DraftKings shares fall after company reveals $700 million bet on prediction markets

Shares of DraftKings dropped 21 percent on Friday, closing at $18.51. The decline followed a disclosure that the Boston-based company will spend up to $700 million this year to expand its prediction markets business. This figure is more than double the amount previously reported to the public.

The company has historically dominated the online sports betting sector alongside FanDuel. It currently operates sportsbooks in 28 states, including Massachusetts. However, the market has shifted with the rise of Kalshi and Polymarket. These platforms allow users to buy and sell contracts on event outcomes directly with other users, rather than betting against a centralized house. While traditional sports betting is regulated by states, prediction markets fall under federal oversight. That legal distinction faces challenges that could reach the Supreme Court as early as next year.

Dan Wasiolek, an analyst at Morningstar, noted the scale of the expenditure. “In general, it’s a big number, and I think bigger than what people thought,” Wasiolek said. He observed that investors are questioning why the company is being so aggressive before a binary legal event. “The stock is getting creamed right now because they’re being questioned why they’re being so aggressive in front of such a binary event. Why not just wait?”

Chief Executive Jason Robins addressed the concerns during an earnings call on Friday. He argued that DraftKings can recoup its investments over time, even if the Supreme Court limits prediction markets for sports wagers. Robins stated that the company has become the number three player in prediction markets while remaining tied with FanDuel for first place in sports betting. “It feels like an amazing amount of just stellar execution by our team,” Robins said. “And I don’t think we’re giving up an inch anywhere.”

Jordan Bender, an analyst at Citizens, described DraftKings as playing from behind in the new sector. Bender noted the company’s intent to be number one, a goal that requires matching the marketing budgets of its rivals. Kalshi is rumored to spend $2 billion in 2026, while Polymarket spends roughly half that amount. DraftKings expects total revenue between $6.35 billion and $6.55 billion for this year. For 2027, the company projects revenue between $7.35 billion and $7.75 billion, with $650 million to $750 million of that total coming from prediction markets.

One analyst asked Robins if the focus on prediction markets was detracting from the core sports betting business. Robins rejected the premise, citing the company's dual leadership in both sectors. The earnings report confirmed the spending increase as a key driver of the stock's sharp drop on Friday.