roof.
“So, there’s a lot of value overlap there. It also means, though, that our national advertising, for example, can go even further because we’re bringing people towards a singular app,” said the DraftKings CFO.
Ellingson identified California as a location where the super app is adding value, but he didn't go into detail.
The DraftKings app was previously of little value to bettors in the most populous state in the US, the Golden State, because it prohibits sports betting. However, DraftKings' super app can be used as a client acquisition tool in California since prediction markets are now permitted there.
“As the product evolves and our markets all start to evolve on the prediction side, suddenly, you start to see a product that is so similar to what the Sportsbook is offering that it’s basically indistinguishable whether you’re in California, you’re doing prediction markets or you’re in New York and you’re doing sports betting, you can get the same customer experience,” observes Ellingson.
Forecast Market Profits Could Be Impressive
DraftKings is already disclosing positive information about its prediction markets initiatives, such as the potential for market making to be a major long-term revenue growth driver and driving client acquisition expenses.
When viewed in a different light, DraftKings Predictions may have a bigger profit margin than the company's betting division. Investors' immediate worries about associated spending may be allayed by the prospect of margin increase over time.
“Prediction markets themselves are a higher-margin product. They don’t quite have the same overhead that sportsbooks or casinos have,” said Ellingson. “There’s definitely opportunities if we mix heavier into prediction markets for great margin expansion coming from that.”
