DraftKings is putting serious money behind prediction markets, and management wants investors to know it’s worth the short-term pain. Speaking at MoffettNathanson’s conference this week, CFO Alan Ellingson described the core sportsbook as firing on all cylinders while positioning DraftKings Predictions as a genuine long-term wealth creator for the company.

The numbers tell part of the story. DraftKings has already flagged that prediction market investments could shave $200 million to $300 million off 2026 EBITDA. That’s a meaningful headwind, frankly. But executives believe the opportunity justifies the near-term earnings drag.

A Broader Platform Play

What makes this strategy interesting isn’t just the prediction markets themselves, it’s how DraftKings plans to deploy them. The company is thinking about this as a “super app” problem, bundling sports betting, online gaming, and prediction products into one digital ecosystem. That matters because customer overlap could become a real competitive advantage.

Ellingson’s point is straightforward: many customers approach these products with similar logic anyway. A single platform lets DraftKings market multiple offerings without duplicate customer acquisition costs. More importantly, it creates genuine cross-selling opportunities within an existing user base.

The California Opening

California is a case study in why this matters. Sports betting remains off limits there, but prediction markets are currently permitted. That creates a gap DraftKings can actually exploit. For a company locked out of the state’s sportsbook market, prediction markets become a legitimate entry point to engage California customers at scale.

The operational economics look promising too. Prediction markets typically carry lower operating costs than traditional sportsbooks, which could eventually translate to healthier margins. That’s not trivial when investor patience for heavy spending is wearing thin.

Execution and Timing

DraftKings launched Predictions in December and is now working to integrate it properly into its wider platform. The company knows it’s betting on integration quality and customer adoption here. If the platform stalls or fails to convert sportsbook users into regular prediction traders, that $200 million to $300 million EBITDA hit starts looking like pure waste.

For now, DraftKings is focused on growing the platform and improving the user experience. Whether prediction markets become the growth engine management believes they can be will ultimately depend on execution rather than strategy. Simple as that.

What the team thinks

Carl Mitchell says:

Baz makes a solid case for DraftKings’ long-term thinking, but I’d push back slightly on the “short-term pain” framing, because prediction markets are genuinely different beasts from traditional sportsbooks and we shouldn’t assume the same playbook applies. What interests me more is whether DraftKings can actually build the liquidity these markets need to thrive, particularly in the UK where we’ve seen prediction platforms struggle to attract serious money compared to fixed-odds betting. The real story here won’t be the investment size but whether they can convert casual bettors into engaged prediction market users, and on that front the jury’s still very much out.