DraftKings Just Lost 20%—And Its Biggest Gamble Is Still Ahead

Key Points

• DraftKings shares fell 20% after weak 2027 EBITDA guidance showed increased Predictions spending would delay profitability payoff until 2028.
• A looming Supreme Court ruling on prediction market regulation, expected around mid-2028, poses a major risk to DraftKings' costly Predictions investment.
• Several analysts cut price targets and JPMorgan Chase downgraded DraftKings to Neutral, while technical charts show persistent resistance at the 200-day moving average.

The sports betting industry has had a rough year.

Prediction markets like Kalshi and Polymarket have been slowly stealing customers, and differences in their regulatory and tax treatment have created potential advantages. In addition, consumers are putting off travel and leisure spending because of high gas prices, leaving casinos feeling the sting of lost revenue.

The bad news kept coming last week when DraftKings Inc. NASDAQ: DKNG reported Q3 earnings and immediately lost 20% of its value.

While the headline numbers weren’t alarming, the market is increasingly skeptical that the company’s massive Predictions bet will pay off, and a Supreme Court decision is looming over the entire sector.

Sell-off Triggered by 2027 Guidance, Not Q3 2026 Results

DraftKings reported its Q3 2026 results after the closing bell on Nov. 5, and at first glance, the numbers didn’t seem to warrant such a sharp sell-off.

Revenue came in just below expectations at $1.33 billion, but still grew 16.2% year over year (YOY). Monthly Unique Payers (MUPs) grew 13% YOY to 4.1 million, ahead of the consensus, and net Sportsbook revenue grew 36% with 12% handle growth.

The earnings per share (EPS) miss was deeper. The company lost 53 cents per share, more than the anticipated 41-cent-per-share loss. Most of the loss stems from DraftKings ramping up its own prediction market to counter the threat from Kalshi and Polymarket. The Predictions buildout requires investment, and management expects the platform to reduce 2026 adjusted EBITDA by $650 million to $700 million.

Additionally, average revenue per MUP grew just 3% to $109, primarily reflecting an improvement in sportsbook net revenue margin. Meanwhile, increased promotional spending in iGaming is putting pressure on near-term profitability.

Full-year 2026 revenue guidance was reduced to $6.35 billion to $6.55 billion, and adjusted EBITDA guidance to $175 million to $275 million, following increased investment in Predictions.

But the 2027 guidance truly surprised analysts. Fiscal 2027 revenue guidance came in slightly below consensus, but the adjusted EBITDA range of $800 million to $1 billion came in 20% under expectations due to increased Predictions spending.

Analysts had been bringing down their 2026 expectations in anticipation of increased Predictions spending, but 2027 figures had largely been untouched. Now that the company is planning to spend another $250 million to $350 million in additional Predictions investment in 2027, the payoff narrative has changed, and the stock was punished as a result.

DraftKings' Predictions Bet Faces a Regulatory Test

The market now views the Predictions bet as much riskier than it did in previous quarters.

DraftKings plans to spend over $1 billion in EBITDA through the end of 2027, with promos and bonuses offsetting revenue in 2026. Growth in the core sports betting business is also slowing, and management expects just single-digit growth in the segments in 2027.

Now that the profitability payoff has likely been pushed out to 2028, the company’s additional spending is under the microscope. The company must not only hit its efficiency target, but also avoid an unfavorable Supreme Court ruling just as the Predictions segment is expected to start paying off.

Prediction markets are far from settled law in the U.S. While current legislation puts prediction market event contracts under the Commodity Futures Trading Commission (CFTC), stakeholders like state gambling commissions, Native American tribes, and the NFL are challenging it. An appeals court ruled in September that Ohio and Tennessee gambling laws could regulate prediction markets, and the Supreme Court will likely make the final call on who regulates these platforms.

DraftKings CEO Jason Robins expects a Supreme Court ruling sometime in mid-2028, giving the company time to recoup its investment if sports contracts are completely banned. A favorable ruling is the ideal outcome, but the biggest risk to DraftKings is timing. If the ruling comes earlier than anticipated (like 2027) and proves unfavorable, DraftKings could lose access to a major part of its Predictions market before fully recovering its investment, adding pressure to an already slowing core revenue growth outlook.

DraftKings Stock Faces Stubborn Technical Resistance

DraftKings stock analysts were out in force the Monday after the report, with seven price target reductions and a downgrade from Overweight to Neutral from JPMorgan Chase.

While the stock carries an analyst consensus Moderate Buy rating, and the average price target of $28.71 still represents upside of more than 50%, the average price target of the seven analysts who cut is just $24.29.

Analysts chasing price targets down following a huge earnings decline is never a good sign, and the technicals show a stock completely controlled by sellers.

DKNG shares staged a brief rally ahead of the earnings release, but the price was rejected at the 200-day moving average for the third time since June. This stubborn resistance level hasn’t been cracked since late 2025, and the Relative Strength Index (RSI) has now fallen out of bullish territory without triggering an overbought signal.

Both the fundamental and technical signals point to the same predicament: DraftKings went all-in on prediction markets and will need the courts to deliver a winning hand.