DraftKings Aktie

Hello, everyone. Thank you for joining us, and welcome to the DraftKings Third Quarter 2026 Earnings Call. I will now hand the conference over to [ Matt Rapaport ], Vice President of Finance. Please go ahead.

Good morning, everyone, and thank you for joining us today. Certain statements we make during this call may constitute forward-looking statements that are subject to risks, uncertainties and other factors as discussed further in our SEC filings that could cause our actual results to differ materially from our historical results or forecast. We assume no responsibility to update forward-looking statements other than as required by law.

During this call, management will also discuss certain non-GAAP financial measures that we believe may be useful in evaluating DraftKings' operating performance. These measures should not be considered in isolation or as a substitute for DraftKings' financial results prepared in accordance with GAAP. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available in our earnings release, slide presentation and business update, which can be found on our website and in our quarterly report on Form Q filed with the SEC.

Hosting the call today, we have Jason Robins, Chief Executive Officer and Co-Founder of DraftKings, who will share some opening remarks and an update on our business. Following Jason's remarks, our Chief Financial Officer, Alan Ellingson, will provide a review of our financials. We will then open the line to questions. I will now turn the call over to Jason Robins.

Thank you, Matt. Good morning, everyone, and thank you all for joining. We had a pivotal third quarter. We have been rapidly building our predictions offering to capture the significant opportunity we are seeing, and this quarter, that showed up in our results. More than 1.6 million customers have now engaged with our predictions offering year-to-date, which is already powering growth across the business.

In the third quarter, monthly unique payers increased 13% year-over-year and sports consumer volume increased 22% year-over-year, driving total revenue growth of 16% year-over-year. Due to the compelling data and excellent returns we are seeing year-to-date, we have increased our 2026 adjusted EBITDA investment in predictions to $650 million to $700 million. Our predictions customers are highly engaged, retaining at high levels and trading significant volume. In totality, we expect our 2026 cohort to pay back in approximately 20 months, well below our 2-year payback target.

When we combine the ramp in our predictions business with our strong core business, we believe we are set up for an exceptional 2027, we expect total revenue to grow 17% at the midpoint of our guidance, boosted by predictions revenue of $700 million at the midpoint.

Predictions customers we are acquiring today should begin contributing meaningful gross profit going into next year and we expect the adjusted EBITDA investment in predictions to step down to $300 million at the midpoint. In the core, we expect adjusted EBITDA to growth of $1.2 billion at the midpoint, powered by steady Sportsbook growth accelerating iGaming growth from this year's investments and strong operating leverage.

At the midpoint, adjusted EBITDA margin in the core business expands approximately 370 basis points in 2026 and another approximately 360 basis points in 2027 to approximately 18%, and we are focused on continuing that expansion. Altogether, we expect fiscal year 2027 adjusted EBITDA of $800 million to $1 billion.

Let me start with Predictions and why we are investing more. Across our business, we follow the data and underwrite to strict payback periods and we lean in when we see strong returns. Our 2026 predictions cohort is outperforming the 2-year paybacks we targeted in this already run rating to approximately $350 million of annualized gross profit. We are seeing retention engagement of newly acquired predictions customers in line with Sportsbook levels.

Additionally, we are observing attractive take rates of approximately 11.1% and on trades on [ DKX ] across brokerage exchange and market making in September and October. We captured approximately 2/3 of that gross revenue with third-party market makers capture the rest.

The results have been remarkable. In just a few months, we have become the clear #3 predictions exchanged by total volume. In October, annualized consumer volume reached $10.1 billion up nearly 3x from July, and annualized total volume traded reached $56.8 billion, up over 5x from July as combos grow as a share of our volume.

The growth of our Predictions offering has followed the same playbook that made our Sportsbook offering #1 in the industry and easy-to-use interface powered by vertically integrated technology and our proprietary trading and sports data infrastructure.

Our sports predictions offering is now best-in-class anchored by a content library that is unmatched in the space. This translates to the depth of our customer experience. at [ DKX ] list more than 3x as many game level markets as our nearest competitor across our largest sports, including the NFL, NBA and college football.

Customers are responding to that depth, with combos reaching 27% of consumer volume in October and more than 70% of our customers trading combos in the month. Vertical integration is one of our key differentiators. We own the brokerage, the exchange and the market maker, which lets us control our offering road map, innovate faster and capture more of the economics across the stack.

It also strengthens the quality of our revenue, a substantial and growing portion of our predictions gross revenue now comes from maker and take or fees, a low volatility, high gross margin revenue stream.

We are also increasingly excited about the emerging nonsports opportunity. Nearly 20% of our predictions customers have already traded nonsports markets. and non-sports consumer volume for customers on par with sports consumer volume per customer to date.

Crypto is leading the way, approaching double-digit share of total consumer volume in recent weeks, and we expect it to grow as we migrate [ CryptoMarkets DKX ] which we are targeting to do over the next month.

We are investing with discipline and our balance sheet is strong. We have maintained our cash position at approximately $1.1 billion through this investment cycle. We expect to generate significant excess free cash flow in 2027, even after funding our predictions investment, and we expect predictions itself to generate free cash flow in 2028.

Our returns are attractive across a wide range of outcomes in part because we are driving strong cross-sell into our other offerings, such as pick, lottery and nonsports predictions. Even if sports contracts were to end in July 2028, we estimate our 2026 cohort will be fully paid back by that date. By then, our 2027 cohort would be more than 50% paid back and we'd expect that cohort to fully pay back within 4 years without sports contracts.

Our recent performance reinforces our belief that we are in a win-win position no matter how any future court ruling plays out.

Now turning to the core business. Sportsbook net revenue grew 36% year-over-year in the third quarter, with net revenue margin expanding approximately 120 basis points to 6.4%. Handle growth was also strong at 12% and would likely have been even higher if not for the significant increase in sportsbook net revenue margin.

The World Cup provided a boost, which was fully offset by 1 fewer week of college football and NFL, the 12% growth number is a true like-for-like comparison. We continue to see healthy handle on revenue growth, further substantiating our view that prediction market operators are having no discernible impact on our Sportsbook business.

Our Sportsbook coal rate eclipsed 11%, and our parlay mix continues to grow rapidly, increasing 300 basis points year-over-year. For the fourth consecutive quarter, our handle share across sportsbook states improved year-over-year, and our GGR share also increased year-over-year.

In the third quarter, iGaming customer acquisition grew 76% year-over-year and gross revenue growth accelerated to 7% year-over-year, while net revenue grew 2% as we invest in promotions to welcome those new customers. That growth reflects a deliberate multi-quarter plan to accelerate our iGaming business.

We revamped our already top-rated offering, debuted exclusive content such as the Casino franchise and introduced new rewards and merchandising. Seeing strong early returns, we stepped up this effort in the third quarter and fourth quarter to date, investing incrementally in marketing and new customer promotions. The trends are encouraging. Underlying engagement is strong, October paid active days were active customers multiplied by days engaged on the app grew 24% year-over-year, and October gross revenue growth accelerated to 12%. As a result, we expect these investments to accelerate iGaming revenue growth in fiscal year 2027.

We also remain firmly focused on managing our cost structure. In the third quarter, adjusted operating expense declined year-over-year, excluding predictions. In 2027, we expect significant operating leverage in our core business driven by national marketing efficiencies as states mature and cost programs designed to optimize how we work. We have never had more ways to win. Super App brings Sportsbook predictions, iGaming and more together for customers across the country. We will continue to strengthen that advantage as we build out our offering and optimize our marketing and cross-sell.

With the NFL and NBA seasons and full swing in the holiday temp poles ahead, we expect the fourth quarter to set us up to enter 2027 with strong momentum. As we look ahead, we will continue to be disciplined and data-driven in how we deploy our capital to maximize long-term shareholder returns.

With that, I will turn it over to Alan Ellingson, our Chief Financial Officer.

Thank you, Jason. I'll hit the financial highlights, including our third quarter performance and our fiscal year 2026 and 2027 guide. Please note that all income statement measures discussed except for revenue, are on a non-GAAP adjusted EBITDA basis.

As Jason mentioned, total revenue increased 16% year-over-year in the third quarter to $1.33 billion, driven by continued healthy customer engagement and higher Sportsbook net revenue margin. Monthly unique payers or MUPs, increased 13% year-over-year to $4.1 million and average revenue per month increased 3% year-over-year to $109. This top line strength was driven by robust demand across our offerings. [ Sports ] consumer volumes increased 22% year-over-year Sportsbook net revenue grew 36% year-over-year on 12% handle growth, approximately 120 basis points of net revenue margin expansion to 6.4%, even as our parlay mix increased 300 basis points year-over-year.

In iGaming, customer acquisition grew 76% year-over-year and gross revenue grew 7% year-over-year, while net revenue grew 2% as we invested in promotions to welcome these new customers.

We also continue to operate with discipline on the cost side. As Jason mentioned, adjusted operating expense, excluding predictions, declined year-over-year in the third quarter. I want to reiterate that we will remain focused on improving the efficiency of our cost structure which should continue to drive margin expansion in our core business in 2027. Third quarter adjusted EBITDA was negative $317 million, primarily reflecting the increased investment in predictions.

Now we'll touch on our fiscal year 2026 and 2027 guidance. Last quarter, we communicated fiscal year 2026 guidance of $6.5 billion to $6.9 billion in revenue and $700 million to $900 million in adjusted EBITDA, with our core business on track to generate approximately $1 billion of adjusted EBITDA.

Today, we are updating our fiscal year 2026 guidance to $6.35 billion to $6.55 billion in revenue, and $175 million to $275 million in adjusted EBITDA, primarily reflecting our increased adjusted EBITDA investment in predictions of $650 million to $700 million.

We expect adjusted EBITDA from the core business of $875 million to $925 million, which reflects our decision to invest further in iGaming growth as well as the impact of modestly customer-friendly sport outcomes.

We expect adjusted EBITDA investments in predictions of $175 million to $225 million in the fourth quarter, and Predictions revenue will be immaterial in fiscal year 2026 as new customer promotions will offset the lion's share of the gross revenue generated.

For fiscal year 2027, we are introducing revenue guidance of $7.35 billion to $7.75 billion, an increase of 17% year-over-year at the midpoint and adjusted EBITDA guidance of $800 million to $1 billion.

We expect revenue from the core business of $6.7 billion to $7 billion, up 4% to 9% year-over-year compared to the midpoint of fiscal year 2026 guidance. and adjusted EBITDA from the core business of $1.15 billion to $1.25 billion or $1.2 billion at the midpoint in 2027.

Our core business is strong, powered by steady sportsbook growth, accelerating iGaming growth and significant operating leverage. That takes adjusted EBITDA margin in the core business to approximately 18% in 2027 and up approximately 360 basis points from this year at the midpoint of guidance.

We expect predation revenues of $650 million to $750 million and adjusted EBITDA investments in predictions of $250 million to $350 million stepping down to $300 million at the midpoint as the customers we acquired this year contribute meaningful gross profit.

We will continue to monitor regulatory developments related to sports predictions and we'll adjust our level of predictions investments accordingly. Regardless, we expect predictions to be a tailwind to adjusted EBITDA in 2028.

As always, we remain disciplined in how we allocate capital. Our core business continues to generate significant free cash flow which we are deploying to fund growth in our predictions business at attractive payback periods. We have maintained our cash position at approximately $1.1 billion through the investment cycle, and we expect to generate significant excess free cash flows in 2027, even after funding our prediction investments. That concludes our remarks, and we will now open the line for questions.

[Operator Instructions] Your first question comes from the line of Julie Hoover from Bank of America.

Jason, can you just walk us through the decision to increase our core production spend in 2027 relative to 2026? And how are you thinking about justifying LTVs when there's a material risk of sports event contracts going away in 2028?

Great question. So we included some pages in the earnings presentation, which I would definitely encourage you and everyone to review basically showing the payback period.

So first starting with 2026, we are going to get paybacks, we believe, in about 20 months base case forecast is a midyear 2028 Supreme Court ruling. So we should have those customers fully paid back by then. Obviously, there's a chance that could accelerate, and we weighed that. But even in that case, we'll have very attractive paybacks there.

In the 2027 cohort, we modeled out is also having very similar paybacks probably better in the event that it's positive Supreme Court ruling or it gets delayed even further. But even if there is a ruling that shuts down sports predictions in July of 2028, we still think that cohort should pay back in 4 years or less. And that's because of the excellent cross-sell we're seeing on to other products we have, including the non-sports prediction.

So really feel like that was a good justification. Obviously, we typically target 3-year paybacks in our core business. So it's a little bit longer than that, but that's in the case where sports contracts go away in the case where they don't it's much faster than our core business. So kind of middle of the road will be in line with where our core business payback targets are.

Your next question comes from the line of Stephen Grambling from Morgan Stanley. Please go ahead.

Jason, I think one of the big questions that have been facing the whole industry is whether competition is driving up both cost to maintain and if customer acquisition costs are rising. Just looking at the recent quarter, whether sequentially or year-over-year, it looks like the increase in actives is most similar to the third quarter of '24, yet marketing per active is up materially versus that period. So how should investors reconcile those numbers versus the commentary on paybacks and the core margins?

Yes. I think the way you have to look at is really an acquisition point of view. So obviously, we had a lot of states that for the very first time, we were able to offer an NFL product for sports predictions. And we didn't know how that was going to perform. We've seen obviously varying performance levels based on different states launching in OSB, more recent states have ramped faster, earlier states ramp slower. We weren't sure where on the curve that would be.

But much like every new state story, we spend the levels that get us some of the best paybacks that we're ever going to see in those early days of a launch. So it really is the time to invest.

Obviously, there's the whole wrinkle here of the Supreme Court, and we weighed that in, and that's why we targeted shorter payback periods and we modeled out what happens if the court does rule negatively and how do we look at the payback periods in those scenarios. But really felt like there was a justification to even spend more than we did if we didn't feel like we were already at a point that we were getting saturation.

So really, I think it was based on pure data. If you look back to 2024, where you said Q4, I think, or Q3, I can't remember, this is our best acquisition quarter since then, too. So really, I think that you have to kind of look at it from the perspective acquisition to payback period and less sort of in quarter, what do the active counts look like.

Your next question comes from the line of David Katz from Jefferies.

Thanks for the commentary so far. I just want to sort of go down this road that I think you've started with the prior questions, right? It sounds, Jason, as though you're sort of looking at the future predictions in a relatively binary way, meaning Supreme Court yes, Supreme Court no. Is there contemplation for some middle ground outcomes where this is still a business, but in some fashion, it's less economically compelling as one of those binary outcomes suggests, right? Like is that somewhere on the decision tree also? And how does that economically turn out?

Yes. I think you're bringing up a great point. There's obviously more than one, two outcomes that you could see. There is a middle of the road outcome where maybe some of the sports contracts out there are no longer available, others are I think that would be a better case in terms of payback.

So the reason we kind of looked at the two outcomes we said, there's the status quo today. If everything sort of stays as is, what does that look like? What do we think these returns will look like? And then we took what we think is the most draconian-likely scenario. Obviously, there's always even worse scenarios like all of event contracts, including financial markets go away. But I think if you look at the most likely of those scenarios, the probably most severe would be all sports contracts go away.

So if that's the case, then what does the paybacks look like. So that's why we looked at those two, sort of like two ends of the spectrum. There's obviously a lot of in between things that could happen. There's delays that could drag it out and make litigation take longer. That would obviously extend out an end decision, which is a different set of math, too.

So those were all things that we weighed in, but we want to feel good that even in the case that probably the most significant rollback of all sports contracts that was likely an outcome. We want to feel good that even in that case, we were getting paybacks that were acceptable to us.

Your next question comes from the line of Eric Sheridan from Goldman Sachs.

Sorry to keep pulling on the thread on the sweater here on this. But maybe to think through another one of the probabilistic outcomes because obviously, as you said, Slide 12 is sort of binary.

How are you thinking through the elements of what might happen to the core business as an output of all of the input costs and marketing spend behind predictions in an end state where predictions went away? And how much of a return profile should we be thinking about that coming or flowing back into the core business as something that might be the remainder consumer option come 2028. Just trying to think through all the various different outcomes here.

Sorry, I asked one more time. Can you repeat that?

Curious about the halo effect or residual effect of the investments you would make behind a dual go-to-market approach if one of those go-to-market approaches fell away because of the regulatory landscape whether some of that effect of impacting customers or building your brand would come back to the core.

I see. I do think that's a good point. There's obviously a halo effect for national spend. Very much though the spend that we incrementally did in predictions was local spend in states that we were seeing great returns in. And I do think there, there's a benefit because we do have other products in many of those states. From Pick 6 to nonsports predictions to lottery to daily fantasy sports. So we do have other products that we are able to engage customers on. We're seeing very strong cross-sell onto many of those products.

So really, I do think there is a halo effect in terms of the ongoing LTV of those customers. But in terms of the brand halo and states that have OSB and iGaming, it really probably had a minimal impact, if any, at all because the vast majority of the incremental spend was done at a local level.

Your next question comes from the line of Dan Politzer from JPMorgan. .

I have a question on the core business, the flow through. I think in 2026 and 2027 is about 70% to 75% Obviously, that's quite a bit higher than where you've been. I recognize there's some OpEx efficiency there. But can you just talk through the marketing, G&A and product and technology spend for the core business and what that looks like this year and next year and maybe put some numbers around it?

Yes. So overall, next year, marketing spend for the entire business is coming down. That is despite the fact that we are actually increasing predictions a little bit. So core marketing spend is coming down.

We have also seen quite a bit of efficiency on the fixed cost side. As you probably noticed, we've seen really good fixed cost this year, and I think that will continue into next year. And we have many initiatives lined up to continue to focus on cost all the way up and down the P&L. So I do think there's a lot of cost leverage there, and it's a huge focus of the business right now. We're very much focused on how we can continue to make our cost structure as efficient and lean as possible, both in terms of fixed cost, but also how we think about the entire P&L and every dollar we spend.

The next question comes from the line of Trey Bowers from Wells Fargo.

I think one thing that would be helpful is just a little bit of a better understanding of the PM level promotional component of the customer acquisition costs. Can you guys just give a sense in the numbers you provided us of what the kind of GGR to MGR bridge looks like this year and next? Just some feel for what kind of GGR levels we're talking about here.

And then I guess Part 2 of that would be just a better sense, you mentioned a lot of local kind of spend on customer acquisition that shows up more as an OpEx item. Could you just give a little more clarity of what that is? Is that lead gen? Is that more targeted kind of social media type advertising. I think we just love a little bit better feel for where all these dollars are going.

Yes. I mean, on the latter, it's very much similar to how we would do an OSB state launch. We obviously spent at much lower levels because if you would add up what we would have spent on an OSB state launch in all of these large states that would have been higher. But it's the same type of approach, obviously, focusing on the most efficient channels since we don't spend as deeply or didn't spend as deeply as we were for an OSB launch.

On your first question, so to put -- give you some perspective, we will do hundreds of millions of gross revenue in predictions this year. and net revenue is pretty close to neutral. And that is almost entirely -- 90% of that is due to customer -- new customer promotions. So next year, you're really going to see an inflection and obviously, we're going to be acquiring a lot of new customers next year, too. So the gross revenue is even higher. But despite that, we're expecting net revenue of around $700 million next year and gross profit of around $0.5 billion, which I think is a pretty strong ramp considering this is our first year to be able to get there, and we'll be ahead of that, obviously, on the gross revenue side.

All those numbers, too, are based on where we're currently rerating. We are not assuming that we get additional monetization from product improvements or we get any more efficiency on customer acquisition than what we're seeing today. we are assuming status quo.

The reality is that's probably not the case. If I look back at OSB and iGaming 4 or 5 years ago. That was a period where it was so new, and we were still making so many improvements on the product and figuring out so many things on the marketing side that we were just seeing continual benefit to that. So obviously, to build any of that into the guide. We're only looking at what we're running at now. But I do think it is more likely than not that we'll find some wins next year that could give us some upside on the Predictions numbers.

So I'm really bullish about that part of the business. I know everyone's a little surprised at how much we spent, and I wish you all could see every data point that we see. But I feel like that is a really strong story, and it's going to be a really big number for us next year.

And all of that, I think, if you compare it to, we invested around $650 million to $700 million this year, we're going to do that much in just revenue alone, $500 million in gross profit alone next year. So really a great ramp on predictions, I think.

And the core business is doing extremely well also. If you look at the core business, we are on track other than basically outcomes. We did invest a little bit more on some iGaming marketing, which is also going to give us some benefit next year. We took up our iGaming numbers from what we had previously thought for 2027. But that was a minor part.

Other than outcomes, we are pretty much on track for what we thought the core would be. And I will say we did all of this without any major increase in fixed costs. We invested a little more in predictions, but we've been able to do all of this, including building out an unbelievable product for predictions with mostly the same head count that we have today. And I think that speaks to a lot of the efficiency we're seeing from AI and other sorts of things that we've been able to do.

Your next question comes from the line of Barry Jonas from Truist Securities.

You recently exited the Utah market for sports and some other prediction markets. How should we think about risk for further exits? At what point would that impact your guidance? And I guess, complicating that is this new CFTC guidance around operating in each state. So curious if you can share any thoughts there, too.

Yes. I mean, obviously, we're always monitoring anything on the state regulatory side. We've managed to stay completely out of the litigation everywhere. And I generally think that most states are waiting to see what the courts decide before taking more severe action, but you never know, we'll have to see. But obviously, this is all going to play out in the courts at some point. So one way or another, it's going to resolve and there will be clarity.

As far as the CFTC thing, I wouldn't make anything of that. There's I don't think that's going to affect anything for us. There's a process for demonstrating why you can only operate in certain geographies. So we've had a really good relationship with the CFTC, and I think that will be something that we can work through with them easily.

Your next question comes from the line of Brandt Montour from Barclays.

I will move to the next analyst. Please rejoin the queue if you would like to ask a question. Your next question comes from the line of Robin Farley from UBS.

Great I have kind of a big picture question for Jason, but also just wondering if Alan can clarify that the predictor market losses specifically in Q3? I know you guided to it for Q4, but I don't think we have the number for Q3.

My question is looking at the scenario, when you talk about if it stopped in the middle of 2028, it would only be a 4-year payback period. That would assume that you get a year of the shorter payback period. So it looks like kind of non-sports have maybe a 6-year payback period and maybe not an investment you would make just in nonsports.

I guess -- why the need to be in this business if it's allowed to continue that would probably lead more states to legalize OSB. So you'd get that business anyway, right? Like you can see clearly that players prefer traditional OSB to prediction markets. So if prediction markets stick around and it leads states to legalize OSB, you get that business anyway without this sort of $1 billion of losses between this year and next year.

So why I guess, why do you -- why the need to be in the prediction market business -- is it actually -- like in those two scenarios, if it stays or if it goes, it seems like the non-sports is not a payback period you'd want to be in. And the sports, if it is allowed, you get that business anyway through your OSB business.

Well, let me start with the sports piece. I don't think we can count on every state suddenly legalizing sports betting. I think it could happen. It could also be states just take a while or don't do anything at all or decide to tax prediction. So this is something that's obviously addressing an audience that is very much our brand and our core audience.

And I think it's important strategically for us and also could be a huge financial opportunity. So I don't view it as something that we can just count on the state all legalized sports betting, and we'll get that business anyway. Even though I do agree with you that we are seeing that the sports betting product is a better product and will attract customers and retain customers better.

As far as the nonsports beats goes, I think it's so early days for that, but what I will say is we put basically no effort into it, and it's already approaching 10% of our sports volume. So I'm pretty excited about that. We did not want to model [indiscernible], we're counting on this thing. It's not even something that we focus any attention on. It's roughly 10% of our volume. We're counting on that. to grow 3, 4x or 5x in order to pay back. We didn't feel like that was necessary since we were getting 4-year paybacks anyway.

And I'll remind you, it's not just the nonsports Pick 6 and other products, too, that we're seeing cross-sell on. But I actually think there's a ton of upside from nonsports. I think nonsports could be 25%, 30%, maybe even more of the size that sports is today. So we'll have more to say on that once we've had time to focus a little attention and see what we can do from a product standpoint.

But to me, that's sort of a hidden gem there that might be -- honestly, it wasn't what I was thinking when we got into it. I was thinking we have to defend our turf and win this market on forth. But now that we've seen some early signal, I'm actually pretty excited about the nonsports piece, and I think we'll have more to say about that in the coming quarters.

Your next question comes from the line of Jed Kelly from Oppenheimer.

Great. Just going back on the core, it does seem next year you are harvesting some margin, although you do have some competitors still spending aggressively in those markets.

So how do you -- how should we know you're kind of not too focused on prediction markets and not taking the eye off the ball in the core segment? And you're okay and pulling back on this investment, you won't lose significant share in sports in core.

Yes, I don't think we're pulling back at all. We have hundreds of millions of promo cushions still built into next year in order to make sure that we have ammo if we find things that are worth investing in. So I don't think we're pulling back.

And if you look at our performance, we were basically tied with [ Vanda ] for #1 in the industry on sports betting this quarter. So I think the fact that we've been doing so well, we've actually been able to have strong share performance, iGaming share. We've gained now for 3 consecutive quarters. all while making the headway we made in predictions. I mean that really, to me, is a great story.

How many companies are able to do that to really maintain the level of performance that we have and even grow our share in the core business while also rapidly creating the best sports product in the market and becoming a quick #3 exchange in a nascent market that nobody thought we could compete in this quickly.

So to me, it feels like an amazing amount of just stellar execution by our team. And I don't think we're giving up an inch anywhere. We are laser focused on the core.

Your next question comes from the line of Brandt Montour from Barclays.

Sorry about before. Can you hear me now?

Yes.

Okay. Great. So I want to talk about iGaming. Your acquisitions were up 76% year-over-year, which is really obviously compelling growth number. I'm trying to reconcile that against the plus 7% GGR accelerated 12% GGR. I know this is comparing apples and oranges, but has with this reacceleration of iGaming investment, are you changing your strategy toward lower average value players? How is retention looking anything around that to help us understand strategy, just given you're investing more into a market that some of your peers have described as moving through the maturity curve here?

Yes. I wouldn't say that we're investing that much more. I mean, really, the bulk of the investment came from just higher-than-expected new customer and new customer promos, which in past years, we have been following a little while I've seen when new customers perform ahead of what you expect, do you have more new customer promo, which in a given quarter will drive a little bit of bottom line softness, but ultimately leads to much better revenue and EBITDA in future quarters. So I think that's what you're seeing here.

We had a very strong quarter, as you noted, 76% year-over-year growth in customer acquisition. We were not expecting to do that well. As a result, we were able to confidently increase our outlook for not just the rest of this year, but also going into 2027 for iGaming. So that is part of why we think we're going to do so well on the core next year is we're not -- again, we're not assuming iGaming accelerates any further from here. We're just kind of taking what we're run rating at, but I do think if you continue to see this type of acquisition performance, that's also something that could be a tailwind for a full year 2027, and we'll be able to realize the benefits of those cohorts throughout the year and not just have that short-term hit.

Our next question comes from the line of Jordan Bender from Citizens.

Thanks for the question. So clearly, we're seeing another wave of spending here across sports betting and iGaming industry, which tells us there's always more to be spent in this space.

So the thing that we and investors kind of always weigh here is EBITDA at the bottom here. So is the investment number that you guys put out for the prediction market spend for next year, kind of that absolute maximum you think you would take to achieve everything that you want to get done.

I would be surprised if we spend more in terms of total investment next year on Predictions. We have a pretty healthy marketing budget in there. So I don't think that we will.

Obviously, we'll see what happens with the courts if there is some kind of early positive signals, and that's something we'd have to weigh. And if there's an early negative signal, we might actually pull back on some of that investment. So that's something we'll be closely monitoring and plotting into our different scenarios.

But I think based on sort of the baseline expectation, we feel pretty good about the budget for next year. This year going in, we really didn't know. I mean this is a brand-new category. We're like it's just going to ramp more like sports betting business -- excuse me, that we would launch now. Is it going to look more like an early state that has slower ramp, somewhere in between. Now we actually have really good data to be able to say this is the appropriate level of spend.

We also before, did not have any data on what these customers rate spend levels would look like an NFL got a little bit of World Cup data, but World Cup is a tough comp because we don't have a ton of sports betting data from World Cup either. So really getting some NFL data now and being able to compare and contrast the customers we're seeing. And use the historical support setting data that we had to be able to say, this is what we think these customers will form at has given us a lot more conviction that we know the right level of spend.

So a long way of saying, I don't think we will spend more barring any major regulatory developments positive, and I don't think we will probably spend too much less either barring any major regulatory developments to the negative.

I do think that there is top line upside, though, because as I noted earlier, we didn't build in any kind of additional benefits from all the product work and other things that we're going to be doing to optimize the engine next year. So that's what I feel really good about.

On the core side, we've been able to grow adjusted EBITDA consistently every year. We're up again this year. It's been somewhere $200 million, $300 million of incremental adjusted EBITDA every year to the core and next year will be the same. So we feel very good about the trajectory there. We are getting lots of operating leverage in that business. And it's following the playbook that we thought it would a few years ago when we laid out how states once they kind of go past that initial investment phase just really inflect in terms of profitability because you get the benefit of continued revenue growth along with declining marketing costs and also declining operating leverage from not having to increase fixed costs either.

Your next question comes from the line of Clark Lampen from BTIG.

Maybe following on Jordan's question here. If we assume that $1 billion combined, I guess, in sort of EBITDA losses between '26 and '27, is the right level of investment, and there's sort of no fungibility.

One of the things that I think we haven't touched on that might be helpful as we think about the future value of that is where the investment is actually taking place.

The comments that you made earlier on products suggest the majority of this investment should be sports-focused customer acquisition, if that's right. Is it broad-based across your non-OSB states right now? Is it concentrated in certain markets where you see a clear pathway to legalization in the next few years?

And as we're thinking about this sort of national component, maybe this is for Alan, how does that sort of break down? Or how could that be ascribed the Core versus Predictions?

So I mean those are great questions. I think, first, the way that we are thinking about the states is purely on a return basis. However, following some of the election results earlier this week, we do think there are certain states that may have a clear path to legalization now.

So we will weigh whether we want to differentially spend in those states relative to some others but it has been very much treating all the states on the same basis in terms of expected returns and looking at the actual sports predictions revenue stream, not layering in any likelihood of legalization, which arguably is conservative because hopefully, we will get some legalization. So there could be some upside there, too.

That's something else, by the way, when you think about the 4-year payback that we modeled on next year's cohort, that is not assuming any benefit from state legalization that is only with the products that we have today, minus sports predictions. So you're right, there is some upside there. And I do think that's going to weigh in and how we allocate our local spend.

But the vast majority of the incremental is local spend. We are allocating some of our national predictions as well. But where we are incrementally spending is mostly on the local side. We obviously are spending some more on the national side, too, but the majority of it is local.

Am I -- is that -- sorry, I just want to make sure that I caught that right. You're saying the majority of the national is being allocated, I guess, sort of local and for core right now.

Well, the way -- I mean, this is a little bit in the weeds, but essentially, we are saying there is certain direct spend in local markets that is going to prediction states that is obviously getting 100% allocated to predictions. There is some local spend in sports betting state that's going 100% of sports betting. Then there's some national advertising that is advertising sports betting that is mostly getting allocated to sports betting and then some that is advertising a more broad sports offering that's getting allocated between the two.

Your next question comes from the line of Ben Chaiken from Mizuho.

Maybe back to iGaming, I think it was to Brandt's question. I think there was an implied cut, if I'm not mistaken, in the '26 numbers, of around $100 million to $150 million. It sounds like some of that hold on the OSB side, so that's iGaming as you alluded to, Jason.

Can you help us just better understand the moving parts and then your return expectations or goals for iGaming? And then how did you think about the iGaming contribution in '27 in your guide? Obviously, you're annualizing a few new regions, I think you get main, et cetera.

Yes. So Maine is small. So it's not really a needle mover next year, but we are obviously layering in the additional customer acquisition that we're seeing in iGaming into next year's guide. So we feel like we've found some insights and some efficiencies in marketing that have allowed us to unlock better customer acquisition without having to increase spend as much.

And so I do think that will give us a tailwind and drive revenue growth next year. And then I'm sorry, what was the first part of your question?

I was just maybe looking for some clarity on the -- I think the underlying '26 has an EBITDA cut some...

Yes. So most of that, about 60% of that is sport outcomes. And the remainder is new customer acquisition in iGaming. So that's how I think about it.

And I guess are you judging kind of the return on that? Is it if you guys are accelerating share? Or what's the what's kind of your going...

We're accelerating share. But really, what we're looking at is just more customers coming in at more efficient tax. So with that, you're going to get higher new customer promotion just from raw customer accounts. And so that's the bulk of it. There is some additional marketing spend too, but it's really mostly the new customer promotion. .

So that's going to pay off just by having more customers next year and also through the remainder of this year once they work through those promotions. But that's something we have much kind of historical data. I mean these are not like new things. This is just more volume of the same thing we've been seeing for years. So we have a very good understanding of how those cohorts will model out.

Your final question will come from the line of James Hardiman from Citi.

Thanks for fitting in. So really appreciate the clear framework for 2026 and 2027 prediction investment. Obviously, given where we are a lot less visibility on 2028. Other than to say that prediction becomes an EBITDA tailwind. So maybe how should investors be thinking about 2028. Is that the beginning of a harvest phase with meaningfully lower acquisition spend. Is that EBITDA tailwind, more function of higher revenues? Or will we see lower investment than 2027? And how are you thinking about sort of your penetration of that prediction TAM as you exit 2027?

Yes, it's a great question. So if you look at this year, the cohorts that we acquired are going to generate about $350 million of gross profit next year. and we're going to acquire even more players next year than we are acquiring this year.

So all in, we're going to be generating quite a bit of gross profit from the '26 and '27 cohort probably somewhere north of $1 billion in 2028, were we to see sports predictions stick around for the whole year. So a lot of it is coming from that.

Obviously, as the market matures, we're going to optimize our customer acquisition spend, too. So that will probably come down a little bit. But even if it stayed flat year-over-year, we'll be generating significant free cash flow through that.

The other scenario, of course, is sports predictions goes away, in which case we would significantly dial back the marketing and we would still be generating gross profit from the customers that we acquired on these other products that we've been able to cross-sell them too, including nonsports, fix, lottery and so on.

So that's really the way to think about that is that just on the harvest period, but also really very little investment -- sorry, excuse me, the latter becomes a harvest period, but in the former, we will probably continue to invest at some level just like we do in online sports betting and iGaming.

We have reached the end of the Q&A session. I will now turn the call back to Jason Robins for closing remarks.

Thank you all for joining us on today's call. We are excited and well positioned for our success in the future. Thank you for your continued support and look forward to seeing you all next quarter.

This concludes today's call. Thank you for attending. You may now disconnect.

You've taken care of your biology breaks. We want to get started. We've got an exciting second half, and we're going to keep feeding in. We're going to keep imbibing you later. We'll have more on that in the -- as we go about here, but we've got a couple of incredible conversations, including the one we're about to have right now.

We're bringing back up my friend, Contessa Brewer of CNBC, and she's going to be in conversation with Jason Robins, CEO of DraftKings, and he's not paying me to say this, but hey, instead of the stage is yours, the crown is yours. So there.

The crown is not really mine because the crown is over there. I already tried to steal that and he was like, no way, man. Stay away from me.

Do you need me to open the water for you?

Yes. Should we just do that now before I can't do it for myself.

So Jason, you get a lot of coverage from me and from CNBC for DraftKings and for sports betting and the business of sports betting in the way that investors make money or not. You get far less attention for your prediction platform because most of that spotlight goes to Kalshi and Polymarket until very recently. Like what is it for you that is switching the -- what's the catalyst for you now starting to get more attention for your prediction platform?

I think the fact that we have been able to, in a pretty short time frame, put ourselves in the top 3 exchanges in market, remember, we only launched on DraftKings exchange a few months ago. And we're already the clear #3, which is great and continue to gain share. So I think the fact that we are now a relevant player in the market and look to be one of those that is on the rise, I think, is giving us more attention. And obviously, that comes with also other things we've been doing along the way to get there. I think we've done a ton on the product side that really has put our product in a position where I think we have the best sports offering in the market right now.

Did your Sportsbook improvements in product and tech inform the speed with which you were able to improve your product and tech in prediction?

Absolutely. So there's a couple of reasons. One, a lot of the things we've actually built are repurposable and that actually means, yes, there's some adaptation, but you don't have to start from scratch when you're creating it. Secondly, though, there's a lot of know-how, and that's actually the most important part. We know what works. We know what customers want. We understand how to talk and message to those customers. And I think that's something that over many, many years was built up through a lot of experiments, a lot of trial and error. So it's a huge advantage for us, I think.

You said you've become the #3 exchange right now on sports only or overall?

No, I think overall, but definitely on sports, but I believe overall.

Okay. So how can that be possible when you're not offering your prediction platform in New York for instance?

No, I imagine if we were, right, we would be even bigger. So I think you're right that we've done that with a much more limited state footprint than all of the others that we're talking about competing with. And so that's a testament to the fact that we have gained in popularity in these places, the fact that in less than half of the country, we're able to put ourselves in the top 3 with others who are all competing in pretty much the entire country.

Yes, I'll just mention that the -- when you guys moved into predictions, you made it clear you would not offer predictions on sports in states where you have a sports betting license, right?

Yes.

When you look at that decision overall, was that the right move to make?

I mean, of course, the alternative was we would have had our licenses under threat, and I think that wouldn't have been a smart move. We have -- it's a different thing. Like I think the positive for us on this is that we're not all in on this, which I'll come back to in a moment, but we do have decided that like we can't just say we're going to ignore this entire business that we've built up that most of our customers, most of our revenue is coming from unlike some of the other predictions players.

But I think for the same reason, that's put us in a place where, unlike some others, where I think the outcome, assuming this ends up going to the Supreme Court, I think on both sides, there are companies that have really staked a lot on one outcome or the other. It's a pretty big deal for them, whether it ends up going one way or the other. And...

You mean whether sports gets stripped out?

Yes, or exactly, or any other type of restriction, meaning if that's the whole business, which for us, it is not, then that's obviously critical, like there's nothing to go back to. The entire sports business has gone. On the other side, if you haven't done what we've done and invested and put ourselves in a position where we're one of the leading players in predictions now, then if the court decision goes the positive way, then that's a pretty tough spot to be in.

So we actually feel like we put ourselves in this win-win spot where no matter what the outcome of that whole process is, we are well positioned going forward. And I'm hopeful that it ends up being something that is allowable over the long term. But I also feel like if that doesn't happen, we're in a great spot. And one of the reasons why, as you mentioned, was we've really worked hard to create a really respectful relationship with our regulators to let them know that we aren't going to operate in the markets where we do sports betting. And I think that's been very well received.

I was in Macau interviewing the NBA Commissioner a couple of weeks ago. And I asked him about prediction platforms and what his stance is on it because it was right after the NFL had filed an amicus brief with the Supreme Court making it clear, they're not into it. And Adam Silver told me that he has a lot of the same integrity concerns that the NFL does, but that he sees value in this being -- federally regulated rather than state by state because it would be easier for me not to have to go through 40 different distinct jurisdictions.

Would you rather have Sportsbook regulated in all 50 states and available to you for license or prediction platforms in all 50 states?

I mean, I would like to be able to offer all of our products to any customer that wants it. And I think that...

But are you saying, like, if you have the ability to offer Sportsbook in 50 states, you would still want to offer prediction platforms?

I think so, especially in non-sports, there's still a ton of content there. I mean we just talked about elections earlier, and I think that's going to be a big deal going into the midterms. And obviously, with a couple of years later, the presidential election. I think the financial markets have proven really interesting to us. We've actually been pleasantly surprised at the growth there. And I got to admit, I did not expect that. I was underappreciating, I think, that piece of the business. And to me, that's an exciting thing, not just because it's a 50-state product for us, but it's also something that could be available even if the Supreme Court doesn't allow sports.

I mean, when we talked about the potential for the Supreme Court to crack down on the sports and prediction markets, in fact, at DraftKings Investor Day, I asked you whether you would be interested in all these other markets and you're like, not really.

I didn't think so at the time. But...

What changed?

Just data, seeing, like, we're always going to try everything. And if we were built on me guessing ahead of time what was going to work and not, we wouldn't be anywhere.

Predicting.

Predicting what was going to work and not, we wouldn't be very far because there's been so many times where I thought something was going to work and it didn't or I thought something wasn't going to work and it did. And a real testament to the team that they said, "Yes, I think there's something there." We put a little bit of effort, and we're seeing some signal, and now we're going to put more effort into that part of the product.

When you look at what you've offered, so now like in New York, I can go on and I can make a bet on a prediction market.

Trade, but yes.

Okay. I mean tomato, tomato. When you look at that offering, are you seeing interest from Sportsbook onto that particular event contract offering?

Well, I think mostly the people that are doing Sportsbook are focused on that. We have seen some that are trying other products, fantasy sports, [indiscernible] of casino. And certainly in states where we have election markets and things like that, financial markets, we do see that. But I think really, that hasn't been as big a focal point for us. And the reason is we -- and this comes back to kind of what I was saying a moment ago, like we typically will throw things out there, see signal and then invest further.

And I don't think we historically had looked at those non-sports products and said we feel that, that is the right level of quality, and that's the offering that we want to really start heavily promoting. So I think once we get the product in a little bit better place, which shouldn't be too long. I think we're talking months, then I think we're going to end up pushing it a little harder. But even without that, we've seen great signal, which is why we're so encouraged and why we're investing more in the product.

I'm just curious, with the entry into prediction markets with sports, has that created any complication, say, with the NFL? I mean, because you're an official gambling partner of the NFL, the NFL has said here's the amicus brief. We don't like easily manipulated markets, kicks and missed balls and things like that. You're not offering that anyway because you're the official league partner.

Yes. I think a lot of the concerns the NFL have raised, and this is why the NFL has been, I think, supportive of the legal sports betting industry is it's a very collaborative relationship between league and companies like DraftKings. We do discuss those things. We have arrangements with them. And I think a lot of the concerns that they have, we are already doing the right things to cover.

Now obviously, as a category, they are not allowing predictions now, so we can't advertise that directly through the NFL. But I do think that we built a collaborative relationship where they feel more comfortable that we are taking the safeguard measures that they feel are necessary and maybe don't feel as much that way with some of the other participants in the market.

What are you seeing in terms of efficiencies in your unified wallet? I mean, now when I go on DraftKings, like I can get to Jackpocket, I can get to Predictions, I can do Sportsbook, I can do iCasino in New Jersey. What are you seeing in terms of your costs and where you're seeing benefits?

Well, I think it starts with the customer. And what we had realized was -- and this isn't just true of us, but a lot of companies have historically said, okay, I have a different product. I'm going to have a different app. And maybe still you have some unification with accounts or wallets and things like that. But just starting with the stance of like a different app is creating more work for the customer to figure out, oh, I got to go there to get this. I got to go here to get that. Sometimes as those of us working on it are so close to it, we're like not really understanding the customers or just vaguely aware of the different products that are out there and don't really understand the hierarchy of how they're organized.

And so we started with saying, like, let's not make it the customer's problem to figure out where they find products, let's make it our problem. And let's make the customer know they can go to the same app and they're going to have those things available. Part 2 of that was, okay, that's only so good if I still need to sign up for a different account and make a deposit into a different wallet. Still better to have it in the same app, but it's still creating an experience that isn't ideal for the customer who's thinking, why do I have to put more money in to use DraftKings? I've already got money on DraftKings.

So that was kind of the second piece of this evolution, but it's really rooted in how do we make the customer experience as easy and as positive as possible. How do we make it so that things that people want to do, we are not making it so that they have to then do things they don't want to do, like make additional deposits in order to do it. We are allowing them to do it in a way that's comfortable and works for them.

And there's also, I think, an important point here, which is a lot of why I think companies went in this direction of different apps and different things in the first place is with -- historically, it was a lot of load to have all these different products and all these different things in the same app. And you would really see performance deterioration if you try to put too much in. Now we are able to, with what's possible today, create a very fast, very easy-to-use experience and still have all the content from all these different things in there. And it also used to be that it was very overwhelming for customers to try to figure out how do I find this or that.

Now we're able to more easily say, okay, we know if you're interested in elections, we're going to show you elections content. If not, there's a way to find it, but we're not going to clutter the screen by putting everything in there at once. So a lot of, I think, what technology advancements, nothing to do with us, but just the underlying tech behind it have enabled, have allowed us to pursue this strategy. And I think it's the direction that most companies are going to go who have multi-vertical offerings.

Is AI helping you do that?

Yes, absolutely. I mean, of course, we are using AI responsibly, despite what maybe some others will say, but I think it's something that is a very important part of creating a great customer experience. Customers expect that. They don't expect you to be serving them content that's totally irrelevant to them. You're a Brewers fan. If you're consistently betting on the Brewers, I'm not going to start showing you Tampa Bay Rays and trying to get you to bet on that. That's not going to make you very happy as a Brewers fan.

So I think things like that are just creating a much better and simpler and more -- I think what the customer is expecting. And if we're not using the latest technologies to do that, we're not going to live up to our customer standards. They are expecting us to create the types of experiences that they are getting all on all -- forget gaming on like all the different types of products that they're using.

I'm like that Robert Frost poem. I've come to a fork in the road, and I can either go down this path or go down this path. I want to talk about the Brewers because...

I know you do.

Jason is right. I am a Brewers fan. It's not just because my last name is Brewer, and I can explain all that. But I want to...

And a Packers fan, too.

And a Packers fan and a Bucks fan. I want to tease out this thread a little bit. I'll say it. The New York Times did a story that DraftKings uses AI to target losing customers. I want to know, one, can you even have a business if some customers do not lose?

Well, I think if you replace the word lose with we need customers to spend money, then yes, and that's true of any business, businesses don't work if customers aren't spending money. I think one of the things that is a challenge is that there's a lot of people out there, all of whom really are not people that gamble that don't like it. I do, I like it. And I want to spend my money. I think it's something that brings me entertainment.

And I don't view it as losing money. I view it as spending money the same way if I go out to dinner and I order a nice bottle of wine and end up spending $100 more than I normally would have if I had eaten at home, I still like that experience, and I view it as something that is worth my money and I want to spend on. And so I think if you start from the stance that like somebody who's maybe taking that position is a believer that the only reason anybody would ever want to gamble is because they have some sort of addictive personality because why would anyone want to play something where they know they're going to lose money? You're ignoring the fact that, that's not why -- that's not really what it is.

There actually are people who like these products, who enjoy them. The vast, vast majority of customers fall into that category. And those people want to be able to get the experiences that come with spending money, just like if you went and stayed at a nice hotel and spend a lot of money there, you'd expect them to take care of you, too. So I think any rewards program on the planet, any loyalty, anything like that, that you see is generally geared around rewarding the customers that spend more with you.

And how does AI make marketing to customers and potential customers easier, better, more efficient?

I think the degree to which AI is used is a bit overblown. I think it's one of those things that is thrown in article headlines because it's got a lot of attention now and people are generally fearful of it. But I think if you ask a lot of the people who are really -- who are commenting on it, what do you think that means? Like what is AI? Like what do you think us using AI means? I think you get 10 different answers from 10 different people.

So I start from the stance of like I don't really view AI as what you're saying. I view AI as the thing that's helping us write code faster and QA code and all that sort of stuff. I think we are using machine learning in many cases to be able to say these customers have these preferences, example, you like the Brewers. And that's in an effort to serve relevant content to them, not in an effort to try to target people to get them to do things that they shouldn't be doing.

In fact, our entire company philosophically is built around the opposite of that. We tell people that is not the way to create a sustainable business. It's not the right thing to do. Obviously, there are people that shouldn't be using the products, and we do our best to try to help identify those people. We can't do it perfectly. But we are certainly not trying to proactively target those people. I mean that's crazy. And it's actually kind of hurtful, too, to be honest.

I feel like there are a lot of -- people don't understand that when articles are written like that, that there's a lot of people working on these things who unequivocally know that the things that are being -- the way they're being characterized, the way they're being characterized is just not right. And they're actually trying to do the opposite. And it makes you feel bad when you're like people are out there saying, we're terrible people, and it's just not. I never -- if you ask anybody on our leadership team anywhere throughout the company, they will tell you we preach responsible gaming.

We absolutely tell people if you see -- we have a whole team that we refer people to when we -- instead of targeting them, we actually do the opposite. If we think somebody have an issue, we refer them to a specialized team that looks into their case. So it's just completely not how we're built and how we philosophically and in practice operate. But listen, I think, again, it depends on the person. Some people just don't like gaming and they're like, well, you guys are just -- by definition, you're going to have to target people in an nefarious way because who else is using the product. And I can't really change their minds on that if you're starting from a stance of we just don't like the industry and we think that you're bad people.

And to that, like you never get that from me because I also like gambling and roulette happens to be my game, but I find it entertaining. And so I don't have this moral high horse to climb. But when I read ProPublica's article written from the first person, I'm trying to lose and like when do the responsible gaming tools come into play or whatever. When that hits, is there ever for you like this moment of, oh, we could do this, okay, I'm going to learn from this. Here's what we need to do better that you go back and you talk to your team and go, XYZ, let's do this differently in the future?

So when that article came out, I went back, I personally looked at the entire history of that customer. I looked at all the notifications we sent. I looked at all the communications with their VIP host. And I was pretty proud of how we handle it. First of all, it wasn't mentioned, we set hundreds of responsible gaming notices throughout that entire experience. Number two, the VIP host repeatedly said, "Hey, do you want to take a cool-off period? Should you set a limit?" Like, "are you okay?" I think sometimes what people want us to do and they're like nothing less than this is okay, it's just cut people off.

And we do, do that sometimes, but it's not a clear-cut case because sometimes people who show the exact same pattern to play, one of them has an issue and the other 9 out of 10 don't. I used to -- a lot of the things he was saying was doing and I was reading, I was like, yes, I do that. Like I stayed up late and was betting on random international sports in my day and playing casino games in the middle of the night, like I thought it was fun. I liked it. Never caused me any financial problems, never had an issue with it. Maybe I didn't get enough sleep a few nights than I should have. But I could see how somebody else who has the exact same pattern though may have an issue.

And so it's really tricky. And so what we really try to do is we try to identify those situations and get people to then take action themselves partly because we don't know for sure and also partly because if people do things themselves, they're less likely if we restrict them more likely to just go jump on another platform. If they actually exclude or cool off themselves, they're more likely to actually adhere to it. So I mean, there are just so many things that were left out of these things.

And again, nothing I can do if somebody is starting from a stance of they are trying to write a negative article. Really hard to get them to go positive. Maybe you can give them some facts and make it a little less negative. But if the goal to start is I want to write a negative article, then you're probably going to see somebody write a negative article.

Jason, do you see the same tools being needed, the same approach needed for prediction markets that exist for gambling?

Absolutely. I mean, I think for one, we're putting our money where our mouth is on that. We do, do that. We apply the same responsible trading tools as we use as responsible gaming tools in our Predictions product. And we take the same approach with -- we have the responsible engagement team that gets referrals for people that we think need to have their accounts looked and do things, like, it's literally the same playbook. So I think this is a great example where you don't necessarily have to reinvent the wheel here. You can just -- again, it doesn't mean we can't improve on the existing system, but there is already a decent system in place for the regulated OSB market.

And people who don't understand that, they just don't have the knowledge. There's so much regulation already in this area. There are very specific rules that many of the states give us that tell us how we have to manage responsible gaming. Now we go above and beyond that. For example, we don't have to do that with Predictions, but we are doing the same things that we do in OSB with Predictions. But there's also, at least in the online sports betting space, very clear rules on a lot of this stuff.

So I was in Las Vegas for G2E, the Global Gaming Expo, and I saw an ad for DraftKings in every state in Nevada, which has told Kalshi that it has to geofence the state. Tell me how it works where you're -- not just the states that you have a gaming license, but how does it work when you need to geofence out other products in other states?

So we do not offer sports predictions in Nevada. We do offer some free-to-play sports contests. And I think for a national marketing message, it's easier to say DraftKings is available everywhere than DraftKings is available in 48 or 47 or whatever states. And we have disclaimers. We actually worked with the Nevada regulator who is a great partner in this to understand what their concerns were, and we were able to put some disclaimers in our marketing and ended up -- surprised you saw in Nevada because we are trying to not target in Nevada. So that's probably state...

Probably on a national program.

Yes, it might have been a national program as we definitely are not targeting Nevada specifically with ads and trying to make it as clear as possible that you can't play the paid product in Nevada, but also have to remember with national ads, you need a national marketing message and the more you confuse people, the harder it is to get that message to work.

In Florida, where you fought hard to try and get on the ballot and get the opportunity to offer commercial Sportsbook. Now you have Predictions platform and Hard Rock, which has the monopoly in Florida is suing you. Why you and not FanDuel or Fanatics or Kalshi and Polymarket?

I guess -- I don't know, you'll have to ask them that one.

No, no. I just want to know, like, what's your thought about why you're the target?

For whatever reason they decide to make us the target, I can't speak to why. I don't know what their motivation is.

That's boring. This is -- like I was trying for something...

You're absolutely right that it is very interesting that despite the fact that there's a number of prediction operators in the state, we're the ones that singularly got sued. I was a little surprised they didn't include others in the suit, but yes, you have to ask them that.

When you're looking at the economics of Predictions and not having to pay, say, in New York, 51% tax on your business here, is that model super appealing for you? Like would you like to have a departure from the state by state? How much money can we bring out from the Sportsbooks?

Well, I don't view them -- so assuming predictions were allowed, we would want to offer everything because it comes down to -- we want to give the customer choice. Obviously, we would like to have level playing fields with taxes. My guess is that what you're describing is not going to exist long term, that if there ends up being Supreme Court or otherwise, a more permanent sports prediction market that states will turn to taxing it like they do sports betting. So that's my guess anyway.

So I sort of look at it as, again, starting with the customer. And I do think that at least now, and I think arguably in perpetuity, the Sportsbook product is a better product for a lot of things that the customer is looking to do. And you can look no further than Europe to see that. There's been exchange-based betting in Europe for many, many years. And it's a small piece of the market. It's really dominated by the traditional Sportsbook market. And the reason for that, I think, is just a superior customer experience. And I believe that to be the case today. I think unequivocally, the Sportsbook experience is a better customer experience for most customers. Obviously, there's some that maybe prefer Predictions, but for most customers.

That said, there are definitely some elements to the predictions product that are better, while maybe not as an overall some elements. And I think those products, including our product will continue to improve. So again, it comes back to, I'd like to be able to offer different options to all our customers. An example, Predictions we talked about, you can do all kinds of non-sports stuff that you can't do in sports betting. And I think that's really interesting, and there is an audience for that. So...

And institutional trading, I mean, do you see a future for DraftKings in accommodating institutional money?

That's an interesting one because I think -- my personal belief is that the more of that you introduce into a peer-to-peer ecosystem, the faster that the retail customer will have to spend money in order to keep up. And I think that, that may create a worse customer experience than maybe having less institutional. Now we can't prevent them from being on the platform, of course, but we have at least to date, chosen not to invest in product features that are geared specifically to algorithmic traders to institutional investors because we do think that creates a healthier long-term ecosystem.

Okay. I'm sorry, but we have to talk about the World Series and the Brewers have not made it this far.

I knew we wouldn't finish without this.

Since 1982, and I mean, like, there's so much enthusiasm. My kids are trying to break the school uniform rules and wear their Brewers for this to school every day. Where is the money coming in? Tell me a little bit about this small market team, doesn't get to pay its players like Shohei Ohtani money. Talk a little bit about what you're seeing from the business side about Milwaukee Brewers being in the series?

Yes. And since you've 2 teams like that now. So it's...

Who? Well, I don't care about the other now.

I mean, it shows -- it's a good sign because it shows that even though, yes, it may be less common that teams on smaller payroll budgets can still compete in baseball, which I think is very important for long-term competitive parity in the sport. That said, to answer your question, it's really interesting as we were just looking at this, I know, together before the panel. The vast majority of the money, almost 90% of the money for Game 1 is on the Rays, but for the series, it's on the Brewers. So I would have figured -- who's pitching Game 1 for the Brewers?

Got me.

Yes. Well, maybe it's -- I didn't look at the pitching match up. I should know that. But maybe that has something to do with it, but it was interesting. I was surprised to see that it was so heavily tilted one way on Game 1 and the opposite way on the series.

Yes. Well, I mean, just out of loyalty's sake, I would think that my -- so I said it's not because my last name is Brewer. It's because I lived in Milwaukee. And in Wisconsin, if you don't get inducted into the cult of sport, meaning Brewers, Packers, Bucks, you get kicked out. And I married a Wisconsin boy, I didn't want to get kicked out. So...

No.

Yes, that was the way to do it.

Well, now is your moment, Contessa.

One last one for you. This is it. Do you think that -- I mean, the investors have really punished DraftKings because of the perceived threat from prediction markets. Do you think when you go out and you talk about your performance on prediction markets, you start to get more credit from shareholders?

That's a great question. I would have said yes, several months ago. I'm not as sure now because I think people just don't love the uncertainty of is this actually going to be a thing. So great if I'm underwriting growth in the next 1.5 years, but is that all going to go away? I think the more that people come to understand that we're really well positioned either way, I think we will start to overall get more credit for that. And I think people are starting to understand that. And I think the more that we can show growth in the non-sports piece, which people, for whatever reason, think is probably safer, I think that will help, too.

But I also think just getting to a point where there is a court ruling and there's just some clarity and there's -- you know this, public markets -- private markets love uncertainty. That's what they thrive on. They like big beta, big -- public markets are the opposite. They do not like uncertainty. They want predictable, steady earnings, things like that. So I do think that we are suffering from the uncertainty of it all. And I hope that we start to get more credit as we show traction and predictions, but it might just -- it might not really get full credit until there's more clarity.

Earnings next week?

Next week.

All right. We'll be listening. Thank you, everybody, for your attention, appreciate it.

Actually, week after that.

Oh, 2 weeks. Yes, 2 weeks.

I'm Trey Bowers, the gaming, lodging, leisure analyst here at Wells Fargo, and it's my pleasure to welcome remotely, Jason Robins, CEO and Chairman, Co-Founder of DraftKings. Thank you so much for your time today.

So we'll just go ahead and kick it off. I think top of mind for a lot of investors these days, Jason, is prediction markets. And maybe you just want to kick off with kind of an update 1.5 quarters into the market, what you're seeing, and any learnings you've made in this first, what do we have, 5 months?

Yes. So it's been only a couple of weeks of NFL. So obviously, still early, but we really are seeing just phenomenal trends, not just with Predictions, but also in the core business. Actually, maybe I'll start for a moment on the core. Everybody was concerned about handle growth. We have seen enormous handle growth to start the season, 15% so far month-to-date and really just great engagement from customers there. This is on the Sportsbook side, obviously.

IGaming, we've started to regain some share, seeing growth accelerate there as well. So really, really healthy trends in the core business. That business is on track to deliver what we had previously communicated, which is about $1 billion in adjusted EBITDA in 2026 and should increase pretty materially in 2027. So really excited about that. We'll have an update more on what 2027 looks like in our November earnings call.

And then Predictions, not surprisingly, has been a huge growth story for us. We're up almost 2.5x from our July volume. That's just 2 months ago. Obviously, with World Cup, it was still a big month in July, and we're about 2.5x, a little less, but almost 2.5x and trending higher every week.

And really just seeing great improvement from a competitive positioning. We're up to almost double-digit share of the sports market and higher if you look at the just NFL piece of it. We actually feel we have the best offering now in NFL. We have 3x as many NFL markets as our competition, about 1.5x as many college football and Major League Baseball markets.

So we feel like really quickly in a very short period of time, we've gone from what was objectively not the greatest product in market about 8 or 9 months ago, 10 months ago to now we feel the best sports product in market, backed up by the content offering and the breadth of that. And we have a ton of new features and other stuff coming, too. So we're just getting started. As I mentioned, we're only 2 weeks into NFL season, and we have a lot more planned for the coming weeks and months.

And was that share number you referenced, was that a handle share in prediction market states? Or just help us understand.

Yes, consumer volume. So the total volume that is traded by a customer is not the sort of number that is inclusive of the backing on the other side of the [ state ], but the actual true consumer volume.

Any update just on what you're seeing from a competitive response from either the prediction market platforms or your OSB peers?

Well, everybody, obviously, right now, it's just sort of like OSB was in 2020, 2021, maybe a little bit of 2022. It's kind of the time when there's a lot of competitors out there that are thinking that they can have material share, and we welcome that. We love competition. We've dealt with that in every single vertical we have.

And again, our strategy has always been and consistently has been to win on our offering, to win on our product and customer experience. And we, again, think that we're executing that. As I mentioned earlier, we think we have the best sports markets, at least in the core sports. There's some tail sports stuff in tennis and a few other things that we need to build out, but we obviously prioritize NFL, college football, baseball, the ones that the majority of the volume is coming on.

And I think the fact that in such a short period, we put together the best offering shows that we actually are on a trajectory to, just like we did in Sportsbook, have a superior product. And ultimately, that's what wins in these industries, I believe.

On the second quarter call, you guys talked about being really pleased with the customer acquisition costs you were seeing. Is that -- are you still continuing to see that trend? And where should we go from here?

I mean, same story, really. I think the customer acquisition costs and the pace at which we are getting new volume, new customers on in these non-OSB states is real. We did mention earlier that we are going to evaluate and be data-based. I do expect that we are going to increase some of our spend, probably pulling forward from some of the spend that we intended to deploy in 2027 just because we are seeing such amazing conversion onto the product, and the efficiency seems really strong.

And any sense on an order of magnitude on that? Or is it too early to say?

I think too early to say. We did want to communicate that based on exciting early results, we do anticipate spending a bit more. But I don't know exactly what that number will be, and it will obviously be just like this is very data-dependent.

And it's still a long season. We have a lot of ways to go. But based on the trends we're seeing, we could see meaningfully more investment. And I think that's a good thing because it should accelerate our revenue and our gross profit for next year.

And is that investment kind of spread equally amongst promotional dollars, marketing dollars? What -- just give us a sense for kind of how that's deployed?

Yes. It's really a bit of both because, of course, new customers, more new customers mean more new customer promotions. So it is some additional marketing spend that we are deploying into a very friendly and efficient environment.

But also, it's just the fact that we're getting a higher volume of new customers than we thought. And even if we didn't spend any more in marketing, that would come with more new customer promotions, but also, of course, comes with more gross profit next year.

And really, our plan right now is to kind of let that data come in, optimize. And then on the November call, we're going to have an update for what we think not only the rest of this year will look like, but also how much gross profit and additional revenue we believe we can generate in 2027.

And just to move on to kind of an app update. You referenced this a little earlier in saying that you had the best sports app out there. But one, is the app fully rolled out on kind of the universal app? I'm pleased to say when I got here, I was able to use my Massachusetts deposits to make bets in California. So at least these 2 states, it's working seamlessly. But can you just give an update on where it stands? Are you guys still a little bit ways to go? Or is it kind of fully up and running?

It's pretty fully up and running. I mean, there's still a handful of states that haven't fully integrated. But really, for the most part, the experience you're describing is what we've been able to produce now in most states across the country.

So we think that is a huge component, especially knowing that not just do people travel, but also, we have a lot of customers that at some point in their life have opened up a DraftKings account and made a deposit in another state that had legal sports book when they were traveling, that could be any amount of time ago. And so for those customers to be able to go in and access those accounts and those funds is really a huge part of the conversion funnel that we're able to jump start. So I think that was a big feature for us, and of course, on an ongoing basis, will just be more convenient for people.

Really, to be fair, do not understand why should I have to have a separate account and separate balance. That's really not what we're trying to get at. And obviously, behind the scenes, there's some maneuvering we had to do in order to make sure that funds were not intermingled in a way that didn't work for our regulators. But from the customer perspective, it's totally seamless.

And you referenced this before, but I think myself included, a lot of people would like better clarity on is what makes the DraftKings platform or user interface or gameplay just better than your peers. What enables you guys to gain share either against your OSB competitors or the PM platforms?

Well, a huge part of it is content breadth. We have 3x as many NFL markets as any Predictions competitor out there. We also think that the smoothness of the user experience -- so in sports -- in traditional Sportsbook, that means I can get my live bets down. They're not timing out. I can get the amounts that I want. Everything just sort of works, it's fast.

In Predictions, it means that my orders are getting filled and I'm getting the volume that I want. I can make the combinations that I want of different types of markets to be able to create those combos, which has been a great story for us, too. Last weekend in NFL Sunday, we were up to almost 30% combo mix, which -- just to put in perspective, it took us 5 years plus to get to that level with Sportsbook. So really a great story there, too. But again, that means the product has to work. Things have to be combinable, and you have to be able to get the orders filled.

So a lot of that is trickier, of course, with Predictions because it's a little bit of a different model where you have sometimes third-party market makers, sometimes our own market makers, and you have to do RFQs and things like that. But these are all things that we love -- problems we love solving. We think that the more complex it is to create the type of user experience that we want, the more advantaged we are because traditionally, we've just been able to move faster and to innovate more when it comes to those things.

And over time, would you expect on those combo bets, the majority of the market making to take place through DraftKings? Or is it kind of bet-specific as you think about taking on that risk?

Well, we'll have to see how that all plays out. We do believe that there's a path to our market maker being able to do more and more of it. But also, we want to make sure that we're getting the absolute best experience for the customer. So if there are times where there is a better offering from another market maker, of course, that's something that we would want to make sure we surface to our customers.

And it's going to also depend on the category. Of course, in sports, we're really looking to focus a lot of that volume through our market maker. But crypto and elections and other categories have not been as much of a priority, at least in the short term, for us to do market making on. Maybe over the medium term, we would look more at that, of course, but we've really been sports-focused to date.

And's I know it's highly state-by-state dependent based on whatever the tax rate is. But over time, if we were to think about kind of a post-tax contribution margin for a prediction market state versus an OSB licensed state, I mean, over time, do those look somewhat similar? Is one potentially higher than the other? Just help us frame out kind of the economics for the prediction market states.

Well, it's a great question. Obviously, there's still a lot that needs to shake out. At least to date, what we're seeing is that the actual margins, the equivalent of what I would call hold rate or net revenue margin are a little lower on prediction markets, but the gross margins are much higher. So there's a reason to believe those things could net out either in a positive way versus sports or neutral.

I certainly don't think there's a lot of reason to believe the economics will be worse, although we have assumed a smaller TAM in terms of the top line side. But again, I think with higher gross profit margins, there's a lot more room to make bottom line for sure versus Sportsbook, which has a higher, I think, top line TAM, but has a little bit of a lower than Predictions' gross margin profile.

Got it. So just wanted to -- it wouldn't be a DraftKings discussion if we didn't get into the regulatory and legal side of things. And I know much of what you might be able to answer to this is you're making your own guesses or assumptions on this, but maybe we could just do a little bit of game theory of after the Ninth District Court ruling, potential move to the Supreme Court, other District Court rulings.

Just love to get your thoughts on where we're going from here, if prediction markets are here to stay, if some of the rulings ultimately results in less sports betting on prediction markets, how non-licensed states might react to that? So it's a very open-ended question, but I would love to get your broader thoughts on this.

Well, I think it's really hard, of course, to predict what will happen. We are observing and are certainly an interested party and would like clarity. And I think clarity is good for everybody, but we don't control that process. We only control the choices that we make in terms of how we invest, how we think about paybacks, how we think about long-term value creation.

I will say one of the really positives for us is we feel like we're in a great position either way. We have a healthy core business that is on track to produce $1 billion of adjusted EBITDA and growing pretty substantially in 2027 and beyond. That business, despite all of the chatter about cannibalization, we have seen as resilient and as strong. I mentioned 15% year-over-year handle growth to start the NFL season, really good number considering, I think, a lot of what people were expecting. So really pleased on that front.

And then obviously, there's the Predictions investment, but I will say that we are seeing great cross-sell as well. So when we acquire a Predictions customer, we're cross-selling double-digit percentages of them onto Pick6, onto Lottery, onto DFS. So we have other products that we can retain those customers on if there were to be a ruling that removes sports contracts from these states.

I would also say crypto has been interesting. We are seeing pretty good conversion of these customers onto some of the crypto trading as well, and that could be a nice little thing that we weren't expecting that could contribute meaningfully to the business. So something to keep an eye on also that I think could give us upside.

But overall, we're just watching, we're observing. We're seeing what the different plays that this could play out are, and we're making sure that we are making choices that position us to be really strong and in a really great competitive position regardless of what the outcomes are.

So I guess to summarize, you feel like you're kind of in a win-win position, that prediction market is here to stay, you're effectively competing in the early days. Prediction markets, maybe see an OSB shutdown. You're still one of the best games in town, and you still have that optionality of those states, then deciding to go licensed?

Yes. I mean, it's funny because if you ask me, I would say I'd rather see them stay, but I would also guess that if prediction markets got shut down by the Supreme Court tomorrow, our share price would pop. So it seems like our investors are happy with that outcome.

I do think we are in a good position either way, though. I really believe that we are well set up regardless of the outcome, which was not easy. I think credit to our team and doing a lot of great work, both strategically and executing really in a great way and having strong relationships and transparent conversations with our regulators. All of that is what has led to us being in a position where I really think we are well positioned no matter what the outcome is. And as I said, I hope it sticks around because I think it's a huge incremental TAM.

And we're doing well. I mean, we are clearly separating ourselves as right there alongside Kalshi and Polymarket and climbing in terms of the conversation and who I think will be long-term viable competitors in this market. So I feel like we've really done a great job there. We have the best product in market. Obviously, those are all investments I'd like to see pay off for many years to come, but I do think we're well positioned regardless of what the outcome is.

You referenced the licensed state growth in OSB. But before we get to that, the iGaming business, you mentioned as well. And I know it's a focus for the balance of the year. It's a small number of states represent a pretty meaningful piece of revenue. So maybe we could just dig in a little bit on some of the actions that are being taken to kind of get that iGaming business back on a growth trajectory that you guys would like to see?

And then any broader thoughts on what the ultimate TAM of iGaming is from here? Any states that you think could come over the transom in the next couple of years? And again, an open-ended question, but would love to dig in a little deeper on that piece of the business.

Well, I'm glad you brought that up. The iGaming story finally has been a good one for us the last month or 2. So if you look at the latest state reports to come out, we have regained share pretty substantially in a couple of states. And I believe we are on a trajectory to continue to gain share in the coming months. A lot of the things that we are doing seem to be resonating with customers, from the content that we have, to the experiences that we're creating.

A lot of new features have been launched, and more are coming in the fall. So really feel like that product is humming and in a completely better place, much different place than it was even a year ago. And now the results are starting to show with those share regains and that growth acceleration. So really excited about that.

As far as additional TAM, we hope Maine will be launching later this year. As a reminder, it will be us and Caesars as the sole operators in Maine, so we should have a pretty good share of that market. Obviously, not a huge state, but helpful one to get on the board.

And then pretty decent momentum in a few other states. Hard to say what will or won't get done, but definitely feel like there's some momentum in the DMV area, for example. And I do think that in the coming years, you will see more iGaming states, but I also know that it's been a little while, so I'm hesitant to start throwing states out there and making any projections on that.

But I do feel like, especially in the DMV area, there's a lot of momentum. And I also think states like Illinois and New York, it's a matter of when, not if. But not sure that that's as immediately on the horizon as some of the momentum we're seeing in the DMV area.

And any sense for when you mentioned some of the new features and gameplay that have enabled this rebound in share? And could you just dig in a little deeper and just give us a feel for what that is? Or is that the special sauce of iGaming that it's hard to really articulate?

Well, I will say that a lot of this -- and this is true of any product, people want to say there's some silver bullet feature thing. But if it worked that way, actually, it would be bad because people could copy it. The way it really works is it's a lot of little things, and it's a lot of really strong execution over a sustained period of time. And you can't really look at one thing and say this is what did it or even two or three things. It's the collection of many, many features and also just cleanup of experiences.

But since you asked, I will point to a few things. One, we had a really successful Lightning Link launch. Lightning Link was the biggest land-based game that was not yet online. Now it is. Really, really felt like we had a strong -- both from product, all the way through CRM and marketing, a strong cohesive plan to maximize that launch, and I think that helped us a lot. We've also done really, really well with our Daily Rewards that we were a little late to the game on, but now I think is the best in market. So really excited about that.

But again, there's so many little things that you do that -- one or two on their own aren't going to move the needle, but a collection of dozens or more over the course of many, many months and years really do add up to just the overall best experience. And then, of course, it takes time for customers to notice, and you really get credit for it, too. So I think it's just been sustained execution.

We -- I think we've mentioned this in the past. We did a lot of shakeup in terms of who was on the team, leading the team, made a lot of changes in terms of our product road map. But that was almost 12 months ago at this point. So it was a pretty lengthy period of sustained execution before we finally started seeing these results. But now that we do, we feel like we have tremendous momentum to build on.

Do you feel like that everything happening in the world of prediction markets and OSB licensed states and just what that means for tax revenue, do you think all of this will maybe accelerate some iGaming uptake? Are you getting any sense of that from regulators?

I do think that it is early to say whether it will have a spill effect on iGaming. I definitely think it could help with some of the sports betting legalization conversations. But I also think a lot of that's going to come down to where the Supreme Court ruling ends up netting out. I think in some cases, people are waiting and seeing.

iGaming is really going to come more from the need that states will have for revenue, combined with the -- it took time, but we're finally starting to, I think, get really through to a lot of the legislators and other policymakers that there is a huge illegal market. From a policy perspective, this isn't just about generation of revenue. It's also a better thing when it comes to protecting consumers and making sure that you're cleaning up illegal activity that's happening in your state.

And I think it took quite a bit of time for that to really resonate and there's been a lot of noise and still is a lot of noise. But I do think that people are starting to really understand that message and starting to view this as not just a way to generate revenue, but also something that makes sense purely from a policy perspective, too. Plus, people love the product. I mean, more and more people are asking their legislators for it. They're playing it in other states. So I think that's a huge thing as well.

I'd love to get an update, and I'm not sure where it stands today, but in Oregon, there was the use of historical sports outcomes to do kind of an iGaming-like business in that state. Curious if there's any update there and if you expect to see other states maybe explore a way to get into something like iGaming that's somewhat related to sports?

Are you talking about for us or DK Replay? Or are you talking about like more historical horse racing?

It was use of historical at-bats, I believe.

Yes, you're talking about DK Replay. So I wouldn't quite call that iGaming. I mean, I do think it's still a sports product. It's a way for people, though, who like baseball -- and we could apply it to other sports as well -- when it's not on, when baseball games aren't happening, to still be able to get action on baseball. So really, that was kind of how we thought of it is how do you make sports really more 24/7 and have people that particularly have an affinity for one sport have an opportunity to engage throughout the year even when their sport isn't in season.

I do think that, that's something that we have seen interest from in the consumer side. Haven't really pushed it as much. We've been more focused with everything else going on, on other parts of the business. We really pushed as much in terms of trying to launch in more states, but we have seen some success in Oregon. And hopefully, that's something that will provide another point of expansion for us in the future.

Great. So you touched on this earlier, but I think it's a great chance to dig in a little bit in terms of the OSB licensed states and the growth dynamics. If I think about it, it's more users, more users placing more handle and then potentially more hold of that handle.

So could you just walk through, as you think out over the next 3 to 5 years in your existing OSB licensed states, how investors should think about what those drivers of growth are kind of against penetration levels, win levels, betting levels? I mean, it's a very big question, but I think super important. And as you just referenced earlier, it feels like handle is getting back to a pretty nice growth position as well. So I'll leave it to you.

Yes. I really think you got to look at it, as you noted, on the existing state basis, separate from any new states or Predictions. So focusing on the existing OSB states, I think really, revenue and ultimately adjusted EBITDA growth, gross profit growth are the most important metrics right now.

Obviously, handle growth has been great to start the season. We're pleased about that, but we're also excited that parlay mix is up 300 bps, which has exceeded our expectations. So great number there. People keep asking where that caps out and every year, it keeps going higher. So I don't have an answer for that yet, but it seems like there's still some ceiling to be reached on that, some upside to be reached on that.

And then the other part I would say is we've also been very cost-focused as a business. So a number of initiatives throughout the business, many of which have been driven by some of the progress we've made on the AI front, have really enabled us to control costs. We saw declining G&A -- G&A decline year-over-year last quarter. We expect to continue to see fixed cost growth benefits.

So I think in addition to that top line humming and that continued revenue and gross profit growth, we also believe there's room to improve the bottom line through additional fixed cost trimming as well as just marketing spend for the core business continuing to decline as these states mature. So all of those things should lead to pretty nice EBITDA growth in the coming years.

And as you think about that, obviously, you can't control any changes in the tax regime in different states. But given some of those ability to harvest G&A over time, any sense of a longer-tail EBITDA margin target that the existing states could eventually achieve?

Well, we still are targeting somewhere in that 30-ish percent range that we mentioned, plus or minus a couple of hundred bps. I think that's a good range for us to be targeting. And we still believe we can get there on the core business. Obviously, as new states come in, as Predictions ramps up, that will be a moving target, hopefully moving to the positive end. But just on the core business, just in those existing states, we still believe that, that is an achievable adjusted EBITDA margin.

Got it. And you referenced good revenue growth, but I don't think we got a chance to hear more just around kind of monthly unique players or user dynamics. Based on where we are today, as we look out of the states that you're currently in, how much runway is left of potential players? Obviously, there's competitive dynamics to that. But just give us a feel for kind of the -- in a P times Q equation, how much Q is left out there in terms of players that you guys don't think you've already harvested?

Well, one of the also great stories has been customer acquisition in our existing OSB states has been really healthy to start the season, too. So we are still seeing an influx of new players even in the states that we've been live in for many, many years.

We've obviously penetrated quite a bit, too. As we noted in our last year, we had double digit, I think it was like 11 million or 12 million was the trailing 12-month active customers. So definitely feel like that's a number that will keep going up. And obviously, we continue to try to do everything we can to get more states as well to expand that number.

And then on the Predictions side, it's been absolutely exploding. We are well over 1 million customers that have engaged with our Predictions product now. I expect that to be multiple millions by the time this NFL season is over.

And we haven't even entered the busiest time of the year. Obviously, we had NFL going now, but there's that period where you have October where you have all four major sports going at the same time. And so I think the best days of activity are ahead of us in terms of raw total customers and total actives.

Have you noticed on a geographic basis, any interesting trend that you're doing better in California versus Texas, versus Florida? Or has it been pretty even, these million and hopefully millions of customers that you're seeing in the PM states?

Well, I'm sure not surprising to anybody, it's the states you mentioned, California, Texas, Florida, Georgia, the biggest states population-wise that don't have legal OSB where we are seeing our Predictions growth. And those are obviously states that we believe we have great established brand and customer bases in already with our fantasy, Pick6, lottery products in some cases. So it's not like we're starting from scratch.

One thing we've been very pleasantly surprised on is as good as customer acquisition has been, we've seen even better success with what we're calling cross-sell, which is conversion of players already in our database that had previously used one of our products, either in that state or in another state that they were traveling to. So that's the thing people also forget is we had enormous databases in these states already, both from our existing products in those states, but also, a lot of those people at some point had traveled to another state that had legal OSB, that had legal iGaming, had legal lottery, had one of the products we offered and used it in that state. Many of them still had funds in their accounts. So really great activation path there.

And that's kind of been the, I think, pleasant surprise that we weren't expecting. We thought we'd get really healthy customer acquisition growth. Obviously seeing that, but didn't realize that we would get such success on the cross-sell side as well.

And in terms of that marketing reach, what channels have you guys found to be the most effective in re-reaching those customers or ultimately getting new customers on the platform?

It's really a wide mix of different things. We've been doing this a long time. So as you can imagine, we've optimized this to quite a degree, both in terms of that early stage when we call a new state launch sort of phase, all the way through to more mature states that we're operating at lower marketing budgets.

So the channel mix changes depending on where you're at. In the early stages, when you're spending more, you're naturally using more channels and spending in volume and more channels. And it's really hard to say this works or that. We kind of look at it more as a cocktail that we've optimized. And we've tested different media mixes and different messages and things like that, but less so kind of like this is the channel that's delivering and more what mix of spend across different channels is the right one to both deliver the new customers, but also to do so at a rate that's efficient and meets our payback thresholds.

And then, of course, in more mature states, we dial back a lot on the marketing. So in a lot of those cases, you do end up focusing away from some of the higher-reach expensive channels like television. And they're more digitally focused, more targeted, and thus maintain their efficiency and still are acquiring at a decent rate even in many of these mature states.

So you mentioned some numbers earlier in the call, so I'd be remiss not to jump back in on those a little bit. But still believe strongly in the $1 billion of kind of core EBITDA with significant growth next year, but potentially given how well you're doing in the prediction market states, there's a little incremental investment.

As we think about going forward from that, though, in '27, is that kind of a pull forward? So if there was a little more negative against the reported EBITDA this year from additional spending because of success-based spend, would that kind of result in higher numbers next year as we think about just the EBITDA trajectory from here?

Well, we haven't finalized anything for next year. We'll be sharing that on the November call. However, I will say that we view it a little bit more as a pull forward. I don't think that because we are increasing spend this year, we should -- anyone should assume that spend would be higher next year. I think if anything, it will be neutral to maybe even beneficial because some of the spend that we're deploying now might mean that we are more quickly -- the market is growing more quickly, and we don't need to spend as much as we previously may have thought later in the year.

I don't know yet, though. It's too early to say. But I definitely wouldn't look at it as we're spending more now, therefore, we're going to be spending more next year. I think if anything, it's probably the opposite.

And then -- I know we're running pretty short on time here, but just -- you guys still produce a fair amount of cash flow. Just thoughts on kind of capital allocation from here? Do you feel like there's any M&A in the future for the company? Or what's the best uses of cash as this EBITDA continues to ramp?

Right now, we are really focused on growing the organic business. Obviously, there's always interesting deals out there. So we're always looking, but we haven't been very acquisitive lately. I think a lot of the most successful acquisitions that we made were things that were really tuck-ins to enhance the product, enhance the pricing and trading capabilities. And right now, we feel like we're best-in-class in those areas.

So not to say something else couldn't materialize, but really nothing we need at the moment. It would be more opportunistic. So we're always looking. But right now, I really feel like there's such an amazing growth story without having to do M&A that it's not a primary focus for the company.

Got it. Jason, I'm looking at my time, where we only have a couple of minutes left. But is there anything else that I didn't hit on that you wanted to make sure was addressed or talked about in our time together today?

I think we hit on it. I mean, core business is humming with 15% handle growth to start the season, on track to do about the $1 billion in adjusted EBITDA that we mentioned. And really excited about the Predictions progress we're making, seeing great efficiency there. And really look forward to having a more fulsome update, not just on what this year will look like, but also on what next year will look like on our November earnings call.

Well, Jason, thank you so much. It was a pleasure talking to you, and we'll chat again soon.

All right. Thanks for having me.

All right. Thank you.

Hello, everyone. Thank you for joining us, and welcome to the DraftKings Second Quarter 2026 Earnings Call. [Operator Instructions]

I will now hand the conference over to Matt Rappaport, Vice President of Finance. Please go ahead.

Good morning, everyone, and thank you for joining us today. Certain statements we make during this call may constitute forward-looking statements that are subject to risks, uncertainties and other factors as discussed further in our SEC filings that could cause our actual results to differ materially from our historical results or from our forecast. We assume no responsibility to update forward-looking statements other than as required by law.

During this call, management will also discuss certain non-GAAP financial measures that we believe may be useful in evaluating DraftKings' operating performance. These measures should not be considered in isolation or as a substitute for DraftKings' financial results prepared in accordance with GAAP. Reconciliation of these non-GAAP measures to the most directly comparable GAAP measures are available in our earnings release, slide presentation and business update, which can be found on our website and in our quarterly report on Form 10-Q filed with the SEC.

Hosting the call today, we have Jason Robins, Chief Executive Officer and Co-Founder of DraftKings, who will share some opening remarks and an update on our business. Following Jason's remarks, our Chief Financial Officer, Alan Ellingson, will provide a review of our financials. We will then open the line to questions. I will now turn the call over to Jason Robins.

Thank you, Matt. Good morning, everyone, and thank you all for joining. We had a fantastic second quarter. Our core business continues to grow and is generating significant free cash flow, and our newly launched Predictions offering is growing faster than we anticipated. We are executing on the Super App strategy that we laid out at our Investor Day in March, and we are seeing massive new customer acquisition in states without regulated Sportsbook.

We generated $115 million of adjusted EBITDA in the quarter, which would have been even better if not for the customer-friendly sport outcomes and our higher-than-expected customer acquisition. Strong retention and engagement of our newly acquired customers, along with Sportsbook friendly World Cup outcomes in July have been a positive tailwind so far in the third quarter. Our core business is in an even stronger place as a result and is on track to generate approximately $1 billion of adjusted EBITDA in 2026.

Our confidence in our ability to win in Predictions has only grown. After including our expected investment in Predictions, we are maintaining our fiscal year 2026 revenue guidance range of $6.5 billion to $6.9 billion and adjusted EBITDA guidance range of $700 million to $900 million.

Let me start with company-wide metrics. Customer acquisition, retention and engagement all exceeded our expectations in the second quarter. Customer acquisition grew nearly 75% year-over-year as interest in the NBA Finals and the World Cup surged. Notably, in the second quarter, we achieved our best enterprise-wide customer acquisition cost since the first quarter 2025. We acquired roughly 30% more customers in this quarter than we had planned, and we leaned in, investing about 10% more in customer acquisition spend as we saw the data and captured that incremental demand. Even with that investment, underlying customer acquisition costs came in approximately 25% better than we anticipated. We view this as a pull forward of acquisition and an optimized use of investment.

In the second quarter, monthly unique payers growth accelerated to 9% year-over-year, and more than 6% when excluding World Cup only customers. Sports consumer volume, which includes Sportsbook handle plus Predictions consumer volume, increased 15% year-over-year in the second quarter. It is clear that our Super App rollout is already paying dividends. While we have all seen the amazing social content showing global World Cup fans traveling to North America for the tournament, it is important to note that 100% of our new customers are North America-based, and we expect them to generate gross profit for years to come. Spanish language availability within our app also proved popular and helped us reach new customer segments. We will upgrade our Super App again in August and expect to have the best offering across our main verticals, including Predictions this NFL season. We are on offense.

The core business is firing. Sportsbook handle increased 11% year-over-year in the second quarter while parlay handle mix continued to rise. For the third consecutive quarter, our handle share across Sportsbook states improved year-over-year. When normalizing for sport outcomes and customer acquisition, revenue increased 10% year-over-year in the second quarter.

On a trailing 12-month basis, net revenue per unique customer grew 14% year-over-year in the first half of 2026, a view that smooths the timing of customer acquisition and reflects the durable growth in revenue we generate from each customer. Our data is also confirming that there is no discernible impact from prediction markets on our Sportsbook revenue. We continue to see only about 1% customer overlap between our Sportsbook and the largest prediction market operator in Sportsbook states, which tells us these platforms are drawing a fundamentally different and largely professional audience.

Based on internal analysis, we estimate that 80% to 90% of prediction market consumer volume in Sportsbook states comes from professional betting syndicates and institutional traders, which is volume that mostly would not have been on Sportsbook to begin with. This continues to strengthen our confidence that Predictions is a large and incremental opportunity.

Lastly, our strong core performance was matched on the cost side. We operated with discipline in the quarter, and cost management will continue to be a major focus for the company going forward. We have confidence in the underlying earnings power and free cash flow generation of the business.

Now diving deeper into Predictions. Let me start with the customer. DraftKings Sports is now live nationwide, housing all of our customer offerings under a single app umbrella, which is proving to be a significant accelerator to our business. Over 600,000 customers have engaged with our Predictions offering year-to-date. The pace of adoption has far surpassed our expectations, and we are acquiring these customers at attractive customer acquisition costs, well below what we invest to acquire Sportsbook customers.

Early data on volume per customer and month-over-month retention is similar to a Sportsbook customer, which is what we expected. More than half of our Predictions customers have engaged with combos, and combos are already approaching 20% of Predictions consumer volume. As a result of strong acquisition, retention and engagement, we are seeing rapid volume growth. From April to July, our annualized total volume traded grew nearly 5x from $2.3 billion to $11 billion. This is only the beginning, and we expect to build on this momentum as we improve our offering.

That engagement starts with our offering, which we expect to be best-in-class this NFL season. We are building on more than a decade of experience across Sportsbook, Fantasy and iGaming, and we know what sports customers want. Our Sportsbook and iGaming apps are top rated in the industry by third parties for a reason, and we will bring that same excellence to Predictions with intuitive customer experience, content packaging and promotional mechanics that already resonate with sports fans.

We significantly improved our offering in the second quarter as we executed on the road map we laid out at Investor Day. We expanded our sports content offering from April to July by over 25x, and now offer over 30 markets per MLB, NBA and WNBA game, including player markets and quarter period and inning markets, and we broadened our coverage across multiple soccer leagues. This depth was bolstered by the launch of combos, which have quickly become one of the most popular ways for customers to engage with our offering.

In June, we launched our in-house exchange, DKeX. And in July, we obtained approval as a Futures Commission Merchant from the National Futures Association. Both steps position us to rapidly expand content depth, improve the end-to-end customer experience and capture more of the unit economics and lifetime value of our customers.

We are also seeing meaningful traction on the market making side as we leverage our industry-leading Sportsbook modeling and risk management capabilities. We are live on 3 exchanges and consistently making markets on both singles and combos at a profit. While still early, we are seeing double-digit share in the markets where we participate.

Now that DKeX is live and our market maker is integrated, the opportunity is even more compelling. As DKeX grows, it will create more opportunities for our market maker while deeper and more diverse liquidity will make our own offering more attractive to customers. This is a core differentiator that will provide a meaningful lifetime value advantage versus our competitors.

As always, we are focused on the economics. As we continue to improve our platform and monetization over the next several years, we believe that we can generate lifetime values on Predictions customers similar to those on our Sportsbook customers. Our vertical integration is what makes this possible. We own 3 key layers of the Predictions stack in-house: the brokerage, the exchange, and the market maker. This integration lets us capture economics across the entire value chain. We are the only operator that has all 3 up and running today, which gives us a structural lifetime value advantage over our competitors.

While the revenue per customer will be lower than that of our Sportsbook offering, the higher-margin profile of the business supports a similar level of gross profit per customer over time. We have driven meaningful lifetime value improvement in Sportsbook for nearly a decade through our top-rated offerings, and we are confident we can run that same playbook in Predictions.

To wrap up Predictions, the similarity of Predictions customer metrics to Sportsbook customer metrics, our advantaged lifetime value position and our playbook to develop and innovate on a leading Predictions offering all underpin our confidence that we can win in the space. We are already seeing encouraging results, and our share rose as the second quarter progressed. We are excited to update you over the next quarter as this momentum continues.

NFL kickoff is next. We continue to enhance the Super App ahead of football season, which will deliver a sports experience that no other operator can match, a top-rated Sportsbook offering and a fully vertically integrated Predictions offering. We entered the season from a position of strength with a strong core, access to nationwide customers and a playbook for how to win in sports that leverages our in-house marketing, product and technology infrastructure.

At our Investor Day, we laid out a path to a $55 billion to $80 billion industry gross revenue opportunity by 2030 and at least a 30% long-term adjusted EBITDA margin, and the progress we made in the second quarter made that path more tangible. We are moving with urgency and discipline. We are not building to participate. We are building to lead and win.

With that, I will turn it over to our Chief Financial Officer, Alan Ellingson.

Thank you, Jason. I'll hit the highlights, including our second quarter performance and our fiscal year 2026 guidance. Please note that all income statement measures discussed, except for revenue, are on a non-GAAP adjusted EBITDA basis.

As Jason mentioned, we generated $115 million of adjusted EBITDA in the second quarter. This would have been even higher absent customer-friendly sport outcomes and stronger-than-expected customer acquisitions, both of which weighed on near-term profitability. Normalizing for these factors, revenue increased 10% year-over-year in the second quarter. This top line strength was driven by continuing robust demand. As Jason noted, the nearly 75% increase in year-over-year customer acquisition was at our best customer acquisition costs since the first quarter of 2025 and was combined with sports consumer volume increasing 15% year-over-year and Sportsbook handle increasing 11% year-over-year, while parlay handle mix continuing to rise.

We had a tremendous NBA season with total handle growing 7% year-over-year and parlay handle mix increasing more than 400 basis points. The World Cup also provided an excellent opportunity to engage customers with Sportsbook handle approximately 6x higher than during the 2022 World Cup and approximately 4.5x on a same-state basis. Importantly, these customers are continuing to engage with us beyond the event reflected by continued double-digit year-over-year handle growth in July after the World Cup ended.

We did experience some customer-friendly outcomes in June after 7 months of Sportsbook friendly outcomes mainly driven by the Knicks championship win, which had an outsized impact on our largest Sportsbook state, as well as by the World Cup group stage performance. We held nearly 12% for the World Cup in total with positive outcomes in July, mostly offsetting the aforementioned customer-friendly outcomes experienced in June. Our overall World Cup performance is another demonstration of how outcomes can swing in the short term and typically normalize over an entire season or tournament.

We also continue to operate with discipline on the cost side. Adjusted G&A expense declined 6% year-over-year and adjusted operating expenses, excluding external marketing and Predictions, also improved year-over-year. We remain focused on improving the efficiency of our cost structure while continuing to invest behind the opportunities that we believe will create the most long-term value. Strong retention and engagement of our newly acquired customers have further strengthened our confidence in the business. Our core business is on track to generate approximately $1 billion of adjusted EBITDA in 2026.

Now I'll touch on our fiscal year 2026 guidance. Last quarter, we communicated fiscal year 2026 guidance of $6.5 billion to $6.9 billion in revenue and $700 million to $900 million in adjusted EBITDA. That adjusted EBITDA guidance range already reflected our expected investment in Predictions, which we continue to view as a significant and incremental opportunity for the company. Given the strength of our core business and our ongoing expectations to invest in Predictions, today, we are maintaining our fiscal year 2026 guidance ranges. Our confidence is supported by what we're seeing across customer acquisition, retention, engagement and operating efficiency. While we remain prepared to invest where returns justify it, the underlying earnings power of our core business continues to exceed our expectations.

As always, we remain disciplined in how we allocate capital. As our balance sheet strengthens and the business grows, we have increasing flexibility in how we fund our operations and investments. We will continue to evaluate opportunities to optimize our capital structure as our debt maturity profile evolves while maintaining a prudent approach to leverage.

That concludes our remarks. We will now open the line for questions.

[Operator Instructions] Your first question comes from the line of Stephen Grambling with Morgan Stanley.

I think one of the questions that we often get or pushback we get around prediction markets is you gave the stat that most of the volume coming through some of your competitors appears to be professionals or syndicate-type things. Why do you think you're able to capture a different customer and why will that be the same in prediction markets? And are there any limitations you see as you look at your vertically integrated platform in terms of the product set that you can offer them or even the promotions and personalization that perhaps you can get in OSB that might be different as we look at prediction markets and the ramp there?

Great question, Stephen. So I think it's really the difference between states that have a legal and established OSB market and states that do not. In states that don't, like California and Texas, we are seeing a very similar customer profile to who we get on OSB in the states that we have OSB. And I think if you kind of look back at prior competitive launches, and there have been many, as you know, having followed this for a while. Most of them, even if they get a little bit of volume to begin, don't really make a dent long term, and there's really a couple of reasons why.

One, customers are sticky. Two, we have an excellent product experience. And in the case of Predictions, as you noted, it's very differentiated in the content we offer, our ability to do promotions and lots of other things that are very different from the experience that you get on a sports prediction app. But even if you didn't believe that, even if you thought it was roughly equivalent, you can look at other launches from other competitors. And it really just doesn't ever make a big dent.

So we looked at a lot of internal data, also using third-party data, and we have a number of different ways that we've triangulated various metrics to come to the same conclusion, which is, one, there is very minimal, if any, cannibalization happening. And two, where these volumes are coming in legal OSB states on the prediction markets are from the -- where the demand was and therefore, where the volumes are coming were from the institutional professional syndicates, people that were not previously active on DraftKings.

So great to see it's an incremental opportunity and not something that we believe will ever be cannibalistic, but we're obviously taking that seriously, and we're continuing to invest in the OSB product. But again, to answer your first question, the reason I think it will be different for us is where we're focused is on the states we don't have an OSB offering. And there, because you don't have competitive OSB offerings, it's a very different picture.

Your next question comes from the line of Dan Politzer with JPMorgan.

I wanted to touch on the core business. One of your peers obviously has been talking about incremental sports investment in the promotional environment. They're investing a few hundred million dollars more. So how do you think about the competitive environment, the promotional environment as you go forward and the confidence in being able to achieve your guidance range for the year?

We've always seen fluctuations and promotions. I mean in the grand scheme of things, them spending a few hundred million more on promotions is not a major shift. And we've always been able to be more efficient with our promotions. So I expect that to continue to be the case.

This has been for years now that we've seen fluctuations, honestly, much more significant increases in spend from certain other competitors than what we're seeing now. And this is kind of a blip on the radar from what we're seeing. There really isn't a big difference in the competitive environment on the OSB side. So just as we've always done, we are going to stay steady with our strategy. We're going to continue to execute, and we believe that we have really demonstrated over the last few years that we can be more efficient with our promo and we can grow our handle and GGR share at the same time. Those are not things that we view as a trade-off. So we're going to continue to execute that strategy.

Your next question comes from the line of David Katz with Jefferies.

I wanted to get -- Jason, you ran through some of the economics of players in prediction markets versus OSB players and get a sense of the arc to profitability of those players, given that we've had the experience with OSB. And one of the things we've been asked and delving into is about best execution requirements in Predictions. And can you route all of your volume to your own platform, right? Or is that a more complicated dynamic than maybe we realize?

I don't think it's more complicated. So we're certainly planning to shift the volume that we have in sports at least to our platform in the coming months. I think we will continue for probably certain tail sports even, but certainly for things that are in the non-sports category, we will continue to use third parties. But even that, we ultimately believe we can shift to our exchange. So no real reason that we can't do that.

As far as the economics go, we're looking at this in a way that is very similar to how we evolved in Sportsbook. We started off -- we had an LTV model that we built in the early days of Sportsbook. We were pretty cautious because we didn't have a lot of data. Here, we do have comparable data on the Sportsbook side, which I think particularly when it comes to customer acquisition gives us a good sense of what to expect. But little bit less so maybe in terms of modeling out what the ultimate monetization of these customers will be. So I think we've been very careful and disciplined in how we're doing that. We're not assuming major increases that we don't have line of sight to.

We are, however, assuming a reasonable road map for when we will start to migrate. We just got our FCM license, for example, that changes our unit economics by bringing more to us. And we are assuming some time lines for when we'll be able to migrate volume over, as I mentioned, to our exchange, and then we are making some assumptions on how we can grow market making in there. But again, being, I think, very cautious in doing that. I believe we can actually do better than what we're assuming.

The good news is right now, customer acquisition looks so strong that we really don't need to assume anything more aggressive to make the numbers work. As I noted, we really saw incredible efficiency in Q2. We actually spent a little bit more. We spent about 10% more than we were planning, but we had 25% better customer acquisition costs. So that gives you a little sense of how strong the environment is right now.

Your next question comes from the line of Jordan Bender with Citizens.

Jason, early days, you often gave what the cross-sell from like DFS into OSB looked like. Are you may be able to talk about that dynamic of cross-sell from Horse and Jackpocket and DFS into prediction markets in these new states versus how much of these people are just net new adds? And then maybe the second part of that is how is ESPN playing a role in all of this?

Yes, it's great that you brought that up because I think what you're touching on really is the underpinning of our strategy when it comes to acquiring and monetizing customers and growing our geographic footprint. So it starts with we want a full product suite. We want to offer as many customers, as many products as we can in as many jurisdictions as we can around the country. And doing -- on that mission, we have gone beyond, as you noted, DFS into other verticals like lottery and horse. And we right now have, I think, the strongest footprint of anyone in the legal regulated betting space when it comes to our product portfolio. So that's a huge advantage for us and something we'll continue to press.

And then also having a really strong cross-sell engine so that not only can we get those customers on to Predictions and things like that when we launch, but we can continue to create that flywheel where we're engaging customers on all of our products throughout the year, which, again, is really a great thing for monetization as well. So that's really the core of the strategy. And at this point, we have not put out any direct cross-sell numbers from DFS or anything else to Predictions. But as you can imagine, it's a very similar product to when we launch sports betting in these states. So we're seeing similar types of numbers, actually a little bit better because we've honed our ability to cross-sell since the early days of Sportsbook launches.

Your next question comes from the line of Shaun Kelley with Bank of America.

Jason, I just wanted to go back to the prediction market spending target, the $200 million to $300 million. And I know you said that CACs are a little bit better there, but you're also chasing in Q2. I think we always think of DraftKings as kind of fishing when the fish are biting a little bit. So just help us think through if we kind of go through a really successful customer acquisition period in the third quarter and heading into the fourth. Do you think that you'd be willing to go above those targets if you are just really encouraged by what you're seeing in the data? Or are you able to kind of put some guardrails around it, just given the flexibility of dollars elsewhere?

Well, it's a great question you're asking, Shaun. We have always been and will continue to be very data-driven as a company. And what we do is we model out ROI on any capital investments, and we try to make the smartest capital investments we can to position the best returns for our shareholders over the long term. So this is really no different.

I do think, in this case, though, remember, we already have a huge national marketing footprint partners like ESPN, NBC, Amazon, several sports leagues and others. So we already have a lot of capital going towards those things that is going to now basically just be more effective because it's reaching the same customers that we are reaching before in the Sportsbook states, but now it's also reaching all these remaining states that have Predictions. So that itself is a huge advantage for us.

And then as we've noted, we're planning on investing an incremental $200 million to $300 million this year, which is not a small number. But yes, you're right, we are going to follow the data, as we said in Q2, we did end up spending about 10% more than we expected. That was because the customer acquisition environment was so strong. Even with that 10% incremental spend, we have 25% better CAC than we expected. So if we see something like that line up this fall, then yes, I think it would be the wise move and our shareholders would want us to invest in that type of environment. But at this point, we feel like given the data we have, this is the right place to be. And obviously, we'll tweak it and make adjustments as we see data come in. But it's really something that, you're right, I think is how we've always operated, and we did that in Q2. I mean, just literally last quarter, we invested 10% more than we expected in customer acquisition.

Your next question comes from the line of Brandt Montour with Barclays.

Just looking at the guidance for the rest of the year, it does imply a pretty big fourth quarter. And I'm just curious if you could give us some sense for how you think the sort of building blocks can get you there between sort of sports versus iGaming, but more specifically with sports, sort of the rough expectations for market-wide growth, if you're expecting market share growth and the swing -- or sort of what we can kind of think of in terms of theoretical win margin for sports?

Yes. So I mean, Q4 is always our biggest quarter. So I expect it to be the same. But really, what we're encouraged by is the strength that we're seeing in the core business. As we noted on the call and in our letter, we are expecting about $1 billion this year in our core business for adjusted EBITDA, which is a really a nice gain over last year. And then the other thing we're really excited to see is that the momentum in the core is increasing.

I know everyone was questioning handle last quarter and in Q1, I should say. Nobody is asking about it now, which is good, I guess. We're on to the other things. But handle, which was the big question mark and everyone was worried about Predictions cannibalization, handle grew 11% in Q2, but even more importantly, handle has been absolutely on fire since Q2. July, even after the World Cup, right? So obviously, World Cup affects things. But even if you take post World Cup, July handle was up 20% year-over-year.

So to me, that shows real momentum in the business. We're seeing it continue into August. I think it's going to be a big NFL season. I think a lot of this chatter -- sometimes what happens is when there's just overall marketing and awareness and chatter about something, it lifts everything. And I think what's happening here is that both the World Cup impact and also just Predictions and having everybody talking about this all the time, I think, is really just going to lift everything. So I'm expecting NFL to be really large for us and I think we're going to have a huge back half of the year.

Now that said, we didn't assume anything crazy outsized when we put the guidance out there. We assumed what we thought we were going to do earlier. So really, we're not changing anything in the back half in terms of our assumptions. But seeing the strength, seeing the momentum not just through the World Cup, but post World Cup in July gives me great confidence that we are on track to hit and maybe even exceed what we're expecting to do in the core business in the back half of the year.

Your next question comes from the line of Clark Lampen with BTIG.

Jason, I wanted to come back to sort of DK Exchange and now that you have all of the sort of pieces here in place with brokerage, exchange and market maker. Could you help us understand, I guess, the philosophy as you sort of are seeing really favorable CAC right now in going to market. Should we assume that the majority of the onboarding volume from here forward is going to be running through the exchange? And if that's correct, and it starts to happen, what's the sort of derivative impact to the fee structure? Is there a level that maybe you believe you can achieve or have targeted for the fall?

Yes, it's a great question, and I'll come to the fee structure piece in a moment. But first, the first part of your question on just what the strategy is. The nice thing about Predictions is, and actually, this is true at Sportsbook too, it doesn't have to be all or nothing. You can plug into multiple exchanges, you can source content from multiple places.

So what we will do is we will phase DK Exchange in. Our expectation is that the vast majority of our sports content, at least in the major sports that are going on this fall, starting, of course, with CFB and NFL that we're going to try to port as much of that volume over the exchange as fast as is reasonably possible. But the really important thing, the #1 thing that we are making sure is that we feel like we have the best possible consumer offering out there. So to the extent that, that means we have to move a little slower or a little faster on moving things onto our own exchange, we will. Number one is making sure that the customer has the best experience because you can do things at a different pace in the back around that maybe help the economics. But what you can't do is repair a poor customer experience. So that's something we are holding as sacred.

But I do expect that as we continue to move more and more volume through our own exchange, those unit economics will continue to improve for us, and that should be a tailwind not just through this year, but through next year as well. Remember, in Sportsbook, this was a multiyear tailwind. It took us several years to bring all of our content. And we don't even have all of it now, we have about 95% of our sports content that we price and trade in-house. So similarly here, when you think about exchange and market making, we're going to try to get to those kinds of numbers. But I don't know exactly how long it will take. I do think it will be faster than it was in Sportsbook because we have so much more core infrastructure now that allows us to move faster. And as I said, it doesn't have to be all or nothing.

In terms of the fee, that's a good question. I think right now, the fee structure for the industry has been pretty stable. I don't expect it to change much. So the more that we bring in-house, the more we can just capture LTV from those exchange fees ourselves, and that gives us a unit economics advantage and an LTV advantage over the competition.

Your next question comes from the line of Robin Farley with UBS.

I wonder if you could kind of help us think about the components of your EBITDA guide. It didn't change in total. And not that you're going to give the specific quantifications. But could you kind of talk us through, was there like an increase in what you thought you'd make in market making that's sort of offsetting some promotional or offsetting maybe hold impact? Or just kind of we think about what the puts and takes are of the unchanged guide?

Yes. There's always little pieces moving around that affect things, for sure. But the big components to think about are, number one, core business is on track to do approximately $1 billion in adjusted EBITDA, really excited about the momentum we're seeing there. I think there could even be a little bit of upside on that one. But right now, we feel comfortable saying approximately $1 billion, and then $200 million to $300 million of Predictions investment expected on the year.

So those are kind of the high-level components to your -- kind of some of the things you are alluding to in the market because there are little pieces moving underneath the hood. But some of those things, they're so small that like they kind of wash through. And yes, we do obviously update them in our forecast, but they're not material enough for us to be really calling out as individual line items.

Okay. And maybe just as a quick follow-up. In Q2, you talked about the revenue decline being a combination of sport outcomes and the higher commercial spend. Can you give us a sense of kind of what the split was just so when we're thinking about what you're comping, the sport outcomes kind of an easier thing to get back in theory. So just sort of kind of rough proportion of which of those versus, I think, what you said would have been up 10% in Q2 in revenue?

Yes. So sport outcomes basically drove about an $80 million revenue headwind and the rest was customer acquisition.

Your next question comes from the line of Trey Bowers with Wells Fargo.

Just wondering if you could dig a little more on the iGaming business. The revenue growth was pretty similar to the previous quarter and actually better than I'd say some of the state-level GGR was suggesting. So just curious about kind of the promotional environment, how you see that trending over time? And any thoughts on expectations for what that growth might look like for the balance of the year?

Yes. So we're actually -- iGaming, despite the fact that we have not performed the way that we had wanted to over the last several quarters, we are starting to see some real momentum there. And as you noted, I think it was a little better than maybe some of the state reports might have led people to conclude.

A big piece of that was the Lightning Link launch. That was something we really leaned into, one of the biggest land games ever and really the last big land game to make its way online, at least of that magnitude. And so that was a big one for us. We launched a product called Flex Spins. Flex Spins allows you to give bonus spins across any game that people choose. Most of our competitors do not have that. They only allow you to get bonus spins on a particular game that they assign them to. So customers have really been responding well to that. We've been getting a lot of positive feedback on that.

And our share has really stabilized after several quarters of losing share. So I'm hoping we can kind of turn around and start gaining share over the next several months. I do feel like we have some real momentum there between the various things that I talked about. And also, acquisition into iGaming has been really strong, too. We talked a lot about sports, of course, but we also saw better-than-expected customer acquisition in iGaming, too, in Q2. So it really feels like that business is on the rise and I have big expectations for the next several months.

Your next question comes from the line of Jed Kelly with Oppenheimer.

Great. So circling around that 600,000 Predictions customers. Typically, when you launch in the state, I think you said previously, you're able to get mid- to high single digits of a population. Is there something structural or product-driven that precludes you from doing this as the product gets up to your standards where you really want to market it and get it into, call it, your meat and potatoes sports fans?

Yes, it's a great question. So I think that there's two things going on here. One is we are obviously still learning, and we are taking a little bit more of a cautious approach in Predictions investment for various reasons. One, we're still learning about the numbers and what the ultimate LTVs can look like. Two, there are some regulatory questions that make the future and exactly what that's going to look like not entirely certain. So we aren't leaning in quite as hard as we would in, say, a new state launch at this point. As those things become more clear, obviously, we will always think about adjusting. But right now, that is how we are philosophically viewing it.

The second thing is there have been a lot of states that DraftKings has not operated in for many years that have been seeing national advertising. So I do believe there's an education period that needs to occur for people to understand that they can actually -- if you are in California, you can use DraftKings now. If you are in Texas, you can use DraftKings now. So that's something that we started to do in the World Cup. I think will really become apparent in the NFL season. And I think when you start to see that broader awareness really take hold, that's when you're going to see much, much faster customer acquisition come in.

But this is not too dissimilar from when we launched our first OSB states. If you recall, New Jersey, which is our first OSB state, ramped much slower than our more recent state launches. And that's a combination of us honing our state launch playbook for sure. So that's part of it. But it's also a combination of just general awareness, general market momentum, people knowing when a state is launching now, being ready for it. Just different stage of that development curve than where Predictions is. Predictions is still a growing thing, and there's still an education process happening for people to understand they can access DraftKings in these states that they couldn't before.

But the nice thing is we have this big national marketing footprint now. So we don't really need this massive amount of incremental spend in order to create that awareness. We can just refine our message, which we started to do in Q2, that DraftKings is now available in all these other places, and really make those same dollars work for us across the country, whereas before it was only about half the population.

Your next question comes from the line of Bernie McTernan with Needham.

Just wanted to circle back on something that you said in the prepared remarks about the flywheel of being vertically integrated. Just hopefully you could dive into that a little bit more talking about the structural advantage and network effect that come from being a vertically integrated prediction market operator.

Well, it's really important, the question you're asking, and it's been core to our strategy, not just in Predictions, but virtually every product we've had. I'll actually start by explaining it via OSB, but it's really no different conceptually than Predictions. So in OSB, when we started off, we launched the product on a third-party platform called Kambi. We were not using our own back-end technology. We were not doing any of our own pricing and trading. And thus, we were seeing 2 things. One, a lot of the unit economics were going out the door to others. And two, we didn't have full control of the product and customer experience.

So really, where you see this flywheel develop is across 2 dimensions, LTV being the centerpiece of it. So the first dimension is that we can now capture more unit economics because we are on our own technology platform. We are doing our own pricing and trading. So all that value is accruing to DraftKings. That allows us to then invest more back into customer acquisition because we now have higher LTVs.

The second thing you're seeing is that we are improving our retention, improving our monetization because we are actually developing products at a faster pace and putting out differentiated offerings that we couldn't do before because we didn't have the full product control. And so our pace of development and the ability that we've had to increase our retention and our monetization of customers has just been absolutely tremendous the last few years.

Predictions, same story. In Predictions, there's really 3 components. There's the front end, the IB, and also FCM is a piece of that, too. There's the exchange and then there's the market making, and DraftKings is playing in all 3 of those. We have a right to win in all 3 of those. And so we expect to be able to execute a similar playbook where we can capture a very large percentage of the total unit economics in LTV, which should give us that advantage that we have in Sportsbook now.

Similarly, we expect to be able to use these capabilities to develop proprietary content and create new offerings that other competitors will either be slow to catch up or may not even be able to do depending on what capabilities they have in-house. So very, very similar, exactly the same playbook that we executed in the other verticals. And the reason that we have a high degree of confidence that, one, this works; and two, we can execute it because we've done it before.

Your next question comes from the line of Ben Chaiken with Mizuho.

Jason, you mentioned acquiring more Prediction customers than planned and seeing retention in volume similar to OSB, which is encouraging lower CAC, I believe. But it sounds like, I think if I caught this correctly, acquiring 10% -- or sorry, spending 10% more in Predictions than you had planned. I guess I asked this question in the context of external marketing spend overall that I believe is lower than expected, which is presumably better OSB. So maybe the exact question is, can you clarify or add some color to what was seemingly much more efficient EM spend within OSB, assuming I have all the implied moving parts correct?

Well, it's a great question you're touching on because when I say we spend a little more, it doesn't always mean incremental to enterprise. We're also constantly optimizing our acquisition spend and all of our spend across every product that we have. So there may be times where we think it makes sense to add incremental, but there might also be times where like we just think we should shift some spend from this vertical to this one because we're getting more efficient performance here. And we have such a large portfolio of spend at this point across so many different channels, verticals and other parts of the ecosystem that we really have a lot of flexibility to do that.

So it's a great question. And yes, you're right. And if we do see really strong Predictions results, it is possible we invest more as an enterprise, but it's also possible that depending on what we're seeing in our other verticals, we shift some of that spend over.

And anything particular in the OSB efficiency, EM spend-wise?

We saw a really efficient OSB spend results on the CAC side as well. I think there were 2 things. One, obviously, was World Cup. And two, I think being able to really have this broader DraftKings everywhere message has helped everything lift. So in the core, for example, in Q2, we saw a 40% year-over-year increase in customer acquisition at the best CAC we've seen since, what was it, 2024, I think, 2025, Q1 2025. So 6 quarters since we've seen this kind of efficiency. And I think next quarter is going to be much more efficient just based on seasonality. So really experiencing a great tailwind here across everything, and I expect that to continue going into the fall.

Your next question comes from the line of Joe Stauff with Susquehanna.

Going into the new sports calendar and the app upgrade in particular coming out in August. What do you think are the most relevant product upgrades you think will be material?

Well, I don't want to get into too many specifics because my product team wouldn't be too happy about that. But we do have a big upgrade coming up in the next few weeks with a number of new features and content planned to launch. More recently, maybe I'll talk about some recent features that we're going to continue to ramp across a few products.

So first on Predictions, combos has been absolute smash, not surprising, but we're seeing incredible traction there. We just launched DK Exchange, we just obtained our FCM license. So tremendous progress on the vertical integration strategy. Combos, as an example, is about 20% of all of our volume now, which to put in perspective, took us years to get to in Sportsbook, so a much faster ramp on that front there.

And then in our other products, we've had really great progress, too. So we launched something called Moonshot, which is an OSB product that we're really excited about. On iGaming, I mentioned Flex Spin. There is the Lightning Link launch. So a lot of good stuff going into the fall, and we have more things planned. This is always August, when everyone's taking vacations in the Hamptons or wherever else. We're always working hard because it's the weeks leading up to our busiest time of the year, and we ship the most product in August than we do all year long, really. So this is a big moment for us in terms of upgrading the consumer offering.

We have now reached the end of the Q&A session. I will turn the call back to Jason Robins for closing remarks.

Thank you all for joining us on today's call. We are excited to be well positioned for continued success in the future, and thank you for your continued support. Have a good day.

This concludes today's call. Thank you for attending. You may now disconnect.

Good afternoon, everyone. Very pleased to have with us today, Alan Ellingson, Chief Financial Officer of DraftKings, DraftKings is one of the leading sports entertainment and gaming platforms in North America. They're active in sports betting, iGaming, fantasy sports, lottery, horse racing and most recently, the prediction markets.

Company has approximately 507 million fully diluted shares out, trading around $25 for a market cap of $12.7 billion. Net debt is $835 million for a total enterprise value of $13.5 billion. What makes DraftKings especially interesting in today's conference is that it sits at the very intersection of several themes we've been discussing throughout the day, live sports, consumer engagement, technology and changing competitive landscapes. Alan, thank you for joining us today.

Thanks for having me.

Starting high level, DraftKings has grown tremendously over the last several years. You went public through the great SPAC boom of 2020. How do you reflect on the company's evolution since then and the equity investment thesis for the stock today?

Yes. We have had fantastic growth over the past -- more than just the last few years, going public in 2020. The DraftKings origin is actually 2012 with the fantasy era. And so well over a decade of experience growing, expanding. If you look back to what we thought we were, it would be today when we were in 2020. We were pointing at a $20 billion TAM and thinking that was where we would evolve to. Our most recent Investor Day, though, we've expanded the TAM. We're now thinking $55 billion to $80 billion, and it's getting exciting with some of the expansion in prediction markets.

So not only are we growing aggressively, but the market is growing aggressively, and we're happy that our capabilities has allowed us to capture a meaningful share of that growth.

Absolutely. At the core business, we're almost 8 years since PASPA was overturned. What does the near- to medium-term organic growth outlook look like for mature states like New Jersey and Pennsylvania, and how much of that future growth will come from deeper engagement versus just acquiring new customers?

Yes, it's fascinating to watch how this industry continues to evolve. And what we're noticing is even in our most mature jurisdictions like New Jersey, which, as you mentioned, we've been in since 2018, we're still able to attract new customers with the growth of the product and the growth of the market, but we're also able to engage with new customers by expanding our product offering into areas that they want to engage and they want to reach out.

Whether it's Sportsbook or iGaming or lottery or fantasy, when people engage with the DraftKings product, they want to tell a story about what they think is going to happen. And sometimes that's a story of here's what's going to happen in the football game tonight or here's who's going to win the NBA playoffs. And sometimes it's -- I'm going to buy a lottery ticket, because I'm excited about the possibility for what it could mean for my future. If the odd chances if I win.

As we add more products, we're able to reach out and engage with more customers, ways they want to and so our oldest cohorts, we see them growing in gross profit. Our newer cohorts, we see them onboarding and we're attracting new customers. And it's exciting. We -- last quarter, we launched a new product called Same Game Parlay, for golf. It allows people who like to engage with golf to expand how they bet. And as a result, we saw an expanded share of wallet for those players because it was a product that they'd never been able to engage with before.

So we continue to expand our product offering. And as we do, we continue to see more and more engagement from our customers. And that's an exciting dynamic.

And where is live betting penetration in the U.S. today versus a mature market like Europe where it's roughly 70%, it's higher-margin live betting, isn't it?

Yes. It's a lot lower than we think it could be in the future. It continues to expand year-over-year. Americans, typically, they love their sports, and there's a lot of different sports that they engage in, whether it's football or basketball, or we're excited for World Cup and what World Cup can bring, but they want a product that can engage with them at the speed of sports. And that means you've got to have a product that is responding very quickly and adapting to how they want. Nobody wants to look at a bet and see that it's grayed out, because the app isn't ready or the book isn't prepared to offer odds, they want to see uptime. And so this is one of the areas where DraftKings has invested very heavily in the technology to maximize uptime availability.

And so whether you're wanting to place a point-by-point bet on tennis, whether you want to bet pitch by pitch on baseball or whether you just want to get a parlay down really quickly between plays on a football game. We want to enable you to be able to get that done. And so this is a huge investment for us, and it's materialized in a strong product offering. It's rated as the top product by Eilers and Krejcik for 2 years going now, and we're going to continue to improve because that's the experience that our customers want.

And speaking on the World Cup, DraftKings is the only national operator with a fully translated Spanish app. So any thoughts on what we can expect in terms of handle or engagement? What have you got planned?

Look, we're viewing World Cup as a fantastic acquisition moment. About 18 months ago, we looked at the product offering and said if we wanted to win World Cup, we wanted to have the best product available. What does that mean? And what do we need to add to the product? And we built out a road map, which included Spanish language and not just translating the Spanish language through an app, but real natives coming in and saying, how would this look if I wanted to feel like this was my language, and this was my app.

And we took the time to get the terms and conditions and get the language and get all the different flows working just perfectly because we do believe that this is a moment that we can reach out and get to a different community, and treat them in a way that they feel like this is more home for them than maybe if they're working through a secondary language. Excited for what it will come. I'm not going to go too far out and say what we think is going to happen, but World Cup is a unique opportunity that only comes every 4 years, and we plan appropriately to capitalize on it.

The industry today feels a lot more rational competitively than it did a few years ago. 3 years ago, you had over 2 dozen operators in New Jersey, today, it's half that. So what do you think changed? Was it just the realization that scale advantage is and what you're doing in terms of the tech, it was just harder to overcome?

Yes. There's a lot of components to it. Some of the ones you mentioned, I think rationalization of the operators. Remember when Sportsbook first launched in some of these states, especially the states that offered unlimited licenses, you had 30 to 50 operators that were showing up and trying to compete for the same people. And the easiest way to compete is on promotional intensity and offers to new users. But that isn't always profitable.

And so at the end of the day, product wins out, companies need to turn around and they need to get to a place where they're making the right decision for the bottom line as well as for the customer. And at that point, it comes down to who can do it the best, who follows the data, who builds the best product, who invests in the back-end technology to give users the best experience. And I'm very proud of the fact that we're down to 2 operators that have about 80% of the market right now, and they're competing on product and they're competing on technology and they're competing on the ability to create the breadth of markets that customers want and not just competing on promotional intensity.

And there's a whole graveyard of companies that thought they could win in Sportsbook 5, 8 years ago. And now the top -- the best have risen to the top. And I'm very proud of what DraftKings has been able to do to be one of those operators.

It's very impressive. The market has become more cautious on the gaming sector, given dynamics around higher state taxes, prediction markets, competition and increasing investor focus on profitability, so how does DraftKings continue delivering on its margins and earnings targets while still investing for growth?

Yes. This is the balance that we have to continue to maintain because there is an investment expectations that we return profits to customers. And I want to be really clear, DraftKings has created $500 million of adjusted EBITDA over the past two quarters. And much of that flows through to free cash flow. We have a very high conversion rate from adjusted EBITDA to free cash flow. Our core business is extremely strong. When a new entrant comes in like prediction markets that has an opportunity to expand the TAM, capture new customers, especially in states where we don't have a Sportsbook offering, we're going to invest to get there. And it is a J-curve investment. We spend a little bit upfront to acquire the customers, and then those customers generate profits long term.

One of the things I love most about the Investor Day deck we put out a couple of months ago is there's a slide in the appendix that shows the gross profit by cohort year every year since we acquired the cohort. So for the 2018 cohorts, you're going to have 7 years of profit -- of gross profit for that and every year thereafter. And what you'll notice when you see that is for every single one of our annual cohorts, our gross profit for that cohort has gone up every single year year-over-year. Because we know how to expand the profitability of customers once we have them on the platform, we know how to reach out to them and give them something that they want. It's more than what they were getting the year before.

We know how to optimize our promo to those customers to not give them stuff that doesn't mean anything, but actually give them promo that reinvests in a way that they want to be reinvested in. So not only do we have the biggest -- the broadest breadth of product available to them, but we also know how to treat them in a way that they want to be treated, whether that's a CRM outreach when the Yankee's game is about to start to remind them, the game is starting, whether it's a push notification, whether that's a promo boost, we reach the customers where they're at to the degree they want to and they feel comfortable.

And we do in a way that makes them want to keep coming back every single year in a way that's healthy and that works well with them. And we're very proud of that relationship and that trust that we've built with the customers. As a result, we understand that when something like prediction markets comes out, we invest in customers, we acquire customers, and then we learned to monetize them over time when we get them to where we want.

And this is a fantastic opportunity. And every year, when somebody says, well, it's time the markets are going to stop creating these new opportunities, we find we get another opportunity, maybe not as a state launch, but a prediction market or a new product offering or a new derivative of a product that attracts new users. And we've got a fantastic road map over the next 18 to 24 months of what we want to launch and how we want to engage with customers. And so I'm pretty excited about what's going to happen for the next little while.

Maybe it doesn't last forever, but we've got 8 years of history now proving that we can do this. And I feel very confident that the next 2 to 3 years are going to continue that trend.

And you're bringing all your products together through the Super App, which depending on each state's regulatory framework we'll have predictions in California, Sportsbook in New York. How does that change customer behavior? And what are you seeing in the early days in terms of cross-sell and engagement across the ecosystem?

This is kind of a fun evolution of DraftKings this year specifically, where historically, we had 7 different apps with 7 different intents for customers of how they could spend money. And what we've realized is we've improved our technology and as we've cleaned up our -- behind the scenes is that it makes a ton of sense to customers to have 1 single place they can go to that just has all the offerings available to them. They don't want to open up the Sportsbook app in California and realize, oh, I should have opened up the prediction app instead. They want to be able to buy a lottery ticket from the same app that they're placing a bet on the next. They want to be able to spin the slots if they're in New Jersey, for example, from the same place that they play their fantasy games.

Not only does that give us an opportunity to cater to the experience you open up one app, and you know that whatever is available, wherever you are, you don't have to think about state lines. You don't have to think about jurisdictions. If it's available, you can see in front of you, it also allows us to better utilize the national footprint for marketing that we have because we spend a lot of money on marketing each year because the money returns value we acquire customers, those customers generate profits over time, but there is a need to ensure that every dollar that gets spent on marketing has the highest return. And that means that if we spend money on advertisement that shows in California because they're watching the next game as well, they should be able to open up the DraftKings after and be able to do something with it. And we want to make sure that those dollars we're spending it, we have the partnerships, it needs to be effective.

And from the customer's perspective, how different is that California sports events contract from a New York Sportsbook bet?

Today, it's -- there's a difference between it. prediction markets have not fully developed. They have the same depth of market that the Sportsbook app does. But that difference gets narrow and narrow every single day. And in fact, this week, we launched Milestone 2, our second phase of prediction market product, which in my mind is significantly better than what we had before. The Super App is already integrated. If you're in California right now, open up the app, you're going to see prediction market products. It's the same app. It's DraftKings sports and casino. It's not Sportsbook anymore. And it's going to get better and better. And we have a very firm goal as a company to narrow that over time as much as possible, because we want to ensure that your experience regardless of where you're at, is the best experience possible.

And I've always seen this company as more of a technology company rather than consumer discretionary. How much of that competitive moat comes from pricing and risk management sophistication versus scale and the brand that you've built.

You've got to factor in both. We had an Investor Day. Again, I mentioned back in March, and we highlighted you got marketing is a moat, technology is a moat, product is a moat. And then the last one which gets underplayed a lot is actually trust. And it's the trust that the regulators have that we're going to treat the consumers in their jurisdictions, right? It's the trust that the players have that they're going to get a fair return for their experience and that we're going to treat them right. But we have a fantastic product. It is our Sportsbook product, our iGaming product has been rated the top products in the country for the past 2 years now, not every single -- it's a biennial survey, and every single time it comes out.

A lot of people don't see the technology behind it and what it does and how it affects the experience until the first time they're using a competitive product and they want to place a bet and the market's grade up, because the competitor can't price it at that moment because of what's happening on the field.

And we used this example a lot, but if -- and the value of the real time. If you're watching a football game and long pass down the field into the end zone and it gets disrupted, but there's a flag on the field. Most companies will take down the markets because you don't know what the flag is a pass interference, which means it's first and go on the one yard line or if it's a holding call, which means it's second and 20 on the 35-yard line. But we have real-time data coming from the field, and so we can see where that flag is. And if that flags in the backfield, we know it's a holding call. We're going to leave the suite the touchdown lines open. And if the flag is in the end zone, we know it's likely to be a past interference, and so we're going to take down the lines.

That difference in experience is meaningful for betters who are really engaged in the game and are watching. And so having the technology to be able to do real-time play-by-play on every single game and give people the markets they want to bet on is important. And that same technology is going to translate to us being able to price prediction market trading and give people the same experience in prediction markets that they're getting in sports betting.

That's going to be a critical differentiator over the next 6, 8, 12 months as people start to learn what prediction markets are and they try to evaluate that versus sports betting in the markets where both are available.

Also at the Investor Day, you went into detail on the broader market opportunity for predictions and how you compare the economics of it versus the traditional Sportsbook. But can you just lay that out for this audience again, please?

The -- just general economics?

Yes.

At the end of the day, when a customer is out there trying to engage in for money entertainment, they have a certain expectation of return to player of how much money they're going to get back when they put money in. And so for a slot machine, you expect that you get 96%, 97% back and casinos are pretty public on those. For sports betting, typically, we have a metric we call net win margin, which is the amount of revenue we get as a percentage of the handle that's played. And in Q1, that was about 7.8%.

For prediction markets, generally speaking, the economics in aggregate are going to be roughly the same. The users expect to get a certain value back, a certain percentage back, a certain amount that they win versus what they lose. As far as the economics of the prediction market goes, there are more players engaged in the supply chain that have to split and share those economics between them.

Our goal and our objective is to, long term, have all of the pieces of the chain of the vertical integration to be able to capture all of the economics. We have almost all the pieces right now. We recently did an acquisition of a company called Rail, which is the exchange. We currently have partnerships for some of the other pieces that you take a little bit of the economics, but we have the customers on the front end. We have the expertise on the back end to create the market. We own the exchange, and we will -- we believe we can capture all the economics long term.

And there's not really any public company financials from a prediction markets operator. But if a Sportsbook can achieve 25% to 30% EBITDA margins, where should a prediction markets operate or land?

Currently, one of the headwinds we have on margins in Sportsbook is going to be state taxes as well as there are some revenue share payments that we work through, with states for licensing or to get access to their licenses. Prediction markets don't have any of these headwinds to the margins. So in theory, the margins for prediction markets could be meaningfully higher.

It's early days. I'm definitely not going to go on a limb and say what margins could be. But if you dig through our financials and look at some of the numbers that we have, and we do call out some of those things like state taxes, and how much we're paying taxes each year, prediction markets could have meaningfully better margins, assuming you can capture all the economics.

I think one of the real fascinating things about the prediction markets is this debate on federalism versus the state jurisdictions of gaming. What do you think the long-term regulatory framework or end state for sports prediction markets ultimately looks like. And as you've engaged with the CFTC, what are some specific changes that you think would help create a more robust framework for that industry?

Yes. I've learned long ago not to speculate on how the federal government and the state government is going to interact long term. I do think that DraftKings, we've positioned ourselves in the absolute best place to take advantage of whatever happens, while the federal government has strong support for prediction markets, and we're hearing very vocal advocacy from the CFTC. We will continue to push our product forward and launch and compete at the federal level. And we're being very careful as we do so, though, because we very much respect our relationships with the states.

We aren't launching prediction markets in any state where we're operating OSB product, Sportsbook product. For that very reason, we want to maintain those relationships. And we believe that the Sportsbook product, as I mentioned before, right now, is a significantly better product offering and better cater to customers.

We'll continue down this path. One of the things we've asked -- we put a public letter at the CFTC about some of the changes that we wanted to see from them as they go through a rule-making process they're going right now. And a couple of the components of that, that are really important is, first and foremost, a lot of what's happening right now is the CFTC operating by lack of action rather than explicitly saying what the rules are. And so the CFTC choosing not to enforce a rule is not the same as them saying, this is the rule, and we want to go forward with it. And so we've asked for them to be explicit about sports trading contracts being allowed rather than just not them not enforcing anything against sports trading rules.

We've asked them to treat these options and these contracts more like equities and less like future contracts. That affects the collateralization requirements, the margin requirements and a couple of other aspects of how they're treated. And then we also want just real clear transparency on the rules of engagement, and how operators should be acting and interacting and engaging.

We believe there's a lot of potential right now. We believe that the markets have a huge opportunity to absorb this, and it's definitely filling a demand, as you can see by the rapid growth of the industry. But we operate by the books and we follow the rules, and we would like the rules to be explicitly defined so we can make sure that everybody is acting on a level playing field. There's a couple of more nuanced things we've asked for, but generally speaking, we want transparency, and transparency allows everybody to operate on equal footing. And we've proven over the past decade now that when we have an equal footing, we can operate, and we can exceed, and we can beat, and our investment will pay off our investment in technology and product will pay off if we're able to compete on an equal footing.

Just a few minutes left. Do we have any questions from the audience.

And I do apologize. I talked somewhat fast. It comes from a decade of listening to podcasts at 1.5 speed.

I'm a little new to this data set, but I've spent some time.

Sorry, can you speak closer to the mic please?

Can you hear me?

Yes.

Okay. I'm new to this data, but I've spent some time doing due diligence. Owning the entire stack, in my perspective, feels like the ad server and the content owner and the third-party measurement, all being owned by the same company. I'm just curious like how you guys are thinking about, I guess, like not creating your own homework if you're owning the whole stack?

Well, the -- as far as the markets go, especially the prediction markets, what we're trying to do is create parity to what we already do on the Sportsbook side? So for example, right now on the Sportsbook side, you enter into the DraftKings app. And it's DraftKings on the back end is the house that's market making and is telling you what the odds are, and then you place the bet.

Right now in prediction markets, you've got some of them who own the entry point, it's called the FCM. Cash owns the FCM, and then they have the exchange as well, but they don't necessarily do the market making. And Robinhood and Susquehanna, they want to have an exchange in the market making, and then maybe feed the FCM as well.

And so there's -- there are varying degrees of companies that own different aspects of the stack already. We believe we can do it very well. We want to be able to, and we think that the rules allow for it. If you get that point, it's not really creating your own homework. It's more like creating an experience where you've got the parking lot the customers can park and you've got the store they can shop and you've got the checkout stands where they can checkout, and you've even got somebody who's taking the groceries to the car, helping them to leave rather than having 4 different companies that are doing each of those different things.

And so it's about optimizing the experience to be as close as possible to experience that they're already familiar with, that they're getting on the Sportsbook side right now. And so a little bit less onerous than maybe in some other industries and more just what people are already used to and one of the barriers that they're facing to wanting to engage with the product more right now.

Do we have another hand up in the back here.

Thanks for the presentation. By the way, I use DraftKings a lot more than FanDuel. So don't worry about it. Just -- you drilled down quite a bit on poly market and Kalshi, prediction markets and I'm just wondering, there have been some very high-profile bets, if you want to call them, that have been placed on them, for example, on Maduro, on Khomeini. Can you start getting into situations where you're bidding on people's lives, you're bidding other things in the real world like elections. Where does your Board of Directors draw the line when they see something come out on one of these prediction markets and say, maybe we shouldn't have this up.

It's a really good point. I'm glad you brought it up. One of the things that I highlighted that I'll continue to highlight is there is a need for everybody involved in this process to develop a sense of trust from who's engaging from the consumer side. And that trust transcends just making sure you're avoiding insider trading and you're avoiding some of the things, but also the markets that you're allowing and creating the right environment for people to feel comfortable with it and what it is.

And so betting on wars and betting on deaths and these kind of things should not be allowed and will not be allowed. And again, if you go into the rule making, this is one of the things we requested the CFTC is there needs to be some framework for what we should and shouldn't allow people to place money on because you don't want to incentivize bad behavior.

If these things exist as they should exist, which is either an entertainment product, which is what we're really special at or as a hedge product, then you should be very clear about what kinds of activities you want to encourage hedging against and what kind of activities you want to encourage people to find entertaining.

And so I think that there needs to be a lot of conversation about markets that should be allowed and should not be allowed. There needs to be clear rules about it. And I'd like to believe that DraftKings will be at the forefront of those conversations because that's how we already operate on the sports betting side, and there are just certain markets we don't allow. And I look forward to continuing engagement because what you raised is a valid critique of the industry as it currently stands and something you will not see on DraftKings platform.

We have time for one more front and center here. Sorry, someone will come with the mic so they can hear -- so I can you hear.

Can you hear me okay?

Yes.

Super. By the way, empathizing with that question, but sort of on a positive thing, then I'm going to zero down on my question. I spent a fair amount of time with the CEO of Kalshi recently. And one of the points that he made, which I thought was very thoughtful was what you guys do is force a calibration in thinking that in a very polarized world, potentially gets people to think about it a different way, right? Because if you're polarized in the way you bet or calibrate, you probably don't do as well as if you're more nuanced. But I guess my question would be, there are several dynamics here that I see in many situations like this, there's competition, there's collaboration, and then there's a dynamic of how that all affects the market.

Specifically with Kalshi, how do you see yourself on all 3 pieces? From a competitive viewpoint, from a potential collaboration viewpoint and potential how the dynamic will affect your TAM going forward?

Look, I do agree that forcing the conversation on things allows for a more rapid resolution of issues. Sometimes that's healthy. And sometimes you don't need to go to war to force a peace treaty. And so the question is to what degree do we go too far? And I'd hate to think we ever get to a spot where we go too far, and then have to say we got to take a step back. I'd love to just step by step until we get to what's appropriate level, and then stop because sometimes you go too far and you can't unwind those things.

As far as the competitive with Kalshi, we recognize a lot of what they're doing. We see their product out there. We know where they're winning and where we think we can do better on their product. We are excited for what we plan on launching over the coming weeks and months and what we've already launched, and we think that we can go create a competitive offering that really caters well to the consumers of these products out there. We are excited. We have a lot of experience creating a product for consumers that like these products. We have a lot of experience marketing to them, understanding how to market to them, how to incite them to engage with the product.

And we'll see how the next few months play out as we start to roll out our product and engage. But in the aggregate, this is an exciting industry. This is a huge opportunity. This is a chance for everyone in the United States to have access to a product that has been restricted to a smaller population. This is an opportunity to force conversations with states about what it means to regulate these industries. And it's a chance to talk to leagues and expand and educate people. Those are all good things. Engagement is good. And sometimes companies will push the limits a little bit and they get flat, and then we talk about it, and we figure out what the right rules are, and we go forward, and that's part of the healthy dynamic of the industry. And we're happy to be part of it.

We're pleased to be able to participate and to engage and to have these dialogues happening, and we'll see how it plays out. But I hope you never go so far that we look and say, "Oh, everybody went too far. We've got to rein back. I hope we can very thoughtfully take one step at a time until we understand what these industries should look like. And to that point, I'm really happy the CFTC. [indiscernible] has engaged in rulemaking for this because I think that that's the first step of really understanding what should and shouldn't be allowed and how participants should and should engage is just defining clear rules of the road that everybody can understand and look at and say, okay, this is how we're going to be engaging. And it will be fun to see how it plays out.

I like to just go back to the point you made at the very beginning about trust. I think trust is your barometer and you anchor the consumer around that. That will always be your guide because that will expand your market, more they'll do more business with you.

Absolutely. You should come up here. That's absolutely right.

I'm afraid we have to stop there to keep on schedule. Thank you, Alan, again for being with us. Thank you all for your interest.

Thank you again, everyone, for being here. We are very excited to have Alan Ellingson, CFO of DraftKings. And I think your fireside debut. So we are very much looking forward to that. We appreciate you joining us today. There's obviously a lot to cover given all the dynamic changes going on in the industry with your business and the different markets that you operate in and especially as you guys are ramping up with prediction markets.

But before we jump to all of that, since you joined DraftKings in 2020, I'm wondering maybe you can help us frame the company has managed through a few different periods of, let's call it, adversity or different challenges around you. Help us think about like what lessons the company or you specifically have learned. And then how do we apply those to prediction markets of what's taking place right now?

Yes. As you mentioned, it's been a fantastic 6 years since I joined the company. Been an insane ride watching the industry grow and evolve state launches, new product launches, regulatory environments change. One of the things that is just a testament DraftKings' key core competencies is its ability to operate in a very complicated environment, highly regulated, very complicated evolution of products, evolution of offerings, evolution of the way that we run businesses, media and everything else to find the way to follow the data to success.

And ultimately, being successful in a dynamic environment like we have in our industry requires that you follow the data, you spend the time, you need to put the effort in. Nothing is a given, and I love the engagement of the ownership, the founder-led mentality at DraftKings that pushes us towards figuring out how to solve the problem and to be successful. And time after time, whether it's in Fantasy or in Sportsbook or in iGaming and now in Predictions, we've looked at the problem, we've evaluated how we should go after it, and we've executed and been very successful. And it gives me a lot of confidence that as we roll into the prediction markets here in the coming weeks and months that we're going to be successful.

Okay. So this rapid rise of prediction markets has obviously led to greater worries from the investor side, at least about the core business of online sports betting. So as you are building out DraftKings Predictions and the Super App that you guys have leaned in on, how is the company viewing this risk versus reward of continuing growth in Predictions overall with obviously managing the underlying business?

Yes. Look, first, glad you pointed out the underlying business. The core is fantastic. We're excited about the strength we see in the core. Predictions is an opportunity. It's a huge opportunity. And it aligns so closely with where we're already very strong on the Sportsbook side. And so sports trading and prediction markets in general is just another way that we can access and engage with our customers, and customers that we already understand and we already work with, and we already communicate with and share our offerings with. 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. But we see it as the next evolution of DraftKings, and we're excited to see what it comes out of it.

Okay. So as we think about these players, Kalshi, Polymarket specifically, clearly, there's some big reported private market valuations out there. When we think about those platforms and how they're using these investments, for likely product innovation and even marketing dollars. Talk about the competitive environment for consumer attention and how these dollars are shifting or evolving.

It's really hard to speak to deals other people are making and what they're seeing in those deals, the values they're putting on it. I can say first that we've been in this industry for well over a decade now if you include our DFS years. We do understand the value of the relationships and the assets of these other companies bring to bear. We are comfortable paying the appropriate price for it.

And we have great relationships with a lot of the big media companies, ESPN and NBC and Amazon, and we understand that we have our media mix model to help us monopolize or capitalize on the value that they bring to the table. We're rational. We spend our money effectively. We know what we want, and we know the assets that bring value and we go after them. And we let the rest of the market do what they think they need to do, but we'll follow the data.

Okay. So if the TAM you guys have laid out in terms of this larger TAM is as big as you are expecting, can you talk about the level of investment that's needed? I know we've tried to frame this year. But as you think about competing in this space, how can you leverage your existing scale and again, those core businesses and the brand and awareness that you have? Is it a unique way that you can really play into this prediction market?

Well, the good news is, as a company, especially as we embed Predictions products into our Super App, is we can leverage a lot of the existing relationships we have in media and a lot of the existing processes we have to be able to capture synergies from the markets and expand. As I mentioned, these customers have a lot of the same mentality framework and engagement that we see on the sports betting, iGaming or Fantasy or lottery or Pick6 or daily fantasy -- like all these products attract the same sort of a mentality, the same sort of customer engagement, and it's something we're really efficient at understanding and engaging with them on.

And 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. And so in California, where historically, somebody see the DraftKings ad show up on the NFL game, they're like, oh, it's a DraftKings app. I can't use that. I'm going to go grab something from the fridge or something. Now they're like, actually, DraftKings app, I can use that in my state. That is a product that resonates with me. It is something that's valuable.

So we're taking existing spend that's reaching north of 50% of the population right now for our Sportsbook, and we're enabling it to reach 100% of the population in the U.S. or the other half that we can't actually -- or didn't have as much relevance. And 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.

And ultimately, that is massively expansive to the TAM. And it is something that is in our wheelhouse to be successful right now with our existing technology and our existing infrastructure, and it gives us a lot of confidence that when we're ready to take that next step and push aggressively on the product, we will actually see a lot of good traction from it.

As for the investment, which I know you led the question with. We've messaged a 2026 investment, $200 million to $300 million of EBITDA impact from prediction markets. Realize that we're analytically focused. We follow the data. And if the value is there and the LTVs are there and we're getting good customer acquisition costs, we'll explore what happens in 2027. And maybe we spend less, maybe we spend more, but we will follow the data because we have this model that we fundamentally adhere to almost religiously at the company, which is customers need to pay back the customer acquisition costs within a fixed period of time.

And we live and die by those models. And if you can't follow the data in this, then you can't measure and you can't manage the money that you're spending. So it's early to say what the impact of the spend this year is going to be and way too early to predict out the future. But it is going to be something we're going to be focusing on very closely as we start to lean into marketing spend here in the coming weeks with the World Cup and then in the NFL launch in September.

Got it. So you just mentioned some of these sports partnership -- or the sporting events. But when you frame it from the perspective of the league partnerships that you have, talk to us about the benefits of having those league partnerships. From the other side, NHL and some of the other leagues have struck these partnerships with Kalshi and Polymarkets. NFL, NBA seems to be on the sidelines for now. So just talk about the broader benefits of having these league benefits, the partnerships with the leagues and maybe how that's evolved?

Look, there's a definite value to having the partnerships, and you can quantify that and ascribe a certain dollar number to having those partnerships. And where those partnerships are available and the cost of that matches the dollar value, we will absolutely pursue them. And in situations where the dollar value that's being requested by the league exceeds the value, we'll try to renegotiate and come to a place where we can get to an arrangement.

We do think the leagues benefit by having a relationship with us, just like we benefit from having a relationship with them. We have fantastic relationships with the leagues. We work with them a lot on everything. And we help support the game integrity initiatives that they have. And at the same time, they support us and help us to promote the responsible gaming message and other messages. And we work with them very closely even if we don't have an official relationship.

Okay. Curious your view, there's clearly a lot of regulatory backdrop to this conversation. So the environment for Predictions today with the CFTC pretty staunchly defending these products against the challenges of several states is seemingly where we're at, sitting here today. So how does that inform your strategy and as you're rolling out and ramping up the investments on DraftKings Predictions?

Yes. I think what everyone in the industry wants right now is just a clear, concise, well-articulated set of the rules of the road for this industry. And we're really grateful that the CFTC is stepping up and engaging and actually engaging in the dialogue and trying to say, here are the rules and here's how we get there and here's what can and can't be allowed. And I think there's a lot of work that needs to be done to figure out how do we align what the states want, what the CFTC is able to do, what the framework needs to be.

But we're just glad the dialogue is happening. Having a forced conversation, having the CFTC, they're engaged in rule making right now. We submitted our recommendations for the rule changes. That's a great indication that people are talking and moving forward. And I know that there's a lot of work that needs to be done between now and some point in the future when all this gets figured out. But people are talking and engaging, and that's a great step forward.

Okay. So you talked about the road map ahead on the product side for DraftKings Predictions, and you've laid that out pretty clearly at your Investor Day, updated again on earnings. So help us understand why these features and the functionality that you're planning to introduce is going to be so important to accelerating the position that you have and some of the financial opportunities that are associated with it.

Yes. What we've observed, especially like on the Sportsbook side, is that when people engage with the Sportsbook platform, what they're trying to do is they're trying to tell through a bet what they fundamentally believe will happen in the event. It's the narrative of the chain of events that's going to happen that resonates with them, whether it's this person is going to hit a home run, this person is going to score a touchdown, the next pitch is going to be a strike. Whatever they feel comfortable saying, this is who I fundamentally believe as a sports bettor.

And so the more markets you can create and you can price for them, the more they were willing to engage because they can tell the story that they want to tell through their bet. And so for prediction markets right now, the offerings are very limited. And so the trades that you can engage with are limited to main lines and a couple of more big market type of trading. And we would like to create more markets and more opportunities. And so the road map is to create those opportunities to build out an offering for Predictions that allows the same sort of flexibility.

And so we launched Combos earlier this week. That's going very fantastic. We have a DCM in the Railbird Exchange that we purchased that we're integrating right now, and we expect to launch in the coming weeks. We view World Cup as a fantastic opportunity for us to acquire customers and to lean into a version 2 of the product that we think is going to be really fantastic. And ultimately, we expect to have a best-in-class product in time for the NFL launch, which we believe is the key tentpole moment for this industry.

Okay. There's also different revenue streams within Predictions. So maybe just help us understand how your view of the mix of revenue within this more complicated world. How does that evolve over time? Clearly, there's the brokerage layer, there's the exchange, the market making that you guys have already started to enter. So how do we think about those different revenue streams evolving?

Yes. As you look at prediction markets as an exchange product, there's a certain expectation that the ecosystem that is the exchange itself will capture a certain set of the economics of a relationship between a market maker and a market taker. And the relative strength of the different positions, whether it's the broker, whether it's the exchange, whether it's the market maker, whether it's the clearinghouse, will determine what share of the economics they get of that overall pie.

The same economic principles apply to, for example, Sportsbook and iGaming. If you're playing a slot machine, you sort of expect a 96% to 97% return to player on the thing. And so you're okay with the economics of that 3% to 4% take from the casino operator every time you spin the wheel. And so there's a similar expectation of economics return to the exchange. The more of that ecosystem that you own, the more of that total pie you can claim for yourself and you have the leverage to because you own the FCM, you own the DCM, you own the DCO, you own the market maker.

And the evolution of what parts of the revenue gets split between them is something that will be interesting to observe in the coming years as the markets evolve and as we get more confident on where the leverage in the equation is. But the benefit we have to what we're trying to do with our product right now is by owning the complete tech stack and having all the components of it as we have a complete flexibility to capture as much of that economics as the markets will bear, which on the Sportsbook side is a pretty decent percent.

Okay. So you've also laid out some long-term targets for gross margins in Predictions that are actually meaningfully higher than your Sportsbook product. So as you view this mix and what's happening. I know, obviously, very analytical approach, as you talked about. But how do you think this mix can really evolve, think about over the next, call it, 5 years?

I think it's really hard to say what Predictions is going to be over time. But to your point, prediction markets themselves are a higher-margin product. They don't quite have the same overhead that sportsbooks or casinos have. There's definitely opportunities if we mix heavier into prediction markets for great margin expansion coming from that. But we're going to have to follow the data for the next few months just to see what size that could look like.

And while we're very optimistic about the eventual size of the prediction markets -- let's -- the numbers out there for the existing prediction markets are still extremely small compared to what existing market Sportsbook is doing. I saw a metric came out a little bit ago that says that one of our chief competitors, their run rate parlay revenue was like $300 -- combo revenue was like $300 million for the year. To put that into context, the existing legal sportsbook market in legal states, regulated states is probably going to do north of $10 billion of parlay revenue this year.

So it's fantastic that prediction markets is getting some momentum and they're growing, but $300 million of run rate revenue compared to $10 billion in half the number of jurisdictions, there's a long way for Predictions to go. I'm optimistic. We do think it's going to be a fantastic growth story. We do think it's going to be incremental to the TAM. We communicated at our Investor Day, we thought it was north of $10 billion of GGR at maturity. But give me a couple of quarters of data, and I'll have a much more confident answer about how that's going to affect my gross margin in the years to come.

Okay. Last question on Predictions, I promise, and we're going to shift to that core business. But you talked a lot about the data that you have. Help us maybe understand the data advantage from your other products and really how can that translate into Predictions as you're thinking about Combos and launching that or anything else that brings unique to DraftKings.

And this is actually where it gets really exciting from a DraftKings competitive advantage because not only on the consumer side, the FCM side, do we understand what kinds of markets our customers want to see, how they want to be engaged with, how they want to be interacted with, how we should design the flow and create the markets or engage the markets that are the most popular. But on the market-making side, we have extensive models to price out risk to understand the correlation of events and activities within sports, things that you can't just plug into an AI and, like, have it spit out a model for the real risk or the real odds of an event happening.

We have decades of data and analytics, understanding of how certain things affect other things. And so the combinations of all this experience and learning and these algorithms that help us to price real-time events and real-time changes to be able to have the best up-to-date, up-to-speed experience on the back end, so we can price risk and give people the markets that they want to be able to price those markets effectively, with knowing how customers want to be interacted with and how they want to be fed markets and what they want to see when they open up the app, creates a really powerful moat that other competitors in the markets who are first exploring this are just going to barrage out there.

Keep in mind, on the Sportsbook product, we have hundreds of thousands of markets available every single day. If you've taken all the different levels and the different point totals and rebounds and assists, all the different sports that we offer. And we feel comfortable enough with our models that we're able to get pricing for all of those things. We can create an experience on our Sportsbook that the public market FCMs and DCMs or private FCMs and DCMs, plus the quant houses who are first starting to explore the Sportsbook, have a lot of room that they're going to have to take to catch up to where we are today.

And that's a differentiated advantage that we think is going to be really beneficial to driving people to our Sportsbook initially and then to our prediction markets when we launch that fully up. But even more, it's going to drive the market makers to want to follow those players who are in the markets, and we can create an ecosystem where we have the players because they're getting the experience they want and then we draw the market makers in because that's where the players are at.

Very helpful. So let's shift to the core business, if we can. So there has been a noticeable slowdown in OSB handle, looking back over the past few months. But then you also did just share how April was a reacceleration in handle for DraftKings. So maybe just help us frame or think about, again, same-state basis looking forward, what should investors think is sustainable growth for handle going forward?

Well, first, thank you for highlighting the strong growth in our core business. We -- our Sportsbook, for example, we grew revenue 24% in Q1 year-over-year, which is fantastic. And April is seeing a reacceleration of handle. We see strong growth for the core business in Sportsbook. And there's a couple of components to it. One is our mix shift continues to expand. And as you expand mix shift, you don't need as much handle to get more revenue. This is akin to, like, measuring the success of a grocery store by the weight of the shopping carts that are leaving. It doesn't matter if it's a bunch of cans, everybody says a bunch of cans and suddenly comes in then goes out with a bunch of baked goods. The cart weighs a lot less, but the margins are significantly higher.

And so you don't really care as much about that. You still care. Every metric is important to measure, but you have to look at things holistically. And at the end of the day, what we really want to focus on is how are we doing on the gross profit per customer. And this is where -- it's my favorite slide. I've managed to get in the Investor Day deck, but it's buried a little bit in there. It shows the gross profit by -- for our annual cohorts by year. And what it shows is that every single one of our annual cohorts since 2018 has had increasing gross profit year-over-year. That means customers we acquired in 2018 are giving us more gross profit this year or generating more gross profit this year than they have in any of the prior years. And then last year was any of the prior years, every single one of them is growing.

Because we are expanding our product base, we are creating more engagement. We're optimizing our promo spend. We are giving them a better experience, and they're engaging and we're getting a bigger share of their disposable income because they love the product, they love the engagement, they like what they're seeing. And that's not a story that you tell through handle or any other metric. It's a story you tell through profits.

And at the end of the day, that's what investors care about is what you deliver to the bottom line. And we love that. We love the fact that it's highly indicative that people love our product. They want to engage in our product, and they do it over a long period of time because our New Jersey first cohort, it was 2018, it's 2026 now. They're still with us. They're still engaged, and that is a fantastic story.

That's a good way to frame it. So when you think about the overall competitive environment, again, focusing more on online sports betting, clearly, FanDuel seems to have gotten a little bit more aggressive on promotions recently. Just talk to us about how all of these players, clearly, Fanatics, Bet365, they're all looking to compete for this profitable market. So help us frame the current competitive position that DraftKings holds within the broader space here.

Look, I think we see it largely a very rational competitive environment right now. I think it ebbs and flows. I think that there are certain tentpole moments where operators will push a little bit and then there are other moments where they pull back. It will be interesting to see how the World Cup plays out. I think it's a fantastic engagement opportunity, acquisition opportunity. We're excited to see what a World Cup looks like on the U.S. territory. And with all the improvements we've made to the app, I think we will have a great experience out of it.

But ultimately, at the end of the day, we follow data. And it's not about what our competitors are doing. It's about what we should be doing and how do we treat our customers the right way, how do we engage with them appropriately and what is the right level of spend to optimize the profitability and the engagement of the customer. And you don't get that by looking at what your competitors are doing as much as you get it by following your own data and understanding how your customers want to interact with you. So we feel really good about the environment, and we feel really good about our plans.

So let's go to your plans. So clearly, I think an important part of those plans is those media partnerships that you were talking about, and I'm sure you get some pretty meaningful data from that partnership. So as we think about ESPN, NBC, Amazon, you mentioned, how does that help drive users to DraftKings? And then maybe if you want to share anything specifically about the NBA season and what you're getting from those partnerships?

Look, we love our media partners. Not only do they give us some great access to ad and other assets, but the interaction and the interface that allows us the eyeballs that gives us dynamically throughout the events is great. If you watch NBC on Sunday night -- NBA on NBC on Sunday night, you're going to see DraftKings prominently on that. And by the way, NBC viewership on Sunday night, I've heard is up 30% year-over-year. So props to them and the engagement that they're driving with those assets. ESPN, we enjoyed working with them in the past. We're glad to have them as a partner again.

As a national advertising in an area where now we have a nationally available product, it's the same spend, but it's getting twice the reach because now we're able to push prediction markets on the Super App in states where that's available, and we're able to push Sportsbook on the Super App in the states that are available. And so this narrative of available everywhere is a huge value, and our partnerships enable that and allow that to happen.

Again, we follow the data. We follow the analytics. We make sure that we're getting efficient value out of them. But I can say that I think those are fantastic partners. We love the fact that we get to work with them. We think they benefit from us as well and the eyeballs that we draw. And I think it's a very symbiotic relationship that has been working very well, and we're very happy to have it.

When you think about your overall marketing budget or marketing spend, is there anything you can share in terms of how the balance between local and national has really evolved given maybe even factoring in these recent partnerships? And maybe what the opportunity is to really lean even further into national as that continues to roll forward?

Yes. It's definitely shifting more heavily national, especially as ROSB has exceeded 50% these past few years with the launch of Missouri and Arkansas. And especially now that we're launching the Super App and then with sports everywhere, the mentality, we can definitely play into that.

There's still always going to be a need for local spend, whether it's on casino, for example, where we're only in 11% of the population, just a couple of states or to be more focused a little bit around specific events that matter to one state or doesn't matter to another state. But the shift has happened largely towards a national spend for a decent enough chunk. And the cost per user that we get, the acquisition cost benefit we get from that has been a definite tailwind to the business and helped us to reduce our CACs meaningfully over the past few years.

Okay. Curious about hold rate, right? It's been always a focus.

I haven't had a question on hold all quarters.

There we go. So let's have one now. So what is that natural ceiling? I mean there's been this ongoing debate over the past couple of years about this. And curious, what do you think the runway is given that the parlay mix that you talked about and pushing live betting? How much more do we have to go? Or what inning if you want to use the sports analogy?

I'm not going to use the sports analogy, it's overused. I will say there's more room to go. We continue to launch products that attract new audiences that are higher hold products. For example, in Q1, we launched same game parlay for golf. That is obviously going to be a higher hold product because it's the same game parlay and it's a new sport and people seem to enjoy and love it, and that's going to drive people towards a new activity that they otherwise might not have gotten.

You'll find that the newer launch states have a higher parlay penetration than the older launch states. I think that there's just a natural evolution of people towards parlays over time. And I think that we're going to capture more of that. Younger generation seems to be more inclined to do parlays, older generation seems to be more inclined to do singles. And so there's a little bit of a tailwind from that.

As to where it ultimately gets to, it's hard to say because every single country has a different profile of how they view and engage with their sports. The U.S. is a very sports-centric country, but that doesn't necessarily guarantee that it's going to be a very parlay-centric country. We're just going to follow the data. And we have found that when we follow the data, when we give people the proper incentives to try something new if it sticks, we let them stick with it. If it doesn't stick, we back off and we find their profile, and we're okay with them being who they are and spending in a way that is fun for them.

We do think there's room for it to grow. We are trying to make sure that we're having the appropriate level of reinvestment to customers as they -- as the hold increases, making sure that the reinvestment back into the player promotion back in the player, justifies the experience that they're having. But it will be interesting to see how it plays out. We do expect some expansion, although we don't assume any expansion or any heroic expansion in our forecast for the full year.

Right. Jason, on the earnings call, talked about maybe one of the extra benefits of coming out of Predictions is the updated conversations you've had with the different states around taxes. And so maybe just help us frame how these conversations have really seemingly limited the tax increases that some of -- rewind a year ago that there was a lot of fear about where state taxes were going to be going.

One, we do have a fantastic government affairs team. They work very hard. They educate the states on the impact of raising taxes and what that ultimately is going to do for either pushing people into the unregulated markets in some cases or restricting the growth of the industry. And so they do a fantastic job every year of helping to educate states who see this maybe as more of a piggy bank and to realizing actually there's a symbiotic relationship we need to have if you're going to maintain the tax revenues you're giving. And states that pushed too hard, find themselves with an industry that's shrinking rather than growing.

This year, the conversation has been a little bit easier, it feels like. I would say a little bit different because there is a federal competitor that is not taxed at all. And while right now, there's a product differentiation between a prediction market and a sports bet, and what you can do on the prediction markets versus the sports bet, those differences will continue to contract over time as people become more and more creative on how to get a combo, how to do RFQs, how to create certain types of markets on prediction markets.

And then eventually, it's going to get to a place where there isn't a difference between the 2 or there might not be a difference between the 2. And states realizing this are a little bit more hesitant to make a change that might inhibit their ability to be competitive against the federal product in the out years. It's very difficult to unwind the tax change, an increase in taxes. It's not that hard to wait another year or 2 or 3 or 5 or 10 to raise the taxes, especially since there is this uncertainty.

And the more we lean on this and educate the states, the more they realize that where we're at right now is actually a really good healthy equilibrium for most states, and they aren't making moves. Now I will never begin to be the expert on predicting what states are going to do in the future. But we have great relationships, and we continue to develop those relationships. And this just gives us one more avenue to talk about what that relationship means, and that's helpful.

So that's from the legalized state perspective. I'm curious, the other piece of this conversation is, can this accelerate any of the states that aren't legalized? So obviously, the big 3, California, Texas, Florida is what we like to focus on. So maybe just any updates in terms of the overall legalization efforts. And I think on the earnings call, talking about more of a potentially '27 impact.

We -- one is we are offering prediction market products in all those states right now. It allows us a chance to access those customers with a product that is Sportsbook-like. But obviously, Prediction trading is not quite Sportsbook. And we are having conversations with stakeholders there about what it means to be a regulated market, what are the benefits of being able to generate tax revenues, but even more importantly to a lot of them, being able to regulate the experience and being able to have a say on how players engage and when they engage, and what rules they wrote and how to operate in a way that makes them feel comfortable, that their citizens are being taken care of.

And so having these conversations, we are definitely having more and they're more engaged and things are moving forward. But the path to legalization of a state is not just a light switch in the governor's office that they flip and suddenly it's legal. There are hundreds, if not thousands of steps that need to be taken, not just legislatively, but regulatory-wise, and there's organizations that need to be staffed, and rules that need to be put in place, and licensing processes, and that takes time.

And so this is why I give massive kudos to our government affairs team, who is slowly taking these steps and pushing it forward. But in some areas, it's moving forward leaps and bounds this year because certain conversations are being had, which is we're worried about a certain inevitability of a federally regulated product. We'd much rather have a state-regulated product in place that is fantastic products, great engagement, much more robust that can draw on all those users that we can obviously get benefit from, rather than wait for our fate to be decided by a federal product in the future.

Makes sense. So the other side of the core business, if we can go there, is obviously iGaming. And so iGaming growth continues, despite the smaller legalization map to be really durable and exceeded our expectations looking back over the past few years. So just talk about the runway from the existing state basis before we even talk about more legalization. How strong is this business? And where does it go from here?

I think it's a very strong business. We've got lots of great customers that are loyal. We're continuing to grow the business. I think there's more room for us to grow even faster. I think we're getting healthy growth out of the business, very profitable. And iGaming has shown surprising resilience of growth over the past more than a decade among the operators who have been operating in New Jersey since the 2013, 2014 time frame. And I think there's more room. There's more market penetration available. We haven't reached our limits there.

So just -- I guess the natural follow-up is we did see a slowdown in Q1. So maybe just help us understand how quickly we can see that potentially rebound? Or what's going on behind the scenes on that?

One of the things that affects especially our iGaming business and Flutter as well, who is also very heavily sports-based, is there is some correlation between the sports engagement in certain states and the amount of iGaming activity in those states. And so if you go from a year where particular teams in Michigan and Pennsylvania seems to do extremely well in the NFL playoffs, to a year where they're not quite doing as well and there's not quite as much engagement from Sportsbook fans. You can definitely see some state-by-state characteristics that would lead you to believe that there may be some performance weakness in there.

But if we look at our individual cohorts and the engagement we're seeing across our players and where those engagements coming from, we have a more optimistic outlook on what the growth profile can look like. We also -- we brought on a fantastic new leader of our iGaming business, Christian H. A. Bogstrand, who came from Bet365. Among other places, he's fantastic. He's engaging the iGaming business in a way that we've not done before, going after a customer base that isn't quite as sports-centric, more of the slots-first customer.

And I think that we haven't been as aggressive there as we should have been. And now the focus is renewed. We've got some great product rollouts. I think Jason mentioned on the earnings call, the Flex Spins, which is very unique. We've got a couple of other fun products that are going to be rolling out over the next 4 to 6 weeks. I love where we're going with it. I like the strength of the business that I'm seeing. The core is really strong, and I think we can do even better.

Okay. Think about the legalization map for iGaming. Clearly, it's been limited thinking backwards, but Maine is set...

Maine is on the horizon.

To come aboard. So just help us think about, is that a new sign, new momentum here?

Yes. I -- we're definitely seeing momentum come through. Again, I'm not the government affairs expert, and so I hesitate to go out on a limb on what I think the legalization is going to be on which states are going to go first. But you definitely hear momentum, and there are definitely states that are banding bills around and a lot of that is public knowledge. And then the conversations we're having behind the scenes seem to indicate that dominoes are falling, resistance is shifting. People are looking at this and saying, yes, maybe it's time.

And if this follows the Sportsbook playbook, you're going to have one domino -- one fall and then a whole bunch of other states are going to say, okay, yes, if they go, we might as well go too. And I don't know which one that's going to be as a half dozen really good strong candidates. But I feel pretty good about legalization accelerating, as more states start to realize that they've got a budget deficit they need to deal with, or that their sweepstakes operators are already capturing significant amounts of dollars from their citizens and they're not getting any -- they're not generating any revenue, tax revenues from it, they're not able to regulate it as offshore illegal operators are capturing revenues and advertising to their citizens. Like the momentum towards regulating iGaming and legalizing iGaming is very real. And it's just a matter of getting all the people over the line on it.

When you think about the in-house studio, you talked about different games rolling out. How unique of an advantage is that for DraftKings? Thinking about how you can capture even more going forward within the current state of legalization?

Yes. Locally, in the in-house studios has done a fantastic job of allowing us to capture economics, especially in some of the critical table games, for example, where you're creating -- the game is standard. It's blackjack, it's roulette, it's baccarat, it's craps. And you create it in-house and you save yourself having to pay some third party to a revenue share agreement for it.

And they've also had success though with their own in-house games. For example, Rocket, which I know is a fantastic game we launched a few years ago and has a great following, some great earned media around that. It gives us a differentiated advantage because we can create a profile of products that is not just the same IGT, Evolution, Light & Wonder games that everybody has, but is our own unique portfolio of games that can offer some distinction and differentiation.

And we do absolutely love the fact that we've got all these partnerships that allow us to have the full suite of games that allows customers to have whatever experience they want and play whatever game they want, whether it's a Wheel of Fortune game, which -- fantastic partnership with them or whether it's a slot machine based off of the 3 little pigs. Customers want the experience they want when they load up the game, and having our own in-house studio means that we can follow some data to create games that are unique to DraftKings, instead of just being completely dependent onto our partner.

All right. So as we start to wrap up, you talked about acquiring Railbird as part of furthering your ambitions within Predictions. You've also made historically some other strategic tuck-ins after identifying new markets. So just help us understand the potential for further M&A, how you see that landscape in terms of the overall capital allocation priorities that you do have? And what are those other types of opportunities as you sit here today?

Look, our primary focus for capital allocation is investing in our core business in the U.S. and Canada to be successful. We have so much on our plate right now with the expansion of our existing core offerings like Sportsbook and Casino, and the legalization that we expect to see, but also with the launching of prediction markets and the opportunity to spend some capital, to grow into that business and to really capture market share. That's the top priority. That's where the money needs to be spent. That's where the investment needs to be because to spend anything anywhere else and forfeit that opportunity is -- it's not the right move for this company at this time.

And so I see us being very diligent about capital spend for the next few years. And Jason likes to say, does that mean we're not going to look? Well, I don't think you're doing your job if you don't look, but you're also not doing your job if you're looking too much. And we're going to strike the right balance and make sure that we're very efficient with our capital allocation.

And how does shareholder repurchases, given that focus of leaning in on the investment side, still something?

I think we're going to leave ourselves the ability to be opportunistic.

Okay. All right. So as we wrap up here, maybe given the whole conversation we just had, is there something that you still think is just not well understood by the broader Street or something within DraftKings business today that can really shift investor sentiment given the pullback that we've seen?

I think there's a little bit of a lack of understanding of just how strong the differentiation and the technology that DraftKings has will translate into success in the prediction markets. And just how much overlap between what we already do and are really good at doing right now will translate into our ability to be able to monetize effectively in prediction markets.

And I think there's some uncertainty about execution and that's fine. We're not ready to fully go all in on the product. But we've outlined a strategy that is extremely robust. If you look at the product, you evaluate the product, and you see what prediction market offerings are right now versus the Sportsbook offerings that are available right now, you'll see the difference and you'll understand that this is a huge opportunity that we are extremely excited about. And we think it's going to go somewhere.

Great. Alan, thank you so much for being here.

Absolutely. Thanks, Robert. Appreciate it.

Hello, everyone. Thank you for joining us, and welcome to the DraftKings First Quarter 2026 Earnings Call. [Operator Instructions]

I will now hand the conference over to Michael DeLalio, Vice President of Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us today. Certain statements we make during this call may constitute forward-looking statements that are subject to risks, uncertainties and other factors as discussed further in our SEC filings that could cause our actual results to differ materially from our historical results or from our forecast. We assume no responsibility to update forward-looking statements other than as required by law.

During this call, management will also discuss certain non-GAAP financial measures that we believe may be useful in evaluating DraftKings' operating performance. These measures should not be considered in isolation or as a substitute for DraftKings' financial results prepared in accordance with GAAP. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available in our earnings release, slide presentation and business update, which can be found on our website and in our quarterly report on Form 10-Q filed with the SEC.

Hosting the call today, we have Jason Robins, Co-Founder and Chief Executive Officer of DraftKings, who will share some opening remarks and an update on our business. Following Jason's remarks, our Chief Financial Officer, Alan Ellingson, will provide a review of our financials. We will then open the line to questions.

I will now turn the call over to Jason Robins.

Thank you, Mike. We are off to a fantastic start this year. Our first quarter results exceeded our expectations, and we continue to expect fiscal year 2026 revenue of $6.5 billion to $6.9 billion and adjusted EBITDA of $700 million to $900 million.

In the first quarter, revenue increased 17% year-over-year and surpassed $1.6 billion. Adjusted EBITDA increased 64% year-over-year to $168 million. If not for our significant investment in Predictions and the launch of Sportsbook in Arkansas, our adjusted EBITDA would have exceeded $200 million. Profitability is inflecting in our core business. That gives us the firepower to press our advantage in Predictions. Predictions, especially in Sports, is a strategic priority for DraftKings. This category is still in its first inning, and we believe DraftKings is best positioned to define it. We are planning significant investment in the coming months to improve our offering, build liquidity and scale customer acquisition. We intend to execute with urgency and establish a leadership position in Sports Predictions before year-end.

At our Investor Day in March, we laid out a clear strategy, one nationwide Super App to win in Sports. Already, we are delivering on our plan. Predictions is now live in our flagship app. And as a result, our Predictions customer acquisition costs declined by more than 80% in April. Within Predictions, we have more than doubled markets available to trade, which is driving Predictions volume per customer above Sportsbook handle per customer. In April, our annualized Predictions consumer volume exceeded $1 billion, and our annualized total volume traded exceeded $2.3 billion, an increase of 38% and 43% month-over-month, respectively. We have also launched market making, which unlocks access to an additional layer of the value chain. Market making is already generating a positive return for us. In the coming weeks, we expect to launch our proprietary exchange and begin offering combos. Together, these moves will accelerate innovation, improve the customer experience and strengthen our economics.

We are confident in sports Predictions because we increasingly view our Sportsbook capabilities as a key advantage. Sports Predictions and Sportsbook serve the same customers in the same live moments and leverage a shared underlying infrastructure. Whether the customer experience is structured as a bet or a contract, success still comes down to compelling markets, pricing, liquidity, trust and a seamless customer experience. That is why our sustainable advantage has made us a leader in Sportsbook and position us to lead in Sports Predictions, too.

Beginning next quarter, we will report Sports revenue, which will combine Sportsbook and Sports predictions. This best reflects how we plan to operate the business. The opportunity ahead in Sports is massive. At Investor Day, we laid out a path to a $55 billion to $80 billion gross revenue opportunity by 2030, along with at least a 30% long-term adjusted EBITDA margin. Predictions is an important part of this opportunity, broadening our reach, strengthening our Sports platform and driving meaningful incremental adjusted EBITDA over time.

Experience and discipline matter in this category. Early third-party data suggests that Predictions customers are experiencing losses more quickly than Sportsbook customers, reinforcing the importance of trust, consumer protections and operator discipline. We have spent more than a decade building and managing these ecosystems from Fantasy to Sportsbook to iGaming, and we will apply that same discipline to predictions. We will grow Predictions the right way: through data-driven decisions, constructive engagement with industry stakeholders and a focus on markets that uphold the integrity of sports, strengthen customer trust and align with our standards for responsible engagement.

Our Super App, market-making capabilities, proprietary exchange and combos are coming together ahead of the World Cup. Our road map is clear. Our execution is real, and we intend to establish a leadership position in Sports Predictions by year-end.

With that, I will turn it over to our Chief Financial Officer, Alan Ellingson.

Thank you, Jason. I'll hit the highlights, including our first quarter 2026 performance and our fiscal year guidance. Please note that all income statement measures discussed, except for revenue, are on a non-GAAP adjusted EBITDA basis.

As Jason mentioned, in the first quarter, revenue increased 17% year-over-year and surpassed $1.6 billion. Adjusted EBITDA increased 64% year-over-year to $168 million. If not for our significant investment in Predictions and the launch of Sportsbook in Arkansas, our adjusted EBITDA would have exceeded $200 million for the quarter. I'm also proud that we have achieved positive net income for the second consecutive quarter, continuing the progress that we've made on our profitability while repurchasing almost $100 million of our shares.

In the first quarter, Sportsbook led the way. Sportsbook revenue increased 24% year-over-year to $1.1 billion, and a net revenue margin increase of 140 basis points to 7.8%. Parlay handle mix increased by nearly 300 basis points. Revenue growth exceeded 20% across nearly all major sports, including NBA and NCAA men's basketball, reflecting continued enhancements to our offering and deeper media integrations. Across all key metrics, our Sportsbook business remains strong.

We are also scaling efficiently. In the first quarter, adjusted gross margins increased by nearly 200 basis points year-over-year, and adjusted operating expenses increased only slightly when excluding our investments in Predictions and the launch of Sportsbook in Arkansas. AI-first execution and streamlined teams are driving higher productivity than ever with some teams operating at 2 to 3x last year's output. We have generated more than $500 million of adjusted EBITDA over the last 6 months, reflecting effective execution and continued strength of our core business.

Now I'll touch on our fiscal year 2026 guidance. In February, we guided fiscal year 2026 revenue of $6.5 billion to $6.9 billion and adjusted EBITDA of $700 million to $900 million. Importantly, the adjusted EBITDA guidance range includes significant investment in Predictions, which we see as a massive incremental opportunity for the company. Today, we are reaffirming these guidance ranges.

That concludes our remarks. We will now open the line for questions.

[Operator Instructions] Your first question comes from the line of Jordan Bender with Citizens Bank.

To start with the guidance, Jason, it might get harder to parse out the cost now with the Super App. But are you starting to see investment spending like marketing come down across the Prediction Market business? And maybe on the flip side of that, how should we think about layering in some of the Prediction Market spend for the remainder of the year?

Well, I think, first start with -- I think, we mentioned that CACs have been really dropping quickly, and it's scaling actually a little faster than we thought. So at this point, we are thinking we're going to probably invest about $200 million to $300 million all in on Predictions this year. A lot of that will be marketing, but some of that will be product technology investment as well. So what that means is that the rest of the business is going to do somewhere in the $1 billion-plus range in adjusted EBITDA this year, which we're really excited about. So that's the latest thinking. But obviously, we'll assess the data. And as always, we'll follow what the numbers say.

Great. And then if I could just follow up on the guide. Revenue growth is strong across non-NFL events in the quarter, but handle has moderated a touch here. Can you just help us think about what handle looks like or the exit rate into 2Q here?

Yes. Handle has actually been doing really nicely so far. So we actually just finished soft closing April. Handle was up 6%. We still have World Cup coming, which should be a boon. Also April revenue was up 22% year-over-year. We did over $100 million in adjusted EBITDA in April alone. So really feeling great about the way the quarter has started. And those are all soft close numbers, but should be roughly correct.

Your next question comes from David Katz with Jefferies.

I'm sure there will be an ample number of Predictions questions. So I wanted to ask about the core business. Can we just talk about more specificity about what's left to do, whether that's product enhancement, interface improvements? What -- we know what the environment is. What are you doing? What's controllable for you in terms of moving the core business forward?

It's a great question. So I think we still have a lot we can do to improve the offering. Right now, we feel like we have a number of things on the product road map, which will definitely deliver value. So really just clear line of sight to generating incremental retention and better value for the customer lifetime.

I also think that there's a real opportunity in the iGaming side. We've lagged the market a little bit there. We've been very focused on sports naturally with the Predictions and everything else going on. And recently, we've beefed up a lot of like the team and effort on the iGaming side. So I think there's a lot of opportunity to grow that as well. And then, of course, still half the country doesn't have legal sports betting, and almost 90% of the country we're not present in for iGaming. So tons of room left on the GA side to hopefully drive more legalization.

Your next question comes from Dan Politzer with JPMorgan.

Just another on the core. Obviously, recognizing you guys don't give quarterly guidance, but just given some of the investor focus and moving pieces into the second quarter, can you kind of bridge us in how you think about some of those moving pieces for the second quarter, whether it's Prediction Market spend or launch costs or any of the kind of hold dynamics that you're seeing in the market?

Well, on the core side, right now, we're seeing a ton of momentum. As I mentioned, we did over $100 million in adjusted EBITDA in April. Revenue grew 22% year-over-year. We've actually had 15 consecutive weeks of net revenue growth year-over-year. So really feel great about the core. We do expect we're going to start ramping our investment in Predictions. We've seen really, really strong numbers on the CAC side. The product is getting so much better. If you've used it recently, you'll see what we launched in December looks nothing like what you can use now.

So obviously, still a ton of work to do there. It's very, very early, but definitely plan on increasing investment there as the quarter progresses, especially with World Cup, which we think is going to be a big event, especially on the acquisition side.

Your next question comes from Stephen Grambling with Morgan Stanley.

It looks like in the quarter that the promotional effectiveness improved on the core OSB side, even as a lot of the other folks in the industry have been talking about maybe worse CACs and that promotional effectiveness decreasing. So I'm curious what you attribute that to? And any kind of initiatives you have underway that you think could actually further improve the efficiency and how we should be thinking about it maybe as a percentage of handle or percentage of GGR?

Yes, it's a great question. I mean, first starts with, we see a pretty stable competitive environment. It doesn't really look any different than it has in terms of the core business. Obviously, there's the Prediction side, but just focusing on our typical competitors. And so we've really been able to focus heavily on optimization. And I think one of the things that's been consistent with us as a company is we're very data-oriented. We're extremely strong on that front. And so the more time and the more data you give us, the better we can create efficiency and optimization. And I think you're just seeing the results of some of that work over the course of several years really start to pay off.

Also really doing great in terms of the top line side. So it helps to be more efficient in promotions when you're driving strong top line. Our hold rates have been increasing significantly year-over-year. Parlay mix has been going up. We see really no end to that continuing to go up in the near sight, really -- who knows where that ends? But right now, a ton of runway left to increase parlay mix. So lots of good tailwinds, I think, for the business right now. Promotional efficiency is one of them.

Your next question comes from Jed Kelly with Oppenheimer & Co.

Just on customer growth and MUP growth, I realize it was up low single digits ex the lottery. Can you just talk about trends there? I think there's a slide in your shareholder deck that says 30% of volume -- of Prediction Market volume in regulated states is coming from regulated markets. Is there something where younger customers that are like 18 to 20 just aren't shifting over to DraftKings as they get older? Or can you just talk about the MUP trends?

Yes. I don't really think it has anything to do with Predictions. I mean if you look at the total customer numbers, they're quite small, single digits. There is volume, but most of that's coming from lower-margin customers as well as also just from market makers and things like that. I think the really important thing is the opportunity to grow MUPs and Predictions. We have the entire other half of the country now open to us, and we haven't even begun to ramp marketing. And if you look at our early Predictions data, it's very modest marketing investment. We are seeing really exciting things on the customer acquisition side and the CAC side.

So I think if you look at the back half of the year, you're going to see tremendous increase in MUPs for us really via Predictions customer acquisitions. So we're really excited about that. And I think that's kind of our main focus on the MUP side.

Your next question comes from Trey Bowers with Wells Fargo.

I just wanted to kind of dig in a little further on just cadence, if we could. Your big peer out there set kind of targets for the next 3 quarters that are pretty heavily Q4 weighted. I know Q4 is generally the biggest seasonal quarter. But just any color around that, just so we make sure we're not kind of offsides on our models would be great.

Yes. So I mean, I think you can expect pretty similar to what we've seen in past years. We don't expect any real difference in terms of the revenue side. Obviously, there are sport outcomes to contend with. So you have to look at that in more of a neutral sport-outcome world. But putting Sport outcomes aside, I think it will look pretty typical in terms of seasonality. Obviously, we do have Prediction spend layered in. I think you're going to see much more of that, of course, in the coming months than in the previous months. We have not spent much on the marketing side on Predictions yet. We do intend to spend more, as I mentioned. We think the total investment for Predictions will be $200 million to $300 million with the vast majority of that coming really in the months ahead, especially in the back half of the year but some also in the later part of Q2.

So I think that will obviously have a little bit of effect on the bottom line, but also, hopefully, we'll see great customer acquisition with that. And if we don't, we'll pull back. We're not signing up for a lot of committed spend. So it's very fluid, and we'll follow the data as we always do. But in terms of the core business, I think you can assume a pretty similar quarterly cadence to what we've seen in the past.

And just a quick follow-up, if I could. The advocacy spend in the first quarter was a pretty big number, at $26 million. Could you guys just break down a little bit what was involved there in terms of Prediction Market or states? And then just going forward, to what extent that represents a piece of kind of the Prediction Market investment?

Yes, it's really not Prediction related. Actually, that was more of something that we are experimenting with our coalition that we lobbied together. We have a super PAC that we formed and are spending in various states. And we're going to try that strategy out for this election cycle, see how it goes and then assess whether it's something that we want to continue doing in future years.

Your next question comes from Brandt Montour with Barclays.

Jason, you mentioned some interesting stats on Prediction and specifically volume per customer, bigger than -- greater than OSB volume per customer. I was hoping maybe you could just flesh out a little bit more about what you've learned so far about the Prediction customer, especially with the stats you gave. What else have you learned about early sense for LTVs? And then, what are the sort of take rates that you're seeing early on against those volume stats that you gave?

Yes, it's a great question. I mean it's very early, so hard to say. They do look quite similar. The stat that you cited that we mentioned, that is something we're seeing. I think that could also have a lot to do with the fact that it's still early and usually the most avid customers sign up early. So that's something we're bearing in mind.

But if you look at kind of who these customers are demographically, what their spend patterns are, what sports, it's actually quite similar. There are a couple of things that are interesting. So college basketball, in particular, was even heavier on the Prediction side than maybe some of the other sports. So that was something that we noticed as an example. And I think it's largely because the format is more of like a singles type of thing, win/loss, that sort of thing. So versus a sport like NBA, which on the Sportsbook side is very SGP heavy, and there's not a product that's sufficiently equivalent yet, in terms of Predictions, to make that as attractive.

So there's probably some reasons for it that have nothing to do with the customer, but that is something we noticed. But largely, they look very similar. We're not seeing a whole lot of differences between who we're getting on the prediction side and who we have on our sports betting business.

Your next question comes from Ben Chaiken with Mizuho.

My question is on the cost side of the core business, underlying, I think, performed well in the quarter. Maybe we could touch specifically on payments, which I believe is one of your larger individual expenses. How much of a focus is this for you? And anything you can share regarding the opportunity to lower this expense? And then kind of related, do you think the Super App provides any payment savings under the premise that users are maybe more engaged across multiple products and thus aren't kind of moving money in and out as quickly?

Yes. I think it's a great point you make there that -- I do think part of the idea is increased retention, easier access to different products that we offer, different verticals. I think that is a huge part of the idea behind the Super App. And one of the results of that could be better retention of money and less movement of money on and off the system, which is a lot of what drives the payment costs as people depositing and withdrawing. So that's something we definitely will keep an eye on and could be a benefit.

And I think even beyond that, there is a lot of room to optimize. If you look at our overall payment costs, they have been coming down. That's been through a number of changes that we've made internally, but also through renegotiating rates as we've ramped our volumes. So that's generally the way it works, is as you ramp volumes, you get better rates. So I expect that to continue. And payments is an area that we look at this year and see definite opportunity in year to decrease that cost and certainly in 2027 and beyond.

Your next question comes from Shaun Kelley with Bank of America.

Jason, I think market-making in Prediction markets has continued to be a focal point. Just kind of curious on where you're at on experimenting there? What have you learned on pricing? And just big picture, what's your willingness to kind of look at third-party platforms and/or potentially hedge via third-party platforms when you see some of the concentration risk that you've done combos and parlays as you get more experience with the product?

Yes, it's a great question. So I think even beyond hedging, there's probably arbitrage moments and ways to just increase value. So that's something we're definitely looking at. Our market makers stood up in the last couple of months. So far, so good. We're making money. It's one of our fastest profitability business lines we've ever launched. So really excited about that. And we think a lot of opportunity to scale it. So we should theoretically have one of the top 2 or 3 market makers in the world, arguably the best, given our modeling capabilities. So I don't see -- at least on the sports front, I don't see how anyone is going to be able to match that outside of maybe 1 or 2 of our big sportsbook competitors that also have really strong pricing models internally.

So really feels like we can capture a big chunk of that. I do think that will involve being on third-party platforms. We will obviously focus on our own exchange as well, which is launching in the coming weeks, and we're excited about that. But I think for us to really maximize the market-making opportunity, we want to be able to participate in different platforms and examples, like you said, not just to have more volume, but also to be able to manage risk across a much wider canvas. Just the more opportunity you have to do that, the better that we can optimize. I mentioned earlier, we're a very data-driven company. So the more we kind of have access to different ways to manage that risk, I think the better that we'll perform over time.

Your next question comes from Barry Jonas with Truist Securities.

Can we dig in more on the legalization outlook? Are there particular states you're focused on for iGaming or OSB in the near term? I'm curious if Prediction Markets has helped or hurt those efforts.

I think in terms of Sports, Prediction Markets are helping. People are starting to really understand that if you haven't legalized sports betting yet, you have this thing called sports predictions now that is not within your own jurisdiction. And you still have companies like us that are very interested in doing it under the state framework. So I do think that is starting to resonate. Sometimes these things take a little time. So I'm not 100% sure we're going to get any over the line this year, but I do see increased momentum.

And then I think on the iGaming side, I absolutely see momentum, particularly in the DMV area. Washington, D.C. is strongly considering a proposal now, and Virginia came very close. It actually passed through both chambers but then died in conference. So hoping that, that one is really close and maybe next year, next session can be revived and get through. And then same thing on Maryland, we're seeing real momentum building there.

So I think once we start to really break through in one of these regions, you typically see multiple states or in the case of D.C. jurisdictions that move too. And so not surprising to see momentum regionally like that. And I do expect that we'll start to see momentum develop in some of the Midwestern states, too. I think Ohio next year is a good one to focus on. Illinois is always interesting. I don't see a clear path at the moment, but I think that could be one that comes into play. So lots of different opportunities there, and we'll have to see.

But right now, I do think on the margin, having predictions is a huge advantage in terms of legalization. But I think it's been an even bigger tool in terms of pushing back on things like tax increases or any further restrictions. If you noticed, so far, we've had no tax increases this year. I hope I didn't just jinx us, but we've had no tax increases. And I think a lot of that is because states are looking at predictions and saying we'd be absolutely crazy to raise taxes on legal online sports betting operators now when we're contending with prediction markets, which are not paying taxes in our state.

Your next question comes from Robin Farley with UBS.

Great. Some other sportsbooks noted sport outcome hold impact in Q1. You haven't really mentioned that. Is that -- was your math better in Q1 and you didn't have a hold impact? Or is it just that your -- the rest of your business was strong enough to offset hold impact? If you could give us some color around that?

We were actually slightly positive on outcomes. It was very minor. So we didn't really feel like it was necessary to call out. It was in the tens of millions, but we were slightly positive on sport outcomes in Q1.

Okay. Great. And then just another one on Prediction Markets. Can you give us a sense of the profitability of the different layers of Prediction Markets that you're expecting to be involved in sort of where the most economics are for you when you think about whether it's market making or proprietary exchange? Or just how we can think about those layers?

Yes. For us, it's really about having the whole ecosystem. And so it's hard to parse out where the value is because I think it feeds off each other. But we do see tremendous value in every layer of the ecosystem, which is why we're playing in all of them. In terms of profitability versus investment, the market maker should be -- or is profitable already. So that's going to be the one that's sort of the least capital intensive in terms of investment, and I think will produce really strong results in the near term and continue to grow.

I think when it comes to more of the consumer-facing side of it, we will be investing in customer acquisition. So I think that's going to end up being a little bit more of a headwind in 2026, and that's what's driving most of the $200 million to $300 million that we said we're investing in Predictions this year. So those are kind of the 2 layers.

And then the exchange sort of sits in the middle. The exchange, I think, will be a little bit of product investment. But if you don't attribute any of the customer acquisition costs, that should be one that becomes profitable pretty quickly, too.

Your next question comes from Joe Stauff with Susquehanna.

Jason, I was wondering if you could talk about your World Cup expectations. I think we have a pretty good idea for the tailwind and the impact of the World Cup on -- for the European bookmakers and customers, but the U.S. and North America is more unique. And is this more of an opportunity to expand the user base? How do you think about, say, the opportunity? And what you're thinking about World Cup expectations?

Yes, it's a great question. So I have very high expectations for World Cup when it comes to customer acquisition and engagement. I'm not as sure it will be a huge revenue opportunity. The quantum of games, and I'm guessing the amount wagered on some of these, won't be quite as high as maybe you'll see an NFL or certainly NBA and some of these other sports. But I think it will be absolutely tremendous for customer acquisition, starting with these prediction states. So about half the U.S., including large states like California, Texas and Florida, we have never had a World Cup, never had any major marketing event in terms of -- something like this in those states. So we're going to really go for it. Obviously, if the numbers are not supporting that, we will back off. But I have a feeling it's going to be very strong.

And then the other thing I should mention is we recently launched a Spanish language app, I think -- or Spanish language functionality, excuse me, in our app. I think that also is a really interesting one, and we aim to have it in, which we did ahead of the World Cup, knowing that there could be some incremental audience to be acquired there. And really being able to have a Spanish native experience, we think, will be a differentiator for us, even with people that might have signed up for the English product, just have a preference for the Spanish language product.

So those are 2 things I'm really excited about, and we'll definitely be making an investment. And as I said, following the data. So it will either work or it won't, but we won't spend heavily into it if it's not working.

Your next question comes from Chad Beynon with Macquarie Capital.

The NBA saw record viewership this year. I know the programming was better than prior years, and you guys remain a partner with them. Can you just talk about if you're seeing share gains in the NBA? And then related to kind of all the big sports, how you're thinking about being an official partner if that's driving engagement?

It was a great year so far for NBA. The playoffs have been tremendous, too, so far. So expect that to continue. I think being a partner has been a really important thing for DraftKings over many years. We've had a great relationship with the NBA since our Fantasy Sports days, really love what they have done with the sport and how they've grown engagement and made it such a broad sport in terms of the reach and the types of people that are fans. So I really give a lot of credit to the NBA, and we're proud to be a partner of that.

Your next question comes from Clark Lampen with BTIG.

I wanted to go back to the topic of core profitability. I think you mentioned at the top of the call, if it weren't for Prediction this year, you'd have over $1 billion. I think on top of that number, you've got about $4 billion in player-facing expenses. Just curious where those numbers could go over the next couple of years if we continue to see the rates of incremental penetration moderating? How much could you theoretically pull back, I guess, without impacting engagement?

I mean, we have a lot of room to bring down marketing if that is warranted. I think right now, given the acquisition opportunity we see in predictions, we think it's more likely we'll be spending into it. And the partnerships that we have should be a huge asset for us in that. But I do think that in terms of the amount allocated to the core, you're going to see that continue to decline as Prediction spend ramps. So that's something that I think you'll see in the coming months and years.

And really, for us, the sort of combination right now of moderating promotional and marketing spend on the core along with still strong top line growth. As I mentioned, April was 22% year-over-year revenue growth, over $100 million in adjusted EBITDA in that month alone. That's really, I think, a sign that we see just continuing strength on the bottom line as we also continue to see strong growth on the top line. And obviously, that's what you want. So hopefully, we'll continue to see those trends.

Your next question comes from Bernie McTernan with Needham.

Jason, the shareholder letter mentions that consumers are losing more in prediction markets than OSB. And that's just surprising to me, at least given the parlay penetration likely lower in prediction markets. So can you just talk about what you're seeing there? Because I think conventional wisdom would say that your hold will be lower in prediction markets than OSB, but just seeing how you think about that longer term?

Yes. It's not necessarily hold as much as just the rate of loss. I think part of it is that predictions operators, some of them anyway, are sort of irresponsibly saying that this is not the same as a product like ours where you have people playing against each other on prediction markets when the reality is that most of the money is being put up, most liquidity is being put up by professional market makers, institutions, things like that. So I think some people don't necessarily understand that. And as that becomes more apparent, I think you'll start to see that moderate.

But we saw this in fantasy sports. When you have a peer-to-peer -- somewhat of a peer-to-peer setup, you're going to have people on one side that are experts and you got to make sure you protect the ecosystem as best as you can, obviously, within the rules and regulations, right? But doing things to make sure that you're building a healthy ecosystem was critical to us building out a sustainable daily fantasy sports product. And right now, I don't see that necessarily happening with some of our predictions competitors. But as time goes on, hopefully, we'll set the standard there, and it will be something that really becomes an important part of managing the ecosystem.

Your next question comes from Robert Fishman with MoffettNathanson.

Jason, you just mentioned your marketing partnerships. Does ESPN and NBC allow you to promote predictions through your Super App? And how do you plan to leverage those relationships with the ramp in the marketing that you talked about, especially ahead of the NFL season?

Yes. So I mean, a huge part of having these national partnerships is being able to have a national singular sort of offering and message that we put out there. And that's been a core effort that we've been really focused on as we've thought about what our back half of the year and also remaining Q2 plans are for the Super App. So it's really less about advertising Predictions and more about advertising a unified DraftKings platform that's accessible in almost every state in the country.

So that's something that we really feel excited about. Having these great partnerships and relationships and having all of this data from having worked with these companies for so many years gives us a great foundational starting point, but there's also some testing and work we have to do to figure out how we unify that message in a way that makes sense for all consumers no matter what products they end up accessing.

Your next question comes from Jeff Stantial with Stifel.

Maybe just digging into the quarter, it looks like NGR growth for online casino stepped down a bit quarter-on-quarter, 9%, versus you grew that business closer to 20% in 2025. Can you just sort of help us think about some of the drivers of this deceleration and whether there's anything sort of onetime in nature that contributed as well?

Yes. I mean, I think that really, we see a huge opportunity there. We have lower growth than we think we should. Clearly, the overall industry demonstrates that. So there's a lot of changes that we've made on the product side and the marketing side in the last few months, and we see a huge opportunity to accelerate that. And hopefully, that's some upside. It's not something we're counting on in order to hit our guide. So if we can increase that growth rate, that provides a lot of upside for us.

And maybe just to follow up to double-click on that. When you talk about sort of some changes being made, does this include sort of going after more of that iCasino direct player? Can you just sort of talk about that mix between OSB cross-sell and how much you're targeting that iCasino-led player?

Absolutely. I think we've overly focused on the OSB cross-sell and did not focus enough on the iCasino first, particularly the slots first player, and we really increased our focus in the last several months there. One example of that is we launched a unique feature no one else has called Flex Spins, which has been a really great addition. It's -- everybody else sort of gives free spins by game. Flex Spins is a promotion that you can allow people to use on any game they want. So a very unique offering that no one else has.

We've also developed a lot of new marketing assets and have tested into some things that are working much better and have significantly reduced our CAC and ramp customer acquisition a lot in the last few months. So those are a couple of examples of where I see some tailwind there. And really, I think there's still a lot more we can unlock, too. We know that there are areas of opportunity that we haven't yet discovered and unlocked in iGaming. And I think there's a huge opportunity to grow that in the back half of the year.

Your next question comes from James Hardiman with Citi.

So I wanted to actually circle back to the guide. Obviously, EBITDA guide is unchanged, but it now needs to absorb the Arkansas spend and any increase in Predictions. I was hoping maybe you could quantify those pieces. The $200 million to $300 million for Predictions, I don't think you were previously quite as explicit. So I guess, how much did that go up? What's the total Arkansas spend? I'm just trying to get my arms around what seems like a pretty big raise to the core business guidance, sort of the magnitude of that. And if you don't mind, the split in Q1, I think it sounds like Arkansas and Predictions is about $33 million or more to get us to that $200 million EBITDA plus, but maybe split out between those 2 components?

Yes, it's a great question. I mean Alberta is in there now, too. That will be launching, we believe, in July. So definitely some things we've been able to absorb. I think it starts with, we were pretty disciplined at the beginning of the year with the guidance. We knew that there was a chance that we would want to go very aggressive on Predictions. We also knew that we would probably have at least one, maybe multiple launches coming up with some rumblings in Arkansas and some thought towards Alberta at that time. So these are things we contemplated when we set the initial guide.

As far as like expectations, I think at the time, we kind of had ranges for each. And so there has been, I think, some tailwind. We also did, I think, have some conservatism in the initial guide, and that was deliberate because we wanted to make sure that as these things materialize, we were able to maintain and hopefully, as the year progresses, raise the guide. So that was the thinking going in and really not much has changed other than I think we've become a little more crystallized in some of these exact numbers, but nothing is too far off from where we initially thought it would be at the beginning of the year.

Got it. Just to clarify, is there sort of a total Arkansas number for, I guess, at the end in this quarter end?

We're not going to disclose an individual state. Yes, I don't want to say that, but it's not a huge number. I mean, it's in the low double digits.

Your next question comes from Ryan Sigdahl with Craig-Hallum Capital Group.

Your main largest peer seems to be shutting down several product lines. You guys seem to be investing into Pick6. You launched DK Replay in Oregon, but really investing kind of across the product suite, obviously, with an emphasis on Predictions in the Super App. But curious how you think about kind of the adjacent and long tail of products you offer in the market, what those look like from a margin standpoint and if they're going to continue to be a focus or if it makes more sense to shift those players over to Predictions?

Yes. I mean, I think, we're constantly evaluating these things. We have ourselves shut down products before we had a Reignmakers' NFT product, for example, that we shut down a couple of years ago. Right now, though, the ones you mentioned are all real success stories. And none of them are draining capital or resources in a material way outside of Predictions right now. So we think, obviously, Predictions is clearly one that we need to invest in, and we'll continue to.

But things like Pick6 are kind of humming along at a really nice growth rate without really having to invest at a significant level. So we like products like that. They provide incremental engagement revenue and don't cost the company a whole lot to maintain. But we are always evaluating and looking at what different things we're doing and making sure that we're deploying our capital and also our human capital and other resources in the best possible way to maximize value for shareholders.

Our final question comes from Steve Pizzella with Deutsche Bank.

Just want to follow up on the Prediction Market spend. How much of that should we think about as onetime in nature this year versus more recurring as we think about next year?

Well, I think, given this is our first real year with Predictions, we will want to invest in 2027 as well. Whether we're generating enough revenue to cover that and how that looks in terms of bottom line impact, it's way too early to tell. But I doubt that we are thinking -- the only way we'd be thinking of this as a onetime investment is if we weren't working, but then we wouldn't end up investing at these levels in the first place. But I don't expect that. I expect to see huge customer acquisition numbers in the back half of the year. Obviously, there's always the chance that something regulatory-wise or other changes. But assuming a consistent environment to what we see today, I expect that we'll continue to invest in 2027.

We have reached the end of our Q&A session. I will now turn the call back to Jason Robins for closing remarks.

Thank you all for joining us on today's call. We are really excited and well positioned for success. Thank you for your continued support and hope to speak to all of you again soon.

This concludes today's call. Thank you for attending. You may now disconnect.

Thank you everybody for coming to obviously the best session. Thank you so much for not going to the other ones. We all sincerely appreciate that here. So this is a session on Decision Intelligence, i.e., prediction markets and everything around them. I am just going to ask my panelists to very briefly just introduce yourselves and why you're here, what your relevance is to this. Brian, start down there.

Hi, everybody. Brian Quintenz. I was a commissioner at the Commodity Futures Trading Commission from

2017 through 2021, and I'm a board member of the Kalshi exchange and their clearinghouse.

I'm Steph Guild. I'm chief investment officer of Robinhood. We offer prediction markets, and I also manage portfolios and use prediction markets in my investment analysis.

Hi, everyone. It's really bright here, by the way. It's hard to see. Hi, everyone. I'm Paul Liberman, and I am a Co-Founder and President of Operations at DraftKings, who also offers prediction markets, as well as sports betting and other sports entertainment products.

And you should all know, like all Milken panels, there's a QR code somewhere. If you have questions for the panel, they are all going to appear -- I think it's probably behind me, so -- oh, it's right up there. So please that's the way you can get questions to this iPad here. I am not watching YouTube during this. This is an actual iPad that theoretically would have your questions coming in.

Let's start with when you think of Decision Intelligence, and Steph, maybe let me start with you here. When you think of prediction markets, at least the way they currently are, what signal are you at Robinhood -- what are you getting out of them? What's the actual tangible value?

It's part of a mosaic, if you will. And I'll look at things, obviously, doesn't seem to matter as much anymore but Fed decisions and what the market is thinking that it's going to do and how it changes. The futures market has been there for that for a while, but it's another data point, and that can obviously move markets. And even as recently as this morning, since Palantir is having earnings after close, which I didn't look at yet, I was looking at what the markets were saying in terms of will they beat earnings or not. And I was looking this up because I was thinking the analysts that used to see estimate revisions, right? And then what they're saying that the estimates are going to be relative to what actual is. But if I can get another data point on what the market or what the participants on the prediction market say, then you might get a better sense of where expectations are.

Do you weight that more than some of those other, more traditional sentiment indicators?

Well, no, not really. But I have this phrase I say all the time where expectations are everything when it comes to investing. So you can have amazing earnings, but if you don't beat by a certain amount, then you've seen that over and over again. So I do think it's like a test of sentiment, and if everyone thinks that they're going to beat their estimates, then maybe they have to beat by more for it to actually be impressive to the market. And that's how I tend to use it, and I love having this extra data point because I actually think market participation has changed quite a bit. And it's not just the institutions now in the public markets.

That's interesting. Brian, help me out here a little bit, and we're going to talk a lot about sports, and we obviously have Paul here. But from your perspective, I had an interview recently with the co-founders of Kalshi, and so I'm going to ask you kind of a similar question I asked them, which is, why does America, why does the world, I guess, need prediction markets? What is the value outside of helping some people make money and other people lose money?

So the way I think of prediction markets philosophically as opposed to legally and regulatorily, and I talk about that too...

Yes. We'll talk about that in a bit.

But philosophically, as a market-driven, dispassionate view on the importance of what's happening and the likelihood of what will happen. And if we break that down, I'm a firm believer in markets. I think of myself to some degree as a markets maximalist. I think market-based information is more important than survey-based information. I think, when we're talking about things that the Fed has looked at in the past, and there was a paper that just came out on this, on data points on Kalshi, a lot of those are survey-based. A lot of those responses are survey-based. And when you're looking at a market, someone is taking their opinion and they're figuring out, "Well, how much do I really believe that?" And then if you apply it to things like culture or policy or elections, and you're engaged in those markets, you have to force yourself to take a dispassionate view. Everyone has probably a pretty emotionally charged position on...

When you say dispassionate, what convinces you that it's dispassionate? Or is that just because of the numbers?

Well, when I say that, I mean that you have to rely on what your assessment is of the facts as opposed to what your conviction is around your emotional philosophy, for instance. A case in point maybe, when the Supreme Court was considering the tariff case, Kalshi had a 70% chance that the Supreme Court was going to overturn that, and the highest probability was that six out of the nine justices would agree, right? I think if you're looking at that market, or if you're actually engaged in that market, maybe that helps you take a calibrated view as to what an outcome might be, and helps inform people that might take a otherwise emotional perspective on that outcome, which is what I kind of mean by dispassionate.

Paul, does this mean that if we have a similar -- and it's a little bit of a hypothetical, so I'm curious. But if there was a contract on something like what Brian said, how the Supreme Court's going to rule, say, on a tariff case, should we expect if that same contract is on multiple prediction markets, that you're going to see fairly similar results?

I think we would expect that, because similar to what Brian mentioned, it's a dispassionate view, and the investors that are investing are also making sure that the markets are aligned across all the different exchanges. So whether you're on the DraftKings exchange that would offer a product like this, or on Kalshi or Robinhood in their product, we would expect that investors and that sentiment would be similar across all the different products. And that's something that we see. And you see that across in crypto, where the prices of crypto across all these exchanges are fairly the same.

Steph, you made a comment during our pre-call, I think, that prediction markets was better signal, I think you said, than X or podcasts. So obvious question: Were you relying on X and podcasts before this?

No. So what I was saying is, I actually think using a combination of X and podcasts and prediction markets might actually give you a better signal than just reading institutional research. I think institutional research, no offense at all, I still read it, but it feels a little slow, and the markets are just moving so fast. You need something that's moving fast with you.

That's interesting. Brian, on the dispassionate side, and you guys can obviously respond to each other too, how do you -- How can I say this? Does it depend on what the thing is? So the tariff case, well, obviously certain people, obviously in the White House cared a lot about this, and obviously certain traders care a lot about, and they have maybe philosophical beliefs on whether there should be tariffs or not. Most people were making that bet based on what they believed was actually going to happen. But when we come to other things, when it comes to sports, for example, maybe when it comes to a federal election, how convinced are you that people aren't betting what they want as much as they're betting what they think is going to happen?

Well, first of all, I don't know. And I don't think it's my job or anyone's job to say how it should.

Well, I guess, does it matter? And I said, does it matter? Because the, not the conceit, but the talking points, I guess, to a certain extent, of the prediction markets is we're discovering truth. We're discovering truth in all this noise. If it's just, I want this guy to win the election, then I'm really hoping, just like I want the Red Sox to win the game.

Well, I think the idea of discovering truth is a noble goal. I think this is one data point to getting there, so I don't want to overstate that. But I also think that the whole purpose of derivatives markets is to provide information discovery, price discovery, and risk management. Right? And if you think about, especially in the context of an election, how is someone going to use an election prediction market if they're hedging risk? They are going to trade on the person, party, or control of government that poses the most risk to them. Right? And so if everyone was using the market to hedge risk, then the market would show that the candidate or party that had the highest, quote-unquote, odds was actually the party that posed the most economic risk to the country or to the participants. Right? But those aren't the only participants that you have in these markets. You have fundamental analysis. You might have some people that are driven more emotionally. Maybe people are trying to protect their emotions in the case of a loss. And I went to Duke, and I...

Are you saying you bet on UNC?

No, no. But I was at the...

That was going to be news.

I was at that UConn game, and man, it would've been nice to temper my emotions after that with a contrary bet. But I think the entire purpose of a market is to take that disaggregated information, right, all the participants together, to create a market-based pricing opportunity that people can interact with. And if it's viewed as out of whack, it should self-correct through arbitrage.

Yes, I agree with that. I actually was thinking about the New York City mayoral race. Yes. If people who live in New York City, you might have voted for one candidate, but you're like, well, if I bet on a prediction of the other one, at least I get something out of it...

Emotional hedge.

If I lose. And I don't think that's crazy. I actually think you can also use it in your own life. There's so many things you might know a lot about that are just not in the public markets, and this can be a way to use that to your advantage.

Paul, if scale equals signal to a certain extent on these markets, does that mean sports is the most intelligent thing? Because most of what's happening on these markets is sports.

So, it's a good question. I think sports maybe is the only one that's not completely dispassionate. You told us that you bet on the Red Sox, which was...

You're going to suggest there was no intelligence behind that? I hear that. Yes.

There might've been intelligence, but a lot of passion. A little intelligence, lots of passion. I think for sports, it is a good barometer for what is going to happen. And we do see a lot of value and a lot of data that is coming out of the sports prediction markets, that is helping us as a sportsbook operate and as a sports prediction market. But I think the prediction markets have been useful across a variety of things, and sports is one of those that there's a lot of passion around from the consumer. But like Brian said, it's still a derivative, it's still an event contract, it's still the same exact thing as...

Although for the end user, it's the exact same damn thing.

For the end user, yes. For the end user, whether they're putting a bet on the sportsbook or whether they're doing a trade on the Celtics here, they definitely feel as though it's the same...

That wasn't needed, but go on.

It is a very similar experience.

Brian, what percentage ballpark of Kalshi's volume monthly is sports? Is it 60%, 70%, something like that?

I think it's come down from the high 80s percent to about 70%, and I think that's just because of the sheer volume of sporting events and things within sporting events. If you had national elections every week, my guess is that elections would be the highest volume. And I think as we get closer to the midterm elections, we will see that share of the markets significantly expand.

So give me the basic argument for why, if I, again, bet on the Red Sox on Kalshi, why that's not just -- I understand the back-end reason why that's not sports gambling. Philosophically, why is that not sports betting?

So, I think, look, people have been calling engagement in trading and investing in the financial markets gambling for decades, if not centuries. Right? So, I think we have to be a little careful with how we think about what that really means. I think there's a difference between speculation and gambling. I think speculation in the financial markets is wagering or trading where there is more of an economic impact than just the money that is being traded, right. There is a price signal. There is a price formation event. There is an opportunity to hedge economic risk, right. Or sense what that probability is, as opposed to putting money on black at a roulette table, right. You only win black...

But putting money on Boston over New York. Is there that much of a difference from a -- basically, are you saying, does this go to game of chance, game of skill? Is that this argument? Is that part of the argument?

No. Because I don't necessarily agree with that argument. But let's go back to the other end of the spectrum. Is anyone going to sit here and tell me that there is no economic, financial, or commercial consequence to who wins or loses the Super Bowl?

Super Bowl, no, but an average...

How about a playoff?

But Game of 7 in one of the baseball season, no.

How about a playoff?

Playoff, sure.

Okay, how about the final game of the year? How about the game against your rival?

But how about the game tomorrow? But how about the game tomorrow?

How about the opening game?

But how about the game tomorrow?

Okay. Well, legally, it's a derivative if it has any potential financial, commercial, or economic consequence.

If I put enough money on black, it could hurt Caesars. There's some financial consequence.

But I guess the point is, is that, as I was saying, I think that the difference between speculation and price forming activity is that when you do that, that is the only impact, is what you are wagering, right. And I believe that the law was written deliberately, and even if people didn't write it deliberately, I think we have to take it very seriously because it was passed by Congress and signed by a president. But I think it's important that the broad landscape of risk management tools is not left to a regulator that wants to play merit-based games and provide value judgments. Because I think that's a recipe for disaster.

Paul, help me out here. When Kalshi, Polymarket, et cetera, started getting popular, my first thought was, "Man, DraftKings must be pissed about this." They're not allowed. People in California, Texas, huge states, other states, too -- Utah -- aren't allowed to use them. And these folks have found a backdoor way to let people bet on the same games that in Massachusetts I can use DraftKings to bet on. But no, you're supportive of this. Help me understand this.

We are supportive of it and agree with a lot of what Brian has said in terms of prediction markets. And ultimately, we think that this allows for our consumers to engage in, whether it's sports betting or trading on their derivative products across all 50 states. And we look at ourselves, I think one of the things that we have done really well as a company is we've catered to the sports fan and being able for them to take their predictions and apply them. And in some states, it's via sports betting. In other states, it's via predictions. But ultimately, what we were excited about is opening up the opportunity...

For more customers.

For more customers and more products. Lots of our customers are also very passionate about predicting election outcomes or predicting crypto futures. And this gave us, with Kalshi and Polymarket leading the way, this gave us the opportunity for us to launch these products, and we're seeing some amazing great results, and people are engaged, and they love the product.

Do you make more money if you take a bespoke sporting event, the playoff game last night, does DraftKings make more money per user, I guess, or percentage, I guess, however you want. Obviously, more people, I assume, are betting traditional sports books, so it's not apples to oranges. Do you do better if people bet on the sportsbook as opposed to bet on the prediction market on the same event?

It really all depends, and I can't say in a single particular market, especially right now.

Okay, let me put it to you this way. If I said to you, Paul, in California, California's going to be able to make its law. They're either going to allow sportsbooks and not prediction markets or only prediction markets and not sportsbooks. What do you want?

That's a great question, and I think ultimately, we would want both because that gives us...

Yes, but that's not your choice. That's not what we have said to you. You can have one, or you can have the other.

So what we have found is that sportsbooks offer, for sports, a better consumer experience than prediction markets overall. So for our customers that are in sportsbook jurisdictions, they prefer to still do business with a sportsbook. We've done a lot of surveys. We know that we are able to give them promotions and offers, and it's a more engaging experience overall. So we would prefer that sportsbooks would still be the lead. But that being said, we're also really happy to compete in the prediction market space.

Steph, Robinhood has predictions. You've obviously partnered with Kalshi, building your own stuff. Is Robinhood eventually going to have basically a super app that will include sports?

Oh, meaning like direct sportsbooks?

Correct, yeah. Or not sportsbooks, but sports prediction -- events contracts, sports event contracts.

We do have sports event contracts now.

Oh, okay.

Yes, that's why I was asking the difference. We have it, and it's popular.

But within your part of the business, though, sports is not a piece of the business, correct?

No.

You're a part of the Robinhood business.

Yes. Well, we're not putting it in managed portfolios yet.

Is that because of the law or because you're just not there yet?

We're just not there yet. There's a decent amount of infrastructure we need to create, and it doesn't mean that it's not on some longer-term roadmap. But...

How long is that roadmap? Is that like a 12-month roadmap, a two-year roadmap? Is it like an atlas or more like one of those little maps?

Like most companies, you set a roadmap, and then things change, and you pivot, right. So, in my dream world, it would be in the next year or two because I do actually think there's a lot of interesting ways to put hedges in a managed portfolio, for example, where you're like a ton of equities. There was one I was looking at that was called Nothing Ever Happens, which is the phrase that people use to say, like, "Whatever. You can all freak out. I'm just going to buy every dip." And that was super interesting because it was a parlay, and it has all these things that could happen and are always a risk, but don't. Right? Like China invades Taiwan or Iran gets invaded. The things that you can't actually plan for or do micro research on. And so that's the kind of stuff that I would love to consider rather than it just being like an S&P put.

That's interesting. Just go back to the sportsbook thing for a minute. There's a lot of kumbaya up here, which is great. But I'm curious, Brian, for you, co-founders of Kalshi and actually of Polymarket too, talk a lot of c*** about sportsbooks. They basically make the argument that sportsbooks -- on the sportsbook side of it, not the prediction side, are basically betting against their customers, that it is better for a sportsbook when their customer loses so long as they don't lose too much, so they come back. Do you go with that concept that prediction markets are more egalitarian? It is one person betting against another person. Kalshi doesn't care who wins, who loses because they're going to just take a piece of the bet. Do you go with that argument that prediction markets are a better consumer experience than sportsbooks for that reason?

Look, first of all, I have a lot of respect for sportsbooks and the products they've developed and the businesses that they have built. I think they've built them within the structure that either was apparent or that they chose, and I compliment them on those businesses. But I do believe that prediction markets as a federally regulated exchange is a fundamentally different model. It is an absolutely different model. The odds are not set by the house. The revenue stream is different. The regulations on running a marketplace are severe. I don't know much about sportsbooks regulations, so I'm not going to say they're more severe.

They're severe.

But I know that CFTC rules around running a federally regulated derivatives exchange are strong. And so, if I'm thinking about engaging in those two models, at least the derivatives model to me is very attractive. Because I know that I'm getting a price from a marketplace. Because I know that there is a federal regulator overseeing that. I know that the incentives are either aligned or not necessarily opposed. And I think, to the point earlier, we've seen sportsbooks embrace this model.

Well, but do you think they've embraced it because they think it's a better model, or because they can now do business in places they couldn't?

Well, I think that's, to your prior question about which one do you want, I can't answer that. But I think if it is a better model, my hunch is, and this is not my area of expertise because I'm not in business, I'm in policy, but if it is embraced, I think consumers are going to be made better off.

Paul, the prediction market argument, at least the way I articulated it, you're betting against another person, really, you're not betting against the house. From your perspective, is that true, or am I really on prediction markets often betting against an institutional investor?

So when you're in a prediction market, you are most often betting against or trading against a market maker or a sharp. Realistically with sports, it moves so fast that on the other side, in order for you to really participate, you have to be using APIs, you have to be using scripts. And most people, like yourself, you're probably not writing APIs to engage. What you're doing is you're going on the app. You're picking the Red Sox passionately, and you're hoping that they win for that day.

By the way, you're not only saying picking the Red Sox, which is a bad bet, you're also suggesting that I'm not doing enough research ahead of time and writing an API. You're making my position worse by every minute here.

But the reality is that if you look at prediction markets and you look at sportsbooks, if we were completely different on price, there would be an arbitrage opportunity, and other people would take advantage of that arbitrage opportunity. So the pricing is very similar between prediction markets and sportsbooks. At the end of the day, our goal as a sportsbook is to engage our customers, to make a great experience, and there's a lot of benefits that us being both the market maker or the bookmaker, as well as the exchange on sportsbooks, it allows us to reinvest back, offer promotions, engage customers, and that is something that is really challenging in prediction markets. But that being said, there is a place where prediction markets have their value as well in sports. And there's value there too. So I think both are actually really positive, and that's why we engage on both sides is because they're both great, they're different. I agree with everything they said. And they have their different values.

If sportsbooks like yours have gotten into the prediction market game, do you foresee a future in which the prediction platforms get into sportsbooks?

I certainly think that they may, they may try. But...

Two people who have prediction markets. Are you going to get into sports books?

I'm just a dumb policy guy.

You're on the board. This gets discussed.

I'm on the board of the federally regulated exchange. And again, I think that's the regulatory model that the founders of Kalshi picked before any trade and any contract was ever made. They spent four years going through the process to get a derivatives exchange license at the CFTC, and then another two on operational tests before they could even launch. So I think they're very dedicated to this approach.

Okay. Robinhood. I'll ask the same question. Do you...

Not that I know of right now. I think a prediction market's very front and center for us.

Front and center. Brian, when you talked about how they spent four years, how they ended up suing the CFTC eventually to get federal elections in. The one, kind of, big player and the elephant in the room here is Polymarket, which isn't up here. They've obviously had a busy week, I guess you could say. Most importantly, obviously, the bet on the war and the military action -- I'm sorry, not in the military action, the military action in Venezuela that they got hit with. What do you think, for a company like Kalshi, for the prediction markets in general, is there any actual reputational damage beyond some bad headlines to some of the bets that Polymarket has allowed through, and contracts it allows through?

I see a lot of confusion everywhere about what's happening on offshore unregulated exchanges that may be illegally allowing US customers to access their markets, and what is happening in Kalshi and other federally regulated venues. And I think fortunately, there are already laws on the books, and there are already regulations, and there are already rules on Kalshi's exchange that prevent all of those things from happening. But I think to the extent that people think of prediction markets and think of that, the worst actor is doing the industry a very big disservice. Kalshi has taken a lot of steps to try to inform the public about all the things that it has to do and does do around Know Your Customer standards to prevent insider trading, surveillance techniques, the prevention of fictitious trades and wash trading, what kinds of contracts cannot be listed on the exchange that involve...

No, big picture. What kinds of contracts can't be listed?

Contracts that involve war, terrorism, assassination, death. The CFTC would automatically view those as contrary to the public interest because they could incentivize harm against an individual or group of people.

Do you think the CFTC -- obviously, Kalshi got into a bit of an issue with, and I can't remember the exact phrasing, I bet you do, about whether Khamenei, the Ayatollah in Iran, would be, I think it said, not in power anymore, and obviously he's not in power anymore because he got killed. That became this big question. Do you think the CFTC is now paying more attention to the wording of certain contracts because of that?

I think the settlement of any event contract needs to have very close attention paid to it. I think that's a market integrity issue, and I think one of the benefits to Kalshi of having gone through a very long registration and regulatory process is having an iterative dialogue with the agency staff over time about all those settlement criteria. But to your direct question, unfortunately if you have contracts on any individual's potential actions or status, that could change as a result of their assassination. And I think it ultimately needs direct guidance or rules from the agency about how to think about that, because there could be...

How would you -- I was even just thinking just now, so that was he wouldn't be in power anymore. Even thinking of an election, say, once you get to the first day of November when it's really two people left, if something were to happen, one of them were to get killed -- and now, granted, they still might win the election, the way our elections work. But it definitely changes things a lot.

I think the whole point of this idea of the CFTC finding that a particular contract would violate the public interest, in my mind, is if that contract would incentivize harm against an individual or personal property. Right? An illegal offshore exchange offered contracts on how many forest fires there would be here in Los Angeles. If there are 13 forest fires and there's a contract on the 14th, that could incentivize someone to go out and start a fire, right. So incentivizing that is what I think would violate the public interest, and it's wrong, and settling a contract on that would be wrong, but just the idea that could happen, as long as it doesn't settle to that. As long as someone's passing doesn't resolve the contract and the contract gets nullified. I think at this point in time, without further clarification from the agency and rulemaking, is an appropriate approach.

Steph, I'm curious, given that we do have an unregulated offshore prediction market that gets a lot of attention, and does seem to often have some people betting on it who do legitimately seem to know what's going to happen next when it comes to major geopolitical events. How much have you, when I say you, you and your team, been paying attention to those bets and has that impacted decisions? And looked and said, "Oh, they know something".

Yes. You have to pay attention to it. I think over the last year, I've had this view. Our whole team has said, in some cases, investing in line with policy or potential policy because that has really moved markets and even certain stocks. And if you're blind to it or you're just pretending like, "Oh, that's not really how things work," I think you'll miss investment opportunities, and we're here to make money for our clients. So...

So given that, I hate to ask it this way, but for your clients, I won't even say for Robinhood, but for your clients, is it better that there's also an unregulated exchange out there so you can kind of know what's coming next? With apparently some very, duplicitous people working somewhere in DC.

I don't know if that's -- It's not good to have inside information like trading. And that's why there's been so many regulations that have banned it from the stock market, but it still exists, and it kind of exists in Congress too. So, is it better, maybe for me to be able to watch that and take a guess? But is it better for the world? Probably not.

Can I say something on that, Dan? I think first of all, traders, companies, institutions have been making wagers using the oil market on Middle East violence forever. Forever. So the idea that people use financial instruments to hedge risk or to create some financial tool around their prediction isn't new. But I think to that point, that's why it's so important that the agency comes out with very clear guidance because some of these things might provide useful information, but they also might be viewed very unethically and incorrectly and provide...

The perfect timing of them.

Yes, and provide the wrong incentives. So, that guidance...

Are you suggesting then that's been maybe a CFTC -- like predating prediction markets -- a CFTC blind spot?

I think it's something that should have been filled a long time ago. I think the agency is focused on that now.

Paul, can we talk a little bit, because obviously all of this, we're talking kind of insider trading and in sports it's been a thing. Help me out a little bit here. At DraftKings, talk to me a little bit about, I don't know if you call it a surveillance team or what your official term is, help me out. There's obviously been some high profile examples of athletes, coaches, others around teams betting and getting caught recently. There's probably a lot more who've been betting and haven't gotten caught.

What does DraftKings do to prevent, particularly given that you have so many props and I can guess if the next pitch is a ball or it's a strike, what do you actually do to try to nip that in the bud?

Yes. We have an entire integrity team that is focused on sports integrity monitoring. And not only that, we also partner with teams and leagues to make sure that they're getting the relevant data so they can be monitoring the data flows. There's a lot of regulation around it. But we're using artificial intelligence where we have all of the KYC data of all the players in the league. So if you're in the NFL, NBA, NHL, any of the major leagues.

Okay, so you know the player, you might even know their spouse, you might even know their kid. You don't know their next door neighbor, and you don't know the person they grew up next to.

And what we've had is a lot of success, and you've seen some of the lawsuits coming out, in being able to use artificial intelligence to model and understand behavior that is not consistent with the norms of how people behave. Especially on a negative statistic of somebody not having the minutes played or they're throwing multiple balls and we see anomalous behavior, and as soon as we see that anomalous behavior, we're able to really chase that down, research, do their analytics, work with the leagues, work with the federal government and different law enforcement agencies to track down and to make sure. And we go down the rabbit hole on every single one of these because sports integrity is so critical for the success of not only sports betting, but also sports prediction markets, that it is really important that we get it right. There's also a sports integrity monitoring association that we partner with that helps us, and they're doing that not just with DraftKings, but across the entire regulated sports betting industry, and I know they're partnering with the prediction markets as well.

Is college sports more difficult than pro?

It's really the same. So we can do all of the same analysis that we do with college sports, that we do with regular sports. And I think that this is one thing that is super important, is that getting out of the black market and predictions market is helping in all the different states that don't have sports betting regulation. Getting people not using black markets, not using their own bookies, and using regulated products actually helps in getting data and being able to do the analysis to find these situations, and I think that is so important for the integrity of sports.

Are you confident that you are really finding most of it?

We are very confident that we are finding most of it. I mean, you never know the opposite, obviously, of the things that you don't find. But we monitor so many metrics and so do all of our, both competitors and partners, that I believe that we're finding most of it.

When you do find something, what do you do with it then? So you say, "We found something anomalous. This guy doesn't miss this many shots. Something's wrong here. He played X minutes." What happens next?

So we partner with leagues, and federal investigators, and we'll send that information for those markets off to those different partners, and they have a process that they run.

There's been relatively few criminal charges brought for people betting on sports, but kind of in the app age of sports betting.

Yes, there have been a lot of suspensions. There have been different charges brought, but every single one of those cases, and there's some false positives that exist out there as well. But the most important part is having the data. Data is key here, and being in a regulated market where we're able to work with the regulators, work with the sports leagues, and being able to distribute that is way safer than where we were 20, 30 years ago, even 10 years ago, where all of this stuff was happening. People were betting with their local bookmaker, and it wasn't getting caught. It wasn't that it wasn't happening. It wasn't getting caught. So you've seen a rash of these different stories that have come out about players being identified and some people are saying, "Well, this is what's happening when sports betting is becoming legal," or, "Prediction markets are becoming legal." But I think it's quite the opposite. I think what we're doing is we're patching stuff.

But it has enabled people to bet more.

I'm not sure. I think that people that want to bet...

Let me say, as somebody who had never made a sports bet outside of a NCAA pool in my office until I download the DraftKings app, which I unfortunately use a little more than I should. Yes, I didn't go out of my way to find a bookmaker, but I don't have to because I'm sitting on my couch, and it's in my phone.

Yes. But I think that you're not the population person that was going to be...

More people get takeout now because they have DoorDash than they did before. The ease changes things.

100%. I think the ease makes it more accessible for people like yourself to go bet on the game. But I think we're talking about people that are compromising the integrity of sports, and those aren't the people that -- that's not you. I'm assuming that you're not trying to go...

You don't know.

Maybe, I don't know. That's a good point. So, maybe you're going to the Yankee Stadium and doing something. But ultimately, people had access to bookies. The black market was huge. It was a multibillion dollar market where you could do it online, you could use payment instruments, and that existed. And what we're doing through prediction markets or sports betting is bringing that into the open, and I feel like that, on top of all the other value that prediction markets and sports betting has added, is getting that data has helped the integrity of sports, I think, more than negatively impacted it.

Brian, so okay. So Paul talks about DraftKings. They're working with the leagues. They know who all the players are. They know who all the coaches are. And it's a relatively narrow thing, right. You know everybody who's affiliated with the New York Yankees and on the payroll. Great. When you go broader in the prediction markets, whether this be something about economics or something about politics or something about business, particularly when you've got thousands of people working at these companies, how does Kalshi, from an integrity surveillance standpoint, how do you do the same? Because you have a much larger, and I guess now you guys do too, on the prediction market, Paul -- but you have just this unlimited universe of people who could potentially know these things.

Yes. Well, first of all, I think there always has to be room for after-the-fact enforcement. In any marketplace, the most highly regulated marketplaces like Kalshi, and other derivatives exchanges like the New York Stock Exchange, there are people that do bad things. There are bad actors. There are inside trades that occur. But the goal is to try to prevent as much of it as possible, right? And so that is part of Kalshi's Know Your Customer process, where not only are you getting someone's name and address, you're getting their employment information, you're verifying that, and you're trying to assess, is this person someone that could have material non-public information that they have received inappropriately and are using in violation.

Can I ask, when you say their employment information, how are you getting their employment information?

I don't know that, but I think it's voluntarily disclosed. I think it has...

But I guess I'm just asking, if I work at Google and when I sign up for Kalshi, hell, maybe I write, as you said, it's voluntary, "Google." And then tomorrow I change jobs. I'm probably not going to Kalshi to update my employment history.

Well, so I think, again, there has to be after-the-fact. So we have surveillance tools and AI that look for suspiciously timed trades, right. That look to see, well, has this person ever engaged with this market before? How much did they put on this trade? When did it occur? And then they refer that to an investigations team, possibly refer it to the CFTC or the DOJ, right? And ultimately, I think there's a misnomer. Maybe people in this room, given financial sophistication, are much more aware of this. But I think there's a misnomer around inside information. It's not knowing what will happen. It's using that information in violation of a duty of trust and care, with someone else or another entity, right, to trade and benefit yourself. So ultimately, these are cases that are filed on behalf of a regulator over an otherwise regulated entity, or they're DOJ cases that prosecute someone for those kinds of...

Can I -- how long -- because you were at CFTC, and obviously you weren't a prosecutor there on the enforcement side, but...

I'm not even a lawyer.

Not even a lawyer. I'm just wondering how long these take. So there was the DOJ brought a case last week, the one related to Venezuela. But the CFTC so far has not brought a single case or a fine for anybody for "inside information" tied to a prediction market. Is that just because it's a matter of time and these things take a very long time, or is it because CFTC isn't doing its job?

I don't know because I'm not there. My opinion is that it is probably the former. That there are things that they are working through. There will be investigations and cases that are brought. There are bad actors in this space like there are in any other, so I would expect to see that over time. When I was there, for instance, the average length of the investigatory part of a case before I would vote on it would be two to three years. Right. That's a long time. And it's not because of a lack of resources. It just takes that long for lawyers to go through their process and to follow by the standard judicial procedures. But I also think that it's important -- the other aspect of this, though, is that sometimes, including on Kalshi, the exchange's rules are above and beyond what the agency would require. So for instance, Kalshi just recently fined and banned three people that were candidates for an election for wagering. And I think they wagered on themselves.

They were Pete Rose bettors, yeah.

Yes. Which as far as I know, and I need to put that caveat in there, as far as I know, is not necessarily prohibited by CFTC regs, but is prohibited by Kalshi's own exchange rules. And they found that. And in one case, it was $100 that was being wagered. So they went in and dug into this and found that person, fined them, and banned them. So they have an obligation to try to create markets of integrity, and when insiders use those markets, it diminishes that.

Steph, I'm curious, politically speaking right now, we have an administration that is very pro-prediction market. The person in charge of the CFTC has basically, kind of, been very open about that. The Trump family has stakes in this. At Robinhood, when you're thinking about prediction markets and you're thinking about them going forward into the future, and it's obviously something you're investing a bunch in. This might be a little outside your bailiwick, but I'm going to ask you anyway. How much do you weigh the political risk of the rules significantly changing? So if sports particularly is such a big part of this, if there is some sort of new Congress or White House that in two years, three years decides to lay the hammer down a little bit, does that mean that you guys kind of spent money you shouldn't have spent? And I was wondering how you think about that or if you guys think about that.

We think about it across the board, not just in prediction markets. The rules are changing all the time. They're changing in crypto. They're changing in just regular markets in general, and the structure of our markets are changing, so we think about it all the time. I think we're never going to try to evade the law at all, like, ever.

No, I'm not suggesting you're trying to break the law. I'm suggesting the law is potentially going to come in and say...

To change.

... "That's a nice thing you have there. No more".

You can't do it anymore?

Yes.

Yes, it's something I think we think about all the time, and we try to weigh the probability of that happening. I think that might come sooner rather -- we'll see what happens with the midterms, but that could change the nature of how laws get done in the second half of this administration. So yeah, I think it's always in the back of our minds that the pendulum can swing the other way and that's why we always just try to do everything safely, and not just to the letter of the law, but also what feels right in everything that we do.

Paul, what would you see? I assume DraftKings has a bunch of lobbyists also. What do you see if Democrats were to, and I'm going to say Democrats because the Trump part of the GOP is obviously very open to this. What do you see as being a potential change if Democrats, if not take Congress, take the whole thing in three years?

Look, I don't think we know what's going to happen, and we don't have a prediction market on what's going to happen. Maybe we can add one of those, but...

According to Kalshi, Democrats are going to win. As of yesterday. I don't know what it is today.

All right. Well, maybe we do know what's going to happen. Ultimately, I think I go back to what I was saying earlier, which is, and I think it actually is in line with what Brian's saying, is that when you have these federally regulated or state-regulated products, you're ultimately providing a better consumer and safer consumer experience than exists otherwise. We know that there are other products, whether it's black-market sportsbooks, whether it's exchanges...

Okay, that's fair. And we can talk federal, state, but there are certain people who just don't believe there should be sports betting, just like they don't believe, and I'm not going to say this is the same, but there are people who say, "We don't want you to sell heroin." Yes, you're going to be able to find it somewhere, but that doesn't mean we are going to okay it.

Yes. Look, I don't think we know exactly what's going to happen, and then ultimately, as with DraftKings, as we're going to do, if we can participate in the different states, we are going to participate, and we would love to offer the products wherever we can pass legislation. But we are pro the federal government taking a more active stance and saying, "Sports is legal and accepted, and we can do it as a prediction market".

Do you believe the state, assuming governor, legislature, depending on the way the state works, do you believe a state has a right to stop people, its citizens, from betting on sporting events?

I don't have a strong opinion on that one. I feel like right now we have a federal law that enables the CFTC to regulate it, and there are states and states' laws, so I don't think we have an opinion on where that stands.

Brian, you're the only one up here who lives in DC. How do you see this playing out?

Well, just to your prior question. I know that a state can't ban one of its citizens from participating in a federally regulated exchange on a derivative contract.

But it could pass a new, not under current law, but it could pass a new law which excludes sporting events from...

The federal government? Congress could?

Yes.

Yes, it could. But states cannot currently tell its citizens that they cannot participate in a federally regulated derivatives exchange. And the case in point in that is that there's actually still a law on the books in Michigan that prevents people from wagering on grain contracts from the 1800s. It has not been withdrawn. And everyone in Michigan is federally allowed to participate in grain futures. So I think about these models as being able to coexist. I think what will happen in the future, I don't know.

I think laws are very hard to change. I think it takes a lot of energy and attention and usually a significant amount of outrage to kind of catalyze enough people to focus on changing the law. And to a prior question, I think we've heard about a lot of bad things that aren't happening in the United States. I think there's a good story to tell about what is happening in the United States. And I think as long as all that stuff stays somewhere very far away, I'm kind of proud of the regulatory model that we have.

This is almost a politics -- it is, I guess, really a politics question, which is, given that the Trump family is so tightly tied to prediction markets, obviously Donald Trump Jr. on the board of Polymarket, was a paid advisor to Kalshi, does that make it more perilous for prediction markets because you have the opposite impact, which is Democrats, elected Democrats, potentially viewing prediction markets as MAGA plays?

I mean I think it could, but at the same time, Stephanie Cutter, who's a former Obama campaign manager.

She is, but she's a lot lower profile than the president's son who's speaking at conventions.

Fair enough. But I think the point is that Kalshi is receiving advice from both sides of the aisle. And if someone wants to take a highly political view of one of those advisors, I don't think we can stop them. I think what we do have control over is telling our story, telling the policy, telling the regulation, telling why this is a good model, and this is a federal marketplace, and the appropriate regulator for a marketplace is a federal market regulator.

Steph, do you, or maybe it's your clients, do they have any concerns when it comes to political questions on these exchanges? And I'm not making an accusation, but I'm curious if there's any concern that the referees in this case are putting their fingers on the scale because there might be certain benefit for the market as a whole, let alone the individual companies, it might behoove them if a certain person is elected or not elected.

Yes, I don't think so. I don't see any trepidation with that. And we saw in advance of the last election, if you were watching a broadcast of it, you wouldn't have known, as early as our own prediction market was telling us, who was going to win. So I don't think that there's concern around that. There's definitely a subset of customers who just don't want to be in prediction markets, and you can just shut it off in the app, and you can focus on the rest of your portfolio.

You can talk about that last election, the presidential election I assume we're talking about here. Trump and Harris. That was obviously this huge moment of validation for prediction markets. The fact that it got Trump right, it got it fairly early. Conversely, if they were to get the next presidential election wrong, what does that mean? What's the impact of that? Or do you make the argument it won't because they get it right?

Yes, I just think there's been, like a shift in, and this is maybe a non-answer answer, but it's been a shift in I'm seeing more of our customers even forget prediction markets, like investing ahead of institutions making calls on companies. And I feel like for some reason, I think they're almost closer to the heartbeat of what is happening in our country than people who have been working for institutions for a long time. And so I think the last big presidential election was a representation of that, but I've seen it more on a micro basis too, in what our customers are trading. So look, you can always get it wrong, but I think there's more to it than just the one-off I've seen.

Paul, we have about seven minutes left. What is not currently being offered that you've seen in any prediction market, whether it be DraftKings or somewhere else -- in a category, maybe, I guess you could say, that you think either is coming or should be coming, and it's a substantial one. Or maybe it's a really niche one? And it's just interesting.

That's a good question. What categories are not there? I will say that the prediction markets have been amazingly quick at innovating and adding categories really, really quickly. I think that in sports, we're going to see faster, more dynamic micro markets appear that doesn't exist yet.

Can I ask, am I correct in saying that if I'm at a sportsbook, I can bet that the next pitch is a ball or a strike. But I cannot with the prediction markets because CFTC technically has to approve or at least not deny contract, which takes about 24 hours, right?

So not exactly because they can...

You have to explain to me, just help me.

No, they can approve a broad contract. So, if they're going to do next pitch, for example, you can approve the contract and then have that turn up every single game. So you just have to approve it once, that one 24-hour period.

Okay, but it doesn't have to be for the eighth pitch of this game. It just has to be, quote, "next pitch"?

Correct. Yes. And I think you'll start seeing more micro contracts. We've seen that already with RFQs and parlays, and I think you're going to continue to see innovation there in terms of how dynamic the prediction markets are going to be able to be on sports. But generally speaking, I think that there's already a lot covered. I couldn't answer your question. I'm curious to hear what these other guys say because maybe they'll give you some good ideas for products.

Steph, I'm curious about Robinhood because one of the things that isn't in there really is, and I know they're governed differently because they're securities, which is stocks, but that's still not there yet. There's some but not robustly.

There's some. Yes. I would love to see that because I think that's why I was mentioning Palantir earlier because I was thinking like how many times you could do the work, say this company's going to beat earnings, but there was just one line in the, whatever the presentation after that the market didn't like, or the earnings were really bad, but there was some line in the presentation the market loved. So I think being able to have more micro bets on your work on a company, or any other kind of investment, I think becomes even more interesting.

Brian, just similar question to you. Is there something you see that's not on these right now that you expect to see, or think should be coming or could be coming?

Well, let me talk about one that I think isn't really well-known or isn't that appreciated that I've heard Tarek, the founder of Kalshi, talk about predicting earthquakes. Supposedly, the markets there have been more accurate than the forecast by scientists.

Can I say, is there any concern that if you get a major earthquake, lots of -- this is the wildfire question. I appreciate that a person can't cause it.

Well, I think that's the point.

But it's still going to result in a lot of death.

Yes. Potentially. But again, policy is a complicated thing, and I think policymakers have a very hard job to do across this and any other landscape. So however they choose to make this decision going forward, I think they'll certainly take some thought on it. But I distinguish between a contract which would incentivize someone to do something bad than using information on, especially something like a potential natural disaster, that people could use to inform themselves and potentially hedge that risk.

Now maybe that line is too far for some people, and that's fine. I understand that. But I think it's just a really interesting thing that there's a market on earthquakes happening around the world that's more accurate than what scientists are currently estimating.

I'm just curious for everybody up here, do you personally use prediction markets? Actually make personal bets with your own money on them? Yes?

Yes. Occasionally. Not obsessively.

Okay. Brian, do you?

Luckily, I am precluded from doing that, so I can say no.

Paul?

Also precluded from doing it.

So let me ask, then, a different final question for you, which is, if you had to make a significant personal decision in your own life, a personal life decision, whether that be financial or personal, and it was based on the crowd on a prediction market, would you trust it?

Absolutely. Yes.

Steph?

Not 100%. I would do other work.

Podcast, X? Just checking.

Yes.

Brian, would you? Like a serious personal decision?

It's the economist answer: It depends. I think it depends on how big the decision is.

It's big. It's really big. You're going to have to move into a much smaller place.

Are the odds 99%? Or are they 60/40? Are they 51/49? How liquid is the market? Again, I go back to what I had said before. I think this is a data point. I think it's a very important data point, but I think it's a data point.

Yes.

And that's what I would say is, absolutely, you have to use the data point.

Hey, you're just going back on what you said.

No, I'm saying you absolutely have to use it as a data point. It's all probabilities. You asked the question of whether prediction markets get the election wrong, but they're not. They're giving you a probability. It could be 20%, it could be 10%. They're not right or wrong. It's not binary.

They will always get it right. It just depends on what probability.

Because it's a probability. It's a probability outcome, and it's a data point, and that's how we all use it, and that's how people think about it.

I think that's a good way to stop. I want to thank all of you for coming. Brian, Steph, Paul, thank you very much for being here.

Good morning, and thank you for joining DraftKings' 2026 Investor Day. I am Michael DeLalio, Head of Investor Relations at DraftKings, and we are thrilled to have you join us today.

DraftKings is entering its next phase of growth. Our opportunity is large and expanding. At the same time, our LTV flywheel is getting faster and more efficient as we raise our standards across product, technology, trust and marketing by increasing our deployment of machine learning and AI. Today, you'll hear directly from the leaders driving our business forward. We will move quickly and stay tight to what matters most. But first, I need to cover our safe harbor statement and non-GAAP disclosures.

Certain statements we make during today's remarks may constitute forward-looking statements that are subject to risks, uncertainties and other factors as discussed further in our SEC filings that could cause our actual results to differ materially from our historical results or from our forecasts. We will also refer to certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are available in the financial reconciliation section of today's presentation.

With that, I'll turn it over to our CEO and Co-Founder, Jason Robins.

Thanks, Mike. I want to start by talking about how DraftKings has truly become one of the preeminent digital platforms in entertainment. We have many, many products, different brands, 11 million customers, $6 billion in revenue, $620 million last year in adjusted EBITDA and nearly 6,000 employees. Megatrends are absolutely exploding in digital entertainment. DraftKings stands to benefit from what will, for many years, be continuing engagement with sports, entertainment, interactive, mobile and many other things that are really truly lined up for DraftKings to capitalize on this coming generation's consumer.

We are a founder-led company that makes a huge difference. We have an entrepreneurial culture. We hold people to a very high standard. We are relentless in our competitiveness. We're willing to take smart and calculated risks, and that is truly a huge advantage for us in a world where many, many of these companies are not led by founders.

We have a proven track record of winning share and launching different products. For those who don't know, DraftKings actually was not initially a sportsbook. We launched as a daily fantasy sports company. After being probably the 25th company to launch in this space through a series of product-led innovations and customer centricity, we were able to capture the #1 position in daily fantasy sports. When PASPA was first repealed, I remember everyone saying to me, there's no way DraftKings is going to be able to compete in sportsbook. There are so many other companies that are more experienced in this space. But we knew how to market and build products for this consumer. And sure enough, we did. Now we have far more share than we were even initially predicting a few years ago in Sportsbook, and our share has been growing over the last year.

After that, we launched iGaming. Everyone thought of us as a sports company, and no one thought we could succeed in iGaming either, but we have done so as well. We now hold the second highest share in iGaming and see a huge amount of potential with further legalization and expansion across the U.S. And since then, we've launched other products, most recently our Predictions app, which we are very excited about, and I'll talk to you a little bit more about in a moment.

DraftKings is a company that pours over many, many metrics, from financial metrics to customer behavioral metrics. These are things that guide our decisions and help us be smart in how we approach our day-to-day jobs. Three key ones that we follow at a macro level are customers, revenue and adjusted EBITDA. Those have each been growing substantially over the last several years. And with many more things coming, including we anticipate additional legalization and of course, the innovation of Predictions that's happening right now, we expect to see more growth across these key metrics for several years to come.

Next, I want to show a brief highlight reel to show some of the things that we have done and who DraftKings truly is as a company.

[Presentation]

In each of the categories in which we compete, we have achieved strong share, and that is really due to four key sustainable competitive advantages. First is product. Product is at the heart of what we do, and we believe it is the core pillar of customer centricity. Customers, especially in the digital world, want the best product. And with low switching costs, they will always look at the best product as the most important thing.

Number two is our technology. Our technology obviously powers our product and is why we can quickly develop and iterate rapidly. We often start with MVPs and rapidly improve products. And if you look at the progress we've made in our Sportsbook app, for example, over the last few years, it has been about 10 years' worth of innovation in a span of maybe 3 to 4. Technology, however, also powers many other things we do, from building great data environments that enable strong analytics, to now using AI to transform many areas of the way we operate in our business.

Third is trust. Trust is something that we really take seriously. And it is the most important thing, not just for our relationship with our customers, but also many other stakeholders, for example, our regulators. Our customers trust us, and that is why we have such a strong brand. They know we will deliver high-quality product experiences. They know we will be there for them, and they know that their money and their account information is safe. Second, with regulators, they trust us to perform in a compliant manner and to follow the laws and rules of each state that we operate in and now under Predictions under the rules of the CFTC. We have many other audiences, too, where trust is key, from our lead partners and media partners to our employees. Trust is very much at the core of everything DraftKings stands for.

Fourth is marketing. Marketing is a huge part of why we are successful because it powers our acquisition and LTV flywheel. We bring in customers at efficient rates, and we acquire them at high levels of scale. It's easy to acquire with a low CAC at a low level of scale. It is hard to acquire millions of customers every year efficiently the way DraftKings does. Once they are in our flywheel, our CRM systems and other marketing channels continue to add LTV by engaging our customers with new products, new things, ideas, promotions, all sorts of stuff. Those are the things that keep our customers coming back to our great product every day, and that is one of the key reasons why DraftKings stands apart from the competition.

As I noted earlier, LTV is a core advantage of ours. It starts with great retention, but many other parts of our monetization engine have been honed over the recent years, and we've now built a real flywheel that we can plug customers into. Those customers become engaged, truly love our products and generate significant long-term retention, loyalty and high LTVs. Higher LTV, of course, translates to growing gross profit. Last year, we achieved $2.7 billion in gross profit. This is a huge milestone for a company that only a few years ago was well below that in revenue.

Now I want to talk about a new topic, how we are going to win not just in sports betting, not just in predictions, but in sports, everywhere. It starts with taking one of our greatest assets, our green app, DraftKings Sportsbook & Casino, which we are renaming DraftKings Sports & Casino. This new Super App is already our biggest app, getting about 80% to 90% of our 11 million customers in there each year. We know how to drive traffic there. We know how to engage customers there. Now we are going to have both Sportsbook and Predictions in this app. Depending on which state you're in, you will get a different experience. This unlocks several really important advantages for DraftKings.

First, it allows us to dramatically expand our offering. We will now have a sports product everywhere for customers across the entire country. Number two, it allows us to leverage our huge scale with our brand and our marketing footprint. All of our national marketing now will be working across the entire country instead of across a subset of states where we have sports betting. Lastly, it allows us to truly integrate across product, not only bringing great promos and great things within sports, but also casino and many other products that we offer as well will be available in this app.

Next, I want to show you a short video that will give you more detail on how this comes to life.

[Presentation]

And now I want to turn it over to Jeanine, who is going to go through more detail on how we are going to execute a strategy that will allow us to win in Predictions.

Thank you, Jason. I'm Jeanine Hightower-Sellitto, General Manager of Predictions at DraftKings. Our strategy to win in Predictions will largely follow our Sportsbook playbook. We will be vertically integrated, leverage our proprietary sports pricing and trading capabilities. We have a deep understanding of sports customers, and we have premier national marketing assets.

These advantages have driven our success in Sportsbook, and now in Predictions, we will benefit from the same advantages. We will vertically integrate to achieve superior unit economics and control more of the customer experience. The Super App is the distribution breakthrough, but what makes this business structurally attractive is vertical integration. We intend to own more of the prediction stack, so we control the end-to-end customer experience and the economics that come with it. That means faster innovation velocity, better unit economics and tighter control over quality as we scale. And while the Super App is broad by design, the Predictions product inside will be exceptional, a sports-first experience with the functionality, speed and polish customers already associate with DraftKings.

We are not building a side app. We are building a core DraftKings product, and we will keep raising the bar. We believe Predictions could represent a $10 billion annual gross revenue opportunity in the years ahead, and we intend to lead in this category. Vertical integration will help us achieve this goal. We will leverage our proprietary pricing and trading capabilities to create the deepest and broadest sports offering.

In Predictions, liquidity is central to the experience. Tight two-way markets real depth and fast updates are what customers feel and what drives customer retention. DraftKings is built for this because we spent years building a proprietary sports pricing and trading stack. The same sports data modeling, trading and risk infrastructure that powers our #1 ranked Sportsbook will power our predictions offering, enabling broader market availability, deeper content and a better live experience. And in the next few months, we plan to launch a dedicated market-making division because bringing our own liquidity to market is how we will deliver tighter pricing and a more consistent customer experience.

This is also where AI and machine learning compound the advantage, sharper probabilities, faster adjustments, smarter risk and better unit economics at scale. We have a deep understanding of sports customers. Another advantage is simple, but it's massively underestimated. We know sports customers. We've been serving sports fans for nearly 15 years across fantasy and sportsbook. And we understand what drives engagement in the live moment. We know the mindset of a fan who wants to get in on the action and not just manage a generic trading workflow. That's how we're building Predictions.

It will feel like DraftKings, sports-first content cards, markets and combos that match the moment and promotions and context that make participation intuitive. And because we have rich cross-vertical data, we can personalize the experience for our customers from day 1, so discovery, recommendations and the entire journey get more relevant with each session. We will leverage our national marketing footprint to efficiently acquire customers across verticals.

Now let's talk about distribution. DraftKings already has a scaled national marketing footprint, the brand, the creative and premium relationships that show up in the biggest moments in sports. Predictions makes those assets more valuable overnight because we can now convert that demand in places where Sportsbook isn't live today. With the Super App, it's one brand, one app and one funnel, so national marketing can drive efficient customer acquisition across both Sportsbook and Predictions across all 50 states. That is a real structural advantage in CAC efficiency and in speed to scale.

Our Predictions offering will rapidly improve in 2026. We are moving fast. We already launched DraftKings Predictions through CME's exchange, expanded capabilities through crypto.com, and from here, our road map accelerates. More exchanges and combinations, our market-making launch and Railbird coming online. And most importantly, our Super App integration. All of these milestones increase innovation velocity, improve unit economics and drive more efficient customer acquisition.

Over time, we intend to build toward deeper vertical integration, including in-house exchange technology, and as we scale, an in-house FCM and clearinghouse components so we can capture more customer economics and control more of the customer experience. This is the same playbook we've run again and again, launch, iterate fast and own the parts that really matter. We will keep raising the bar for quality in the industry. Our goal is clear. By the start of the NFL season, we intend to deliver an industry-leading sports predictions experience and scale it profitably from there.

For my last point, it's important to understand that the profit opportunity from Predictions is significant. While revenue in this category is just beginning to build, we have studied the business in depth and have strong confidence in a high adjusted gross margin profile. Compared to Sportsbook, we expect our Predictions adjusted gross margin to be 10% to 30% higher. This is because this industry does not have state gaming taxes, and we expect long-term promotions to be more limited. Of course, we will follow the data to better understand the customer lifetime value as we deploy our growth investment over the next year.

And with that, I'll turn it over to Corey Gottlieb, our Chief Product Officer.

Thanks, Jeanine. I'm Corey Gottlieb, Chief Product Officer. What Jeanine and Jason just went through with you is a path for us to deliver an entirely new app experience, one that integrates all of the best parts of our products in a singular, seamless experience for our customers.

But how do we actually get there? Our ability to deliver, to execute a plan like that requires a ton of background in having built and delivered amazing mobile experiences. That's what we've done. We have the #1 rated products in both Sportsbook and Casino now going on in the last 2 years. And we've gotten there through a very conscious, very deliberate playbook. We have invested deeply in our own technology infrastructure, which allows us to unlock great new differentiated customer experiences. We have built deep content, every possible offering in every possible product. We did that in Sportsbook, we did it through our original game studio with Casino. And we'll continue to invest in both content and experience as we get into building our Super App.

And then we've just listened deeply to our customers. We have a decade's worth of experience authentically understanding what our customers want, whether it's iGaming customers or sports customers, that's gotten us to a point where with both of our products, we are empirically rated the best product in the space. You can see in Sportsbook, for example, compared to competitors, everything from user interface to content depth to experience is consistently rated higher on DraftKings than in other places. Again, that is the product of deep investment in both an understanding of our customer and in the right infrastructural technology to unlock great experiences that can't be had through a reliance on commoditized third-party offerings. That's the same playbook we're going to follow as we build and deliver the Super App.

So how does that translate to what we're going to do with the Super App? Well, the starting point is building a great integrated sports content experience. That begins with our Sportsbook, which is the #1 rated product in the space. It then taps into what we deliver from our exchange. And once we integrate to deliver our own in-house exchange, we will further expand the offering that we have for our customers. And then it leverages the market-making capabilities that we're soon going to bring to market. The aggregate of those things is this deep, rich sports experience, all of which sits on top of our in-house infrastructure.

Infrastructure is really the foundation, the powerhouse that makes our sports products go. It is vertically agnostic, meaning it powers Sportsbook, it powers sports products inside of an exchange. It sits on top of the same data layer, integrated sports data, deep analytics, really strong trading capabilities, dynamic pricing capabilities. All of those things are aggregated in years' worth of technology infrastructure that we've built to deliver amazing modeling and data and pricing and trading capabilities. Those become the backbone of what is the richest, deepest possible overarching sports experience that really makes the Super App shine.

So what do I mean when I say we're going to deliver a dynamic sports content experience inside of our Super App? Well, that relies on what we've built inside of our Sportsbook to date. We have operated against this identity, which is that we operate at the speed of sports. Our sports betting offering across multiple dimensions moves at the actual cadence of sports consumption.

Let me get a little bit deeper there. So one, we have the best live offering in market, the #1 live betting sportsbook product that exists today, whether that's our live market availability, the depth of our live content, our live user experience. When you consume live sports with the DraftKings Sportsbook today and in the future with our Super App, it feels like you are moving at the speed of a real game.

Second is the notion of authenticity. We have to be able to tap into how people actually consume sports by deeply understanding the way that they think about narratives and storylines and statistics and information and all the ancillary information that tends to drive their opinions. Betting in our Sportsbook is an expression of opinion, and we need to be able to package content and promotions and experiences in a way that allows for that expression of opinion.

Finally, there's the notion of community. Think about what really moves sports. It's conversation, it's engagement. It's the back and forth that happens when you're watching a game with your friends or the text messages that happen over the course of a week leading up to the Super Bowl. We can encapsulate that in the form of a really, really strong integrated social experience. And we've done that. We have a differentiated social experience that powers our Sportsbook today. That, too, will extend to power all of our sports content. So these pillars really become the driving forces of how we deliver that dynamic overarching sports experience within our Super App.

Now let me go a little bit deeper into what each of those pillars has meant for us within our Sportsbook to date. First, I mentioned live. We have the #1 live betting product in the industry, thanks to deep technology investments that we've made over the course of the last few years that really take us to a different level of delivery for the customer. We have a super strong live user experience. We have really powerful micro markets. So point-by-point tennis, pitch-by-pitch MLB, play-by-play NBA. All of those things are super strong for us.

And maybe one of the most sort of important indicators of just how strong that experience is, is our live market availability. No experience is more frustrating than when you come into a product and you want to make a bet on the second half line of the Patriots and Texans game or on the first quarter line for Patrick Mahomes' passing yardage. You see a market, you go to click on it and then all of a sudden, it disappears. That is bad live market availability.

We calculated that this past year, we took more than $50 million in GGR on bets that were available on DraftKings, while the top competitors that we go up against had no market availability for that same content. That's a really, really critical thing for delivering a great real-time, fluid live betting experience. We continue to innovate here with live promotions. We launched our Live Millions promotion for the Super Bowl, it was super successful. But all of this, again, sits on top of this infrastructure that allows us to build many products in a differentiated road map on top of an amazing live experience. And we'll carry that over to the Super App.

Now let me touch on this notion of relevance and authenticity because it's been critical both for our existing Sportsbook and will really be a lot of the backbone of the way that we communicate with the consumer when we deliver a global sports product in the form of the Super App. What do I mean here? Well, running a great sports content product is kind of like running a great editorial operation. You need to have all of the tools at your disposal to deliver news in real time, information in real time, to package and creatively deliver content in all kinds of different ways, have the right data science and personalization to understand the relationship between each different type of customer and the kind of content that they want to consume. All of those are infrastructure that we have built that underlies our Sportsbook product today.

The result is that we can deliver all kinds of products on top of that in the form of interface that are super dynamic and interesting and feel like content consumption. And all they are is an easier, more seamless way for customers to express their opinion in the form of making a bet. That same functionality will be super critical for us, as we want to tell stories in the form of overarching sports inside the Super App. We'll use the same functionality, the same merchandising, the same content management system and infrastructural technology to package and deliver content dynamically with our Predictions content inside the Super App as we have to date inside of our Sportsbook.

The last real prong here as it relates to consumer differentiation inside of our Sportsbook and for sports content more broadly is the notion of community and social. Starting maybe 5, 6 years ago, we began to build the infrastructure of a social product deeply embedded inside of our Sportsbook. That means a full social graph where we can understand customers' connections to one another, customers' relationships to our content and start to build interfaces on top of that, that allow customers to engage not just with bets, but with each other. The most popular examples of that are our Tail Bets product, where customers can come in, see what one another are betting, see what our influencers are betting on and be able, in one click, to tail those bets themselves.

We've built many interfaces like this that now form this web inside of our product where it feels alive. It feels conversational. It feels like a place not just where you can express your opinion in the form of a transaction, but where you can express that same opinion with your friends or with people you know or with the broader public. That's a huge part of authentically delivering a sports experience is being a hub for conversation. No other products in the sports betting space have this, and our Sportsbook has captured this, and it's a real meaningful part of our user experience and our business. And it will be another one of those sort of components of connective tissue that makes an overarching sports experience feel dynamic and integrated and community-oriented when we launch the Super App.

This idea of authenticity also manifests in the form of our Spanish language product. Maybe 2 years ago, we recognized that there was a growing gap in the space where nobody had delivered for a Spanish-speaking customer, a fully translated experience. So we set out to do that. What we launched a few months ago is a fully translated app. Our Sportsbook app, the Casino embedded inside of it, 100% translated. That's every piece of content in the app, from markets to promotions, to all of the different instructional text, our educational text, everything in the product completely translated and is powered by an AI-oriented translation service that intelligently learns what those customers want, what maybe doesn't feel authentic in our translation layer and improves it.

The result, first of all, is a really strong translated product that we're going to heavily lean into for events like the World Cup coming up, for example. But that also creates a capability for us that now becomes extensible so that when we launch the Super App in time, it will be not super difficult for us to deliver a translated product, for example, with Prediction sports content with other content that lives inside of the Super App. This gives us, I think, a really unique differentiation point when it comes to authentically reaching the customer.

I want to turn for a moment to our iGaming product. Because like Sportsbook, we have built a ton of great infrastructural technology to power an authentic experience for our Casino customers. One great example of that is what I would call our rewards loop. Over the course of the past few years, we've built several critical capabilities along the journey, along the connective tissue that really makes customers go inside of a casino product.

One example of that is our jackpots product. We have a homegrown underlying technology stack that powers dynamic jackpots, multi-game jackpots that allows customers to engage with jackpots at all different levels. We recently awarded the largest online jackpot payout in the history of online iGaming in $22 million a few months ago. This has become a staple of our casino brand. We are known for having set ourselves apart from the rest of our competition where amazing jackpots are concerned. They form a critical part of that core loop that I mentioned.

Another great example is our daily rewards product. A few months ago, we launched a product that layers the popular Rocket game that we have built and the customers have enjoyed for years with us on top of a daily rewards experience. The result is that customers can come in every day with us, engage with a free daily rewards game, earn prizes and feel again like they are constantly reinforced. Our ability to deliver core capabilities all along that loop so that the customer comes back to us consistently and feels like this is just a place for fun and where they can be rewarded is second to none.

On top of that infrastructure is content. With Casino, we made a conscious investment when we first launched our Casino app, to build original content. We did that in the form of an in-house studio. The evolution of that studio has been an awesome thing to watch. We have developed hundreds of original titles. We've built strong brands like Rocket that are super engaging and that now become resonant with our brand, they've become synonymous with what the DraftKings Casino is. It's allowed us to create innovative mechanics that now power lots and lots of slots content. It has become one of the backbones of the way that our business operates. We did $30 billion plus in studio handle this past year in 2025. So a huge component of the way that we set our Casino product apart is through the operations of our studio.

So how does that all come together? I talked a lot about sports and how we can deliver this really great integrated dynamic sports content offering that combines Sportsbook content and our Predictions offering inside of the Super App. And that's true. There's no question that it's a differentiated focus of ours. But the Super App is capable of more than just that. It's also capable of being the house for our nonsports content. I just went through with you how strong our industry-leading Casino product is, how strong our original Casino content is. That, too, will live in the Super App.

And we have signal here already. We have had an embedded Casino product inside of our Sportsbook, and that product makes up 62% of total Casino handle already. So there's clearly intent among customers who are already inside of this combined product to engage with Casino there where Casino is available. We'll deliver increased personalization there. We'll build great native cross-sell and cross-product integration. There's super strong opportunity for us to deliver an even better integrated experience that takes sports, but then goes beyond sports to be an umbrella for all of the best things that DraftKings offers.

Now I'm going to turn it over to our Chief Technology Officer, Zach Maybury.

Thanks, Corey. I'm Zach Maybury, Chief Technology Officer at DraftKings. I want to do one thing in this section, make our technology advantage feel inevitable. Not as a feature, but as a structural edge that compounds.

DraftKings runs in a technology stack we built and we own. That stack sits underneath every product we ship and every customer moment we create, Sportsbook, Casino, Fantasy, Lottery, Predictions, and it powers both layers of the business. First, what customers see, the experiences in the Super App, the speed, the reliability, the quality. Second, what makes the business work. Data, pricing and trading, payments, risk, responsible gaming, customer support workflows and analytics. We don't rent the core of the platform, we built it to move fast, stay up in the biggest moments and scale efficiently as the business gets larger. And the Super App is the clearest expression of that advantage. One platform, one set of capabilities, compounding improvements everywhere.

Now if you want to see where owning the stack becomes a moat, you see it in sports pricing and trading. We originate and price the vast majority of our sports content in-house, and that control translates into three things customers feel immediately. First, breadth and depth. We can turn more moments into markets faster across more sports with more combinability. Second, live availability. In-play is where intent is highest. We keep the doors open, and we keep markets current because we own the models, the data pipeline and the infrastructure to refresh in real time. Third, friction-free transactions, speed at placement, speed at settlement. That's the emotional finish line for customers. And we keep getting better.

Let me put numbers behind it because this is where technology becomes visible. 95% of our content is now in-house, up from 72% in 2022. We run 100,000 simulations per calculation, up from 10,000. Live mainline availability is 84%, up from 70%. 517 live betting options per game, up from 124. 92% live bet success rate, up from 78%. And 89% of payouts complete in under 60 seconds, up from 66%. This is also an AI and machine learning-driven domain. The ML shaders we implemented in the second half of 2025 and into 2026 are tracking towards roughly $45 million of annualized gross revenue uplift, with live tennis moneyline results already exceeding expectations.

These same capabilities scale directly into Predictions as we launch our Market Making division, extending our pricing and trading edge into a new category. It's the same engine solving a bigger set of problems.

Another structural advantage is our data platform and analytics engine. Because we operate one unified platform, we see customer behavior across every vertical, and we can turn that signal into a better experience, faster discovery, smarter recommendations, more relevant offers. And it's not just a UI improvement. It drives frequency, cross-product journeys and ultimately, LTV.

It also makes promotions more precise and more efficient. In 2025, our Sportsbook net revenue margin on promotional wagers improved by more than 1,300 basis points year-over-year as segmentation and decisioning became sharper, and we automated and personalized $400 million of promotional spend in 2025 through AI, meaning we can reinvest with higher ROI and less waste. Customers find what they want faster, engage more often, and we reinvest more efficiently because the decisions are driven by data.

Now let me be crystal clear on AI. At DraftKings, AI is not a side initiative. It is a company-wide force multiplier. It's accelerating product velocity in the Super App, sharpening pricing and trading, improving discovery and personalization and driving real operating leverage. And you can see it in the metrics. Engineering hour productivity improved 40% year-over-year. 100% of code reviews are AI-assisted, and we're seeing 25% containment on chatbot customer service interactions.

This isn't theoretical. It's applied across the company in very practical ways. Prompt based Sportsbook merchandising and content management; automated AI-assisted QA on Sportsbook content cards; trading analytics, accelerating trader reviews; automated and AI-assisted fraud reviews and risk; engineering copilots and automated code review and AI-powered market health monitoring across hundreds of markets. We are shipping faster with less friction. You saw what AI did for the Predictions [ MPP, ] weeks and months of development time saved. QA down 30% to 40%, and critical bottlenecks removed with dramatic throughput gains.

It's not limited to engineering. AI is optimizing content systems in Casino and Sportsbook, automating parts of trading intelligence and market mechanics, powering customer intelligence and AI agents across CX and risk, improving marketing spend and promo optimization and scaling enterprise tools like knowledge management and no-code agent authorization. AI helps us grow faster and expand margins at the same time. And that compounding advantage shows up in everything we build next because in the Super App, every improvement scales across the entire platform.

With that, I'll turn it over to Shawn Henley, our Chief Customer Officer.

Thanks, Zach, and it's great to be with you all today. My name is Shawn Henley. I'm the DraftKings Chief Customer Officer. And today, I have the pleasure to talk to you a little bit around customer trust and how we instill that in each and every interaction with our customers.

So you'll see on the chart moving from left to right, we'll talk a little bit around the effortless experience and how we approach that in all things that we do. Next, we'll talk about as part of that experience, we want it to be personalized. So not just an effortless experience, but one that is tailored to you and your needs. And then we'll talk about how we always have our customers' back and really looking at proactive risk management and how do we drive fraudulent actors out and protect both the customer and DraftKings. And then I'll hand it over to Lori, who will talk a little bit around responsible gaming and our collaboration across the industry.

So let's start with customer satisfaction, right? One of the best ways that we build trust is having an amazing second-to-none customer satisfaction. And we're really proud that in this last year, the American Customer Satisfaction Index, one of the leading institutes that talks about satisfaction across the United States and companies and industries there, started covering the online gaming space. And DraftKings in the first-ever report had the top customer satisfaction with our players.

Now we don't take this lightly. We know this has to be earned and it has to be earned every day in every interaction. Because not only are our competitors now coming after us especially after they see this, but our players and our customers are ever changing and they demand us to be better each and every time. So let's talk a little bit around how we've been driving this great customer satisfaction and really establishing that durable trust, long, enduring trust with our players.

So first, let's talk a little bit around that effortless experience. I think we all can relate that when you're in an experience, you don't want it to be hard, you don't want it to have 20 steps. You really want to get into the app, do what you need to do and you want it to be simple. And most importantly, you want it to be effortless. And so we've really taken that to heart over the last 4 to 5 years with this really big surge on customer centricity and putting the customer at the center of everything we do. And so looking at it through their eyes and through their lens and really across the entire enterprise, going after how do we make this experience better.

Now just one metric that I'll share with you all, one KPI that we use here is ticket rate. And what that simply is, is if you're a customer, how many tickets do you submit on average out of 1,000 active customers every year, right? So you -- obviously, you want that to be lower and not higher. And so we've been on this mission for the last 3 to 4 years to really drive that friction out, get that effortless experience in place, and we've had a lot of success to where our customer service ticket rate is down over 50% since we really started this push. And we're never going to stop. We view each of these interactions. While yes, we love to talk to our customers and resolve their issues, they're really defects, and we want to get out as many as we can.

And one of the things that I'll just call out that's been a real big game changer for us, there's been a big push in AI across our company, across obviously the world, and this has been a game changer for us in understanding the voice of the customer as we know it today. And so we use AI technology that's constantly scanning all of our customer service tickets, all of our social posts, all of our app reviews, Reddit, you name all those things, it's looking at it in real time and immediately giving us feedback of anything that's wrong, that's going right so that we can address it. And that's been able to really scale and look at millions and millions of interactions where I would say, 3 to 4 years ago, we had to do a lot of that manually. And it just took us a lot longer. And that's really helped us with some of this inflection that you see here.

Next, let's talk about personalization. So while we talked just recently around how we want that experience to be effortless, just as importantly as it has to be tailored and unique for you. Right? We really take to heart the crown is yours as our tagline, and we really want the DraftKings experience to be what you wanted to make. And that's particularly important for our high-value players. And I'll highlight just a couple of ways that we really focus on tailoring it for them. This applies to our broader base, but in particular, for our high-value players.

So one, we build personalized one-to-one relationships with our high-value players, right? We have a host assigned to them. They get to know them. And not just get to know them as a person, but really get to know them around what are their interests, what are the certain types of sports they like, their favorite players, their favorite teams. And then just as importantly, what are your favorite promotions or the way that you like to receive loyalty from DraftKings. So we get that, and then we tailor the program to them. And that's a really huge advantage. When we talk to our players, they highlight that a lot of our competitors, they'll feel more like it's a transaction, whereas at DraftKings, they feel like they have a relationship. And so it's really important that we get to know them and we have that unique experience.

And speaking of experience, we want to make sure that, especially for our high-value players, that it's an elevated experience, unique access. So whether that's elevated customer support with -- directly with their host or an expedited like HOV lane, if you will, for customer service, we're there for them when they need us. It's elevated, it's heightened. And then we also take that all the way through the experience, as you heard in our technology and product areas where we tailor it, whether it's the game room in Casino or an Onyx Room or whatever the case may be, we really try to heighten it and elevate it as best we can in a virtual world.

And then the last one is our shared loyalty and recognition program. This is such a huge differentiator for us with our DraftKings Rewards and also known as our Dynasty program, where we really want to provide that second-to-none experience. And just like other loyalty programs, we want to make it so that if you're going to play in online gaming, you want to consolidate your play with one provider so that way you get the best access. You get the best loyalty. The same way that, that applies for airlines or hotels, it definitely applies here and is a huge strategic advantage for us with our high-value players in particular.

And then I'll close this out real quickly on proactive risk management, where I just want to talk about how we protect both our players and DraftKings from fraudulent actors, right? Whether that's stolen identities, stolen payment methods. It's important that we stomp that out. One, it's bad for our financials. And two, it's also most importantly, bad for our customers.

And one way that we measure that is our chargeback rate. And so these are the funds that were -- made it on to the platform fraudulently and then we had to consume or take the hit for, if you will, in our financials. As you can see here, over the last 4 years, we've really driven this down by over 50% and focused a lot on AI, data science, advanced modeling, network effects with all these leading providers across the world that provide services for banks and others and really building that network effect and building our risk architecture from scratch that allows us to, what we believe, have one of the best, if not the best in the industry for chargeback rates, as you can see there indicated by the industry line at 31 bps, and we're at 15.

Now the other chart you see on the right is the deposit success rate because we could easily drive down the chargeback rate by just not accepting deposits. But obviously, that goes counter to the customer centricity, it goes counter to our financials. So at the same time that we were driving down fraud, we spent a ton of time about doing it the right way and do it in a customer-centric way. So that way, we truly focus on the fraudsters. And then as doing such, we were able to also improve the experience for our good customers and driving up the success rate. So oftentimes, those will move in the same direction, which is not good for the company or people. But we were able to really do them in the inverse of each other and show that we can drive out financial losses while at the same time providing a better experience for the business.

Thank you for your time. I'm now going to hand it over to Lori to talk a little bit around responsible gaming.

Thank you, Shawn. I'm Lori Kalani, Chief Responsible Gaming Officer at DraftKings. Responsible gaming is a core capability and a clear differentiator for DraftKings. And leading in this area is a company-wide priority. We established the industry's first Chief Responsible Gaming Officer role to elevate responsible gaming, centralize accountability and embed responsible gaming across product, operations and strategy.

Independent testing ranked DraftKings #1 overall in responsible gaming. In 2025 alone, we saw 58 million visits to our Responsible Gaming Center. We saw a 52% increase in tool usage, and we delivered over 44 million responsible gaming messages to our customers. These were messages designed to educate, prompt reflection and encourage responsible play.

We also work closely with experts across the ecosystem, including researchers, clinicians, regulators and industry partners to ensure our responsible gaming program meets the highest standards and is grounded in evidence and best practices. Our responsible gaming leadership reflects years of sustained investment and education. Since 2020, we've been on a continuous journey of innovating and enhancing our training, tools and customer resources, evolving alongside the industry and incorporating insights from emerging research to drive awareness, adoption and responsible engagement.

Responsible gaming leadership extends beyond our own platform. We're working to use our scale and experience to help educate stakeholders, inform policy discussions and shape thoughtful regulation that's grounded in evidence and operational excellence. We're actively collaborating with operators, advocates, research, leagues and regulators to advance shared standards and elevate the industry. By sharing data-driven insights and best practices, we help strengthen consumer protection, improve education and build greater confidence in the entire industry's long-term sustainability. This is how DraftKings leads. We're setting the standard, influencing the dialogue and helping move the entire ecosystem forward.

At DraftKings, trust is foundational to everything we do, and we want every customer, no matter which product they choose on our platform, to engage with confidence and clarity. That's why we've extended our responsible gaming standards to federally regulated events contracts through our Responsible Trading program. We believe responsible engagement shouldn't depend on the product, it should be consistent across the entire DraftKings experience.

Responsible trading focuses on education, transparency and informed participation. Customers can set deposit limits, take cool-offs or self-exclude, and they can access dedicated resources through our Responsible Trading Center. Our commitment is simple, the same standards, the same focus on responsible engagement and the same emphasis on earning and maintaining trust across everything that we offer. You've heard this strategy. Now let's show you what it looks like. Please roll one of the responsible gaming ads that we unveiled not too long ago.

[Presentation]

And with that, I'll turn it over to our Chief Marketing Officer, Stephanie Sherman.

Thanks, Lori. I'm Stephanie Sherman, Chief Marketing Officer. At DraftKings, we take the LTV generated across the business, and we use that to reinvest back into growth through our marketing engine, where we have industry-leading capabilities. In 2025, we drove 12% more downloads than our nearest competitor, and we did so at a significantly more efficient cost per download. Through the DraftKings platform with seven apps, each with over 250,000 downloads, we're able to acquire and activate across all of the sports and gaming moments in the calendar.

We're able to deliver these results through three pillars of our marketing engine that I'll talk through today. Our brand where we've invested over $6 billion in sales and marketing since 2018, leading us to the #1 brand in the category; our relationships that amplify our messages and drive reach with premier partners like ESPN and NBC and our data-driven approach, which has been a core philosophy since day 1, where we've invested in data science, automation and recently, AI-led decisioning.

In 2026, with the launch of our Super App, we'll only fuel and increase our efficiency and our marketing advantage. Our brand is a core pillar of our marketing engine and is synonymous with sports and entertainment. You can see here, we're #1 in brand awareness, #1 in brand preference and #1 Net Promoter Score. And actually, recently, in our most recent surveys, we further expanded our lead across these categories. A strong brand is the foundation for efficient customer acquisition, but also drives LTV through sticky retention and increased monetization.

It also has a powerful network effect, where DFS, a liquidity-driven category, but also Sportsbook and Casino whereas we continue to invest, invest in industry products and continue to deliver superior customer experiences. Our customers become amplification for our brand, and that is an impact that compounds over time, where our customers are one of our top sources of acquisition. So our brand is a critical component of our marketing engine.

The second pillar of our marketing engine is our relationships. We have relationships with teams, with leagues, with national and local media companies, with the strongest voices in sports, with digital and social platforms, all combining for unparalleled reach. Take NBA, where last year, we were barely present in national broadcast. And this year, through ESPN and NBC, we're present in over 70% of nationally televised NBA games. And these relationships not only drive reach, but efficiency, as DraftKings is showing up in moments of high intent and high activation.

Importantly, these same relationships can be used for our new Predictions product. Whereas our footprint nearly doubled overnight, so did the efficiency through these partnerships. Zooming in on one of our most recent partnerships with ESPN. DraftKings and ESPN combining together two iconic brands in sports, with ESPN as the premier sporting destination, and unrivaled reach. And together, we're able to smoothen the experience of sports content to participation through our apps.

We're able to drive an elevated sporting experience through our integrations, our live odds, ESPN shows through ESPN IP, as well as integrations that continue to elevate the viewing experience that you'll see in March Madness as we drive further connection from ESPN into DraftKings and DraftKings into ESPN. Through the wide reach, we're able through partners like ESPN and others to deliver our acquisition messaging, our monetization messaging as well as deliver our campaigns that drive education around the tools that we have for responsible play.

The third pillar of our marketing engine is our data-driven approach, where having pools of data and the ability to analyze that data through machine learning, sophisticated analytics and AI decisioning is a core part of how we're able to drive our efficient marketing. Every day, we're analyzing billions of data points, and we're combining that with over 10 years of in-market experience, testing, driving rigorous test-and-learn agendas to ultimately deliver the right message to the right customer at the right time.

We invest our marketing spend to return under a 3-year gross profit payback period, where we're constantly looking to shift our dollars to where the most value is in our investment. We do this as the sporting calendar changes, as the competitive landscape changes on the foundation of a depth of understanding state and jurisdictional-level nuances. A 3-year payback implies a return of over 15% if you assume that 3 years is the baseline for further growth. And as Alan will talk about, we know that customer value extends well beyond the 3-year horizon.

So altogether, our brand, our relationships and our data-driven approach, combine to a marketing engine that enables us to efficiently acquire customers at scale at increasingly efficient CACs. As you see here, cumulative customer acquisition exceeded $14 million in 2025, and our cumulative CAC declined over 40% from its peak in 2020 to 2025. And this spend is fully burdened spend with spend for acquisition as well as spend that is geared more towards driving up LTV, retention and monetization. We see continued opportunity to drive efficient acquisition through our new partnerships with ESPN and others, as well as through the launch of our Super App.

One recent development, we've been able to see an increase in paid active days and drive up LTV through the paid active days as well as an increased percent of handle parlay, which is very exciting. As we come up on March Madness this year, we're building on learnings from a test last year where we saw a 9% increase in paid active days.

And with that, I'll turn it over to our Chief Financial Officer, Alan Ellingson.

Thanks, Steph. I'm Alan Ellingson, Chief Financial Officer at DraftKings. Now let's translate everything you've heard into the financial model. I want to start with the headline. Adjusted gross profit is increasing rapidly in the states where we operate today.

Jason touched on it earlier, growth in adjusted gross profit is what we're focused on achieving. On an enterprise basis, our adjusted gross profit has tripled over the last 3 years. And the reason is simple, strong annual customer cohorts that stack on top of each other. As we grow customers, increase volume per customer, improve net revenue margin and drive better efficiency, those gains show up directly in adjusted gross profit, and they continue to compound over time. It's remarkable how consistent the cohorts are over time, which you can see in our appendix.

To date, every annual customer cohort continues to generate more adjusted gross profit as it ages, even net of customers we do not retain. Even through short-term periods of customer-friendly outcomes, we have grown adjusted annual gross profit across every cohort. And you can see that even our cohorts that are 5, 6 and 7 years old are continuing to grow, which tells you that our customer relationships strengthen over time rather than fade. That consistency is a major reason why we have a conviction in the long-term earning power of our platform.

So let's talk about the drivers of gross profit growth. It starts with volume. We are driving higher volume per customer as the product experience improves. As you've heard today, we're delivering more ways to engage through live moments, content, depth, better discovery and cross-vertical journeys. We're also seeing strength in volume across customer cohorts. New customers ramp faster, mature customers keep expanding engagement as we add more touch points. When volume grows on top of a larger and expanding customer base, it creates significant operating leverage in the model.

Net revenue margin is where the better product, stronger technology, smarter marketing and disciplined operations show up in the numbers. Over time, we've improved net revenue margin across our verticals, but the progress has been most pronounced in Sportsbook. As you can see here, we increased Sportsbook net revenue margin from 3.2% in 2021 to about 7% in 2025, a 100 basis points increase per year on average. A big driver is the structural mix in the higher-value moments, including parlays, alongside better pricing, risk and more efficient reinvestment.

Parlay handle mix is an important driver of the Sportsbook net revenue margin. What's encouraging is that this isn't just a 1-year phenomenon. We are seeing parlay handle mix increase across customer cohorts. In 2025, our new Sportsbook customer cohort reached 33% parlay handle mix in year 1, a new record for any cohort in its first year. That consistency gives us confidence we can keep improving unit economics within our existing customer cohorts.

Next, I want to highlight cost of revenue efficiency. As we scale, we are improving efficiency through better trading and risk management, more disciplined reinvestment and a stronger operating model across the business. You can see this show up in higher adjusted gross margin over time. On this slide, you can see that our processing platform and revenue share costs of revenue combined have improved from 28% of revenue in 2021 down to 20% of revenue in 2025, an 800 basis point improvement in 4 years.

Processing expenses have been an area of focus for a couple of years now, and we've made tremendous progress in 2025. We stood up a cross-functional group that optimize payments through contracts and rebate adjustments, created rules to reduce chargebacks and removed credit cards, all while maintaining or improving the customer experience. The result for processing expense was approximately $40 million in savings in 2025 relative to our expectations coming into the year and more than 50 basis points of year-over-year improvement as a percentage of revenue.

Platform costs have also been a bright spot as we continue to build more capabilities in-house. In 2025, platform costs as a percentage of revenue improved by more than 50 basis points year-over-year.

This slide is about how we manage through taxes and regulations while protecting long-term returns. In our highest tax rate states, promotions as a percentage of Sportsbook handle was as low as 2% for full year 2025 compared to above 4% in states with a competitive tax rate. If we look at averages, promotions as a percentage of Sportsbook handle in high tax states were 100 basis points less than they were in states with more competitive tax rates.

The point is, we don't use a one-size-fits-all approach. We evaluate changes through customer-level investment decisions and respond with a clear playbook, pricing and product leverage where appropriate, tighter promotional reinvestment based on incremental value and continued efficiency in the costs required to generate net revenue. The takeaway is our model is adaptive and therefore, resilient. We manage through changes with discipline, and we protect lifetime value.

This slide ties it all together, and the right way to think about it is margin expansion. Adjusted gross profit is the engine. From there, the bridge to adjusted EBITDA is straightforward. Adjusted gross profit, less sales and marketing, less our fixed operating cost base. What gives us confidence in at least a 30% long-term adjusted EBITDA margin is line of sight on operating leverage. As revenue and adjusted gross profit grow, our operating expenses don't linearly scale. Marketing is managed to a customer-level ROI and is meaningfully variable. Product and technology are sized for our growth road map and benefit from both scale and increasingly AI-driven productivity. And our fixed cost base can support significantly more volume without a proportional increase in spend. We see a clear path to durable margin expansion towards 30%-plus adjusted EBITDA margin over time, driven by scale, efficiency, technology and disciplined reinvestment.

We know that adjusted EBITDA is not the end goal, sustainable cash generation is. Our model is capital light. We are currently spending approximately $150 million per year on CapEx and capitalized software. These costs should remain relatively stable over the years to come. This means incremental adjusted EBITDA converts to a normalized free cash flow at a very high rate. That increases strategic flexibility, supporting reinvestments where returns are highest and driving long-term durable value creation. As you heard today, we expect to generate significant adjusted EBITDA and free cash flow over time.

To maximize shareholder returns, we are allocating our capital between growth investments, capital returns, and disciplined M&A with a focus on long-term value creation. In the near term, we expect to maintain low net leverage and consider the risk-adjusted return profile on growth investments relative to capital return. As our free cash flow grows, we expect share repurchases to remain our primary return mechanism because repurchases can be highly accretive per share.

Last, of course, we will continue to consider strategic M&A, but only in situations where it strengthens our platform and clears a very high-return bar. The bottom line is simple. We'll invest where returns are highest. And as the business generates more cash, we'll return capital with discipline, focused on value creation per share.

With that, I'll kick you back to our Co-Founder and CEO, Jason Robins, for closing remarks.

Thank you all for joining us today. I know you saw a lot, I hope you learned a lot. There are three key takeaways I want you to walk away with. First, our TAM is growing rapidly. And we expect by 2030 for it to reach $55 billion to $80 billion. Number two, we have built an absolute machine with our LTV flywheel. And with now our new Super App and all of the AI-driven innovation we intend to deploy, we expect to be able to take that to the next level. Lastly, we expect to achieve adjusted EBITDA margins of 30% plus, with AI presenting additional upside from there.

Thank you again for joining us. Be well, and I hope to see you soon.

Good day, and thank you for standing by. Welcome to the DraftKings Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Mike DeLalio, Senior Director of Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us today. Certain statements we make during this call may constitute forward-looking statements that are subject to risks, uncertainties and other factors as discussed further in our SEC filings that could cause our actual results to differ materially from our historical results or from our forecast. We assume no responsibility to update forward-looking statements other than as required by law.

During this call, management will also discuss certain non-GAAP financial measures that we believe may be useful in evaluating DraftKings' operating performance. These measures should not be considered in isolation or as a substitute for DraftKings financial results prepared in accordance with GAAP. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available in our earnings release, letter to shareholders and earnings presentation, which can be found on our website and in our annual report on Form 10-K filed with the SEC.

Hosting the call today, we have Jason Robins, Co-Founder and Chief Executive Officer of DraftKings, who will share some opening remarks and an update on our business. Following Jason's remarks, our Chief Financial Officer, Alan Ellingson, will provide a brief review of our financials. We will then open the line to questions.

I will now turn the call over to Jason Robins.

Thank you, Mike. We closed 2025 on a high note, setting new quarterly records for revenue and adjusted EBITDA. Fourth quarter revenue grew 43% year-over-year to nearly $2 billion. Adjusted EBITDA was $343 million, 4x the prior year period. Adjusted EBITDA margin expanded by more than 1,000 basis points year-over-year to 17%. We repurchased another 8 million shares during the quarter, and we expect to remain active with repurchases as our adjusted EBITDA continues to grow. .

We are in a strong position. Our sustainable advantages in product, technology, trust and marketing continue to drive higher LTV and efficient customer acquisition. AI and machine learning amplify each one by making our products better, our platform faster, consumer trust stronger and marketing more efficient. The result is predictable in improving cohort economics, reinforcing our conviction that we have built an efficient and powerful long-term business model. We are excited to share more details at our Virtual Investor Day on March 2.

Now we take our next step. Predictions is rapidly developing into a massive incremental opportunity, and we are moving with urgency. We expect to emerge as the leader in this nascent category. We plan to deploy growth capital to build the best customer experience and predictions and acquire millions of customers. This year, we anticipate significant step function improvements to our predictions offering, including the integration of Rail bird and launch for our Market Making division. We are targeting hundreds of millions in annual revenue for DraftKings predictions in the years ahead. We believe there is much more upside over the long term.

This should translate to meaningful incremental adjusted EBITDA and predictions we have the playbook to execute and win. Before I go deeper on predictions, I want to highlight the strength of our core business. In fiscal year 2025, we grew revenue 27% year-over-year to above $6 billion. Adjusted EBITDA more than tripled to over $600 million and exceeded the high end of the guidance range we provided in November. We reported positive net income for the first time and repurchased 16 million shares during the fiscal year.

The business is scaling in a durable way. Since fiscal year 2022, we've grown customers by nearly 6 million, revenue by roughly $4 billion and adjusted EBITDA by more than $1 billion. Every year has been better than the last because our LTV flywheel continues to improve, powered by our sustainable advantages. We expect our revenue and adjusted EBITDA to grow for many years to come.

I also want to directly address the most common question we are getting, could a growing predictions category overlap with Sportsbook over time? To date, we are not seeing a discernible impact from predictions on our revenue. In our newest Sportsbook State, Missouri, adoption of our offering was higher than in any other state launch in our history through the first 2 months, and activity per customer has been strong. In the fourth quarter, our overall Sportsbook handle accelerated to 13% year-over-year.

In January, our Sportsbook handle increased 4% year-over-year, even after 2 consecutive months of Sportsbook friendly outcomes and as our parlay handle mix continue to surge. Internal and third-party data suggest predictions impacted our January handle only very slightly and primarily impacted low-margin customers. Consequently, the impact to our revenue has been de minimis.

Now I'd like to focus on predictions. We have been building drafting for more than 14 years. When a new growth lane opens, we move fast and executed scale. Predictions is the most exciting new growth opportunity we have seen since [indiscernible] was struck down in 2018. Early signals are strong. On Super Bowl Sunday, DraftKings predictions had the second most downloads in its category and delivered 3x its prior record for daily trading volume.

Customer retention is also strong so far, even with a product that is early and positioned to improve rapidly as we add content. In predictions, speed and execution, combined with a strong brand, smooth interface and real sports modeling, trading and technology expertise will determine long-term leadership. This is where DraftKings thrives. The opportunity here could be large. Based on analyst estimates, predictions could represent a $10 billion annual gross revenue opportunity in the years ahead.

We expect to capture it across multiple business lines, including the customer-facing platform, our own exchange and market making. We expect the volume on DraftKings predictions to keep building with growth accelerating through 2026 and beyond. Our goal is simple. We intend to lead the predictions category. As such, we support the CFTC's engagement on events contracts and the advancement of a more fine and durable regulatory framework. The CFTC Chair recently directed agency staff to establish clear standards for event contracts to provide certainty for market participants.

We view this direction as constructive. [indiscernible] should reward operators with strong compliance and responsible engagement infrastructure and support the expansion of sports-related predictions over time. We bring sports, trading and technology together at scale, backed by strong distribution. We originate prices and manage risk every day in our Sportsbook.

We have hundreds of data scientists and machine learning engineers building sports models plus a dedicated trading desk that fine-tunes live pricing in real time. We combine that with the trusted brand, a large customer database we can activate efficiently and marketing relationships like ESPN and NBCUniversal that give us flexible high-intent inventory to deploy as returns dictate. We have run this playbook before. In Fantasy Sports book iGaming and lottery, we've built leadership positions by steadily bringing critical technology in-house.

In Sportsbook, we successfully integrated acquisitions and continued investing deeply in our proprietary technology to deliver the #1 rated product. Our Sportsbook product is far ahead of our peers in uptime, which is the percentage of a game during which odds are available. Predictions is the next chapter of this same strategy. We have already designed our product to improve rapidly.

Our product is built to scale. DraftKings predictions already connects to multiple exchanges so we can stay nimble as trading options evolve and continuously expand content availability and liquidity. Our recent Crypto.com integration was an immediate upgrade and breadth and engagement, adding new trading options across categories such as player performance markets, golf, USC and politics. Next, we plan to integrate Railbird near the middle of this year to improve innovation velocity and strengthen customer economics by owning more of the stack.

We are also launching market making because liquidity is a core part of the customer experience and predictions, contract listings, fees, market structure and distribution matter. The type 2-way markets with depth are what attracts participants. Exchanges see liquidity by incentivizing market makers and DraftKings can lead market making for sports contracts because we model sports probabilities exceptionally well, and we have the infrastructure to provide liquidity across a broad spectrum of contracts.

This creates 2 revenue engines for DraftKings in predictions. First, transaction fees as we own the customer relationship through DraftKings predictions and offer a platform to trade across sports and non-sports. Second, trading economics for market making and proprietary trading on our own exchange and where it makes sense on other exchanges. Over time, we also intend to introduce exclusive combination trading options that may become a major differentiator of the customer experience evolves.

With that, I will turn it over to our Chief Financial Officer, Alan Ellingson, to discuss our results and guidance.

Thank you, Jason. Before I cover our fiscal year 2026 guidance, I'd like to discuss our 2025 financial performance starting with the fourth quarter. Please note that all income statement measures discussed except for revenue, are on a non-GAAP adjusted EBITDA basis. Our fourth quarter revenue grew 43% year-over-year to nearly $2 billion, adjusted EBITDA was $343 million, 4x the prior year period. Adjusted EBITDA margins expanded by more than 1,000 basis points year-over-year to 17%.

We repurchased another 8 million shares during the quarter, and we expect to remain active with share repurchases as our adjusted EBITDA continues to grow. Results were strong across all our verticals in fiscal year 2025. Tennessee revenue increased as PIC has begun to scale. Year-over-year, Sportsbook revenue increased over 30%, while Sportsbook net revenue margin expanded by more than 100 basis points. iGaming revenue increased 20% as we expanded our offering and attracted a broader demographic.

Lottery revenue benefited from a stronger jackpot environment as well as rolling out scratcher games and Keno in additional states. And we delivered all this while launching our fifth vertical predictions. Sportsbook had a standout fourth quarter. Revenue increased 64% year-over-year to $1.4 billion, handle growth accelerated for the second consecutive quarter to 13% year-over-year. Sportsbook net revenue margin increased 250 basis points to 8%. Parlay handle mix increased nearly 500 basis points.

This continues the multiyear trend that is driving our structural net revenue margin higher. Ford outcomes were Sportsbook friendly in the fourth quarter, and our overall hold percentage was slightly above 12%. As many of you are aware, Variance is random in nature and in the short term, can either be a tailwind or a headwind for our business. For the 2025 to 2026 NFL season, our NFL hold percentage was 16%. I would also like to touch on the scale of our Sportsbook business for the fiscal year 2025. Our Sportsbook handle increased 11% year-over-year to $54 billion. Our total potential payouts across all open wages or capital at risk, was $2.5 trillion due to multiplicative nature of parlays.

We achieved this scale even though our Sportsbook is only available to about half the U.S. population. As a result of our strong fourth quarter, we had an excellent year. We grew revenue 27% year-over-year to above $6 billion. Our adjusted EBITDA more than tripled to over $600 million and also exceeded the high end of the guidance range that we provided in November 2025. We repurchased 16 million shares during the fiscal year. We also reported positive GAAP net income for the first time. I am particularly proud of that last fact that we generated positive net income for the fiscal year 2025, as it demonstrates how efficient and powerful our business model is becoming.

As Jason mentioned, we expect to share more about the strength of our business model and our sustainable advantages at our Virtual Investor Day on March 2. Now I'd like to touch on our fiscal year 2026 guidance. We are excited about both our results and our business trajectory. In fiscal year 2026, we expect DraftKings to achieve between $6.5 billion and $6.9 billion of revenue and between $700 million and $900 million of adjusted EBITDA. Our revenue and adjusted EBITDA guidance ranges reflect expected investments in DraftKings predictions, line of sight jurisdiction launches and disciplined planning as business conditions evolve. We assume state tax rates will remain consistent with where they are today.

That concludes our remarks, and we will now open the line for questions.

[Operator Instructions] Our first question comes from the line of Dan Politzer from JPMorgan.

I was hoping we could take things off talking about production markets. Jason, the tone of your letter and comments certainly reflect the pivot on how you're thinking about this with you. I think so far to say that this is the most exciting growth opportunity since PASPA. I guess the question is, why are you so much more aggressively leaning into prediction markets now? What have you seen in the past 2 months, either from a regulatory backdrop, broad social acceptance or recent rollout of DraftKings predicts that gives you the confidence that this investment makes sense. And perhaps most importantly, how are you thinking about the level of investment required for 2026, given some of your peers have talked about $200 million to $300 million there?

Well, first of all, we have been excited about predictions for why. I think you're right. We're more excited now. I wouldn't say it's a change of tone as much as an acceleration of our excitement. I think part of it is there's been a real lean in from the CFTC. What went from sort of a hands off. We're not going to comment posture from the previous interim chair is now full-fledged affirmation that this is something that the CFTC considers to be firmly under their jurisdiction. They intend to defend in the courts and they're going to issue real guidelines and regulations.

So anything that creates a stable regulatory environment that allows us to operate more freely is a great upside thing for us. And then you combine that with what we're seeing in our early numbers and what we're seeing in the broader numbers from some of the others in the market, and it's clear that there's a lot of growth potential here. I've seen analyst estimates as high as $16 billion. We centered around $10 billion, which is kind of the average of a bunch and some backed envelope math we were doing as well. but it's clearly a huge opportunity. We're incredibly well positioned.

And I think the biggest thing that was sort of holding us back, if you will, before was the regulatory uncertainty and that has since been cleared up. So with that, I think, really, really excited and combine that with what we're seeing in the numbers. And I think it's going to be a big year. As far as the investment level, one of the great things for us is we already have a lot of what we need. We have the pricing models. We have the marketing. Yes, we'll probably spend some incremental marketing, but we can repurpose a lot of our marketing. We have a ton of national spend targeting the sports customer already. So there's a ton of synergy there. I think it's a huge advantage for us that we can do that.

Got it. And then just for my follow-up. In terms of the guidance, obviously, there's an implied deceleration in revenues. I think it's around 11% in 2026. Can you maybe just give us the building blocks there for how you're thinking about sports betting within that? And then certainly, handle, that's been a focus. You mentioned January was up 4%, but in terms of just the building blocks for sports and kind of that broader revenue growth guide for 2026 would be helpful.

Yes. I just want to start a little bit on philosophy. So first several years, we are public. We are very conservative in our guidance. We consistently were beating and raising. And we kind of got away from that a little bit. I look at 2023, at the beginning of 2023, we guided to what all of you thought was a disappointing number. We got killed. I think we were down like 16% on the day. And then we proceeded to beat and raise every quarter for the rest of the year and got it back and then some ended up, I think, about $300 million better on the EBITDA side, adjusted EBITDA side from what we originally guided. So I like that playbook a lot better, and we got away from that. I thought we had a good year last year. So it's very frustrating to me that we missed our guide. That was a self-inflicted wound that we did that.

We ended up growing our adjusted EBITDA by $440 million. We had a great revenue growth year, 27%. How we could do that and miss a guide, just shame on us, right? So I think we really went back the other way. We said, let's make sure we put something out there that we feel really good about. It kind of went like this. My team came in and showed me a number and said we can hit this and I said, no, go make it lower. And they went back and they said, okay, now really like we're sure we can hit this. And he said, I don't care make it lower again, and that's what we got. But for me, missing numbers again, is just not acceptable. And so it's not something we're willing to do.

Our next question comes from the line of David Katz from Jefferies.

Along that same vein is the follow-up. I appreciate the conservatism and the candor there. Can you just maybe walk us through 2026? And just help us and this may be better suited for Alan, help us understand how to -- what could drive the revenue higher, right? Is there what do we have for prediction markets in that revenue guide in particular?

And obviously, you've given us a pretty a wider field of play, right, on the EBITDA side as well, right? what could cause us to be higher or lower as we go through the year, particularly around predictions. I think that's the part that we're trying to embed in the models.

Yes. So I think predictions really is all upside. There's nothing in terms of revenue in the guide. We're assuming that this is a year that we spend a lot on customer acquisition in terms of new user offers. There probably will be some revenue realistically, but it's just too early to quantify so we didn't put any revenue in the guide. So I think that's definitely a source of upside. And I think the core business has a lot of upside too.

Everybody gets hung up on handle, and we've tried to sort of start to educate people that you can't look at that in isolation a little bit more behind that. So if you look at last year, first 10 months of the year, January through October right before we issued our last guide, we had a net revenue margin of around 6.5%. And since then, November, December, January, February to date, so almost the last 4 months or so, we've had a net revenue margin of over 9%, which is about 40% higher. So this has to affect handle, right?

So in the beginning of the NFL season, when customers were winning, we had really high teens handle growth a few weeks in that sort of October time frame. And then as we started doing better and as we started also being more efficient with promo, we started seeing more revenue growth. We did great, as you saw from Q4 revenue-wise, but the handle is going to slow a little bit. Even despite that, we're still growing handle, especially if you look outside of NFL. Outside of NFL, every single sport is up double digits right now in terms of handle growth. So now that NFL is over, I expect will return to something more like what you guys probably expected. But you're going to see a slowdown in handle growth when we're winning that much and also we're optimizing promo.

Our next question comes from the line of Stephen Grambling from Morgan Stanley.

Maybe to follow up on that question. I was hoping you could maybe give a little bit more detail on perhaps what you're seeing in terms of NGR spend in some of the older states, the ones that have been legal longer versus some of the newer. And then as you think about this year and maybe over the next couple of years, maybe how I think through increasing penetration versus increasing spend per head.

We're seeing growth pretty much across states -- state cohorts, I should say, so regardless of age, in terms of NGR, obviously, there's differences in terms of where that's coming from. And I'm sorry, what was the second part of your question? .

How you think about increasing whether it's a penetration of customers within the state, like what the opportunity looks like there versus increasing spend per head?

I think it's got to be both. I mean the reality is that especially in the older states, the customer growth is going to slow over time, but we still have a lot of upside in terms of monetizing customers. Our retention numbers look great. And so as we drive that parlay mix up as we add more things, I think you're going to continue to see increased monetization. In January, for example, our parlay handle mix was still up another 300 bps year-over-year. So still seeing really strong growth there. So that feels like a lever that's going to continue to produce dividends for at least the next several years. And if you look at some of the parlay mix numbers in Europe and other parts of the world, it's much higher than where we are today. So seems like there's a lot of upside there.

And I still think there's a ton of room to optimize promo. I mean we are just starting to deploy AI and our promo engine in terms of optimization. And I think that's a huge lever for us to get more efficient and probably produce better results on the top line, too.