TLDR
- DraftKings sells sports prediction contracts only in the 18 states where it has no legal online sportsbook.
- The company says the two products barely overlap, pointing to card-deposit data showing about 1% of customers use both.
- DraftKings prediction market volume grew from $2.3 billion in April to $11 billion in July.
- Sports revenue fell 10.6% even as combined sports volume rose 14.5%, cutting the net revenue margin to 6.8%.
- Courts are split on whether sports event contracts count as sports betting, and New Jersey has asked the Supreme Court to decide.
DraftKings runs two different products depending on where a customer lives. In 27 states plus Washington D.C. and Puerto Rico, it offers a licensed online sportsbook. In 18 other states, including Texas, California, Florida, and Georgia, it offers prediction market contracts instead.
No state appears on both lists. Company communications director Stephen Miraglia confirmed this split to Gambling Insider, saying DraftKings does not run prediction markets where its sportsbook already operates.
This setup helps DraftKings with the NFL. The league bans prediction market advertising from games, stadiums, and player endorsement deals.
DraftKings is one of three official NFL sportsbook partners. The company says its prediction market ads stay out of NFL broadcasts entirely.
The state split also shapes how DraftKings talks to investors. CEO Jason Robins has said the two products show little overlap in customers or revenue impact.
Growth in Prediction Market Volume
Robins shared new numbers on the company’s second quarter earnings call. Annualized trading volume on DraftKings predictions rose from $2.3 billion in April to $11 billion in July.
More than 600,000 customers used the predictions product so far this year. Parlay-style combination trades made up close to 20% of volume within weeks of launch.
Adding predictions to the main DraftKings app cut customer acquisition costs by more than 80% in April. The company called this an efficiency win for the business.
DraftKings estimates that 80% to 90% of prediction market volume in sportsbook states comes from professional trading firms, not casual bettors.
Revenue Margins Are Falling
Despite the volume growth, DraftKings sports revenue fell during the same period. Combined Sports Consumer Volume rose 14.5% year over year to $13.14 billion.
Sports revenue dropped 10.6% to $892 million. The net revenue margin fell from 8.7% to 6.8%.
DraftKings blamed part of the drop on sports outcomes that favored customers. The Knicks championship run and the World Cup group stage both cost the company money.
Robins said these outcomes created an $80 million revenue headwind. He said the remaining drop came from spending on new customer acquisition across both products.
DraftKings has not broken out exactly how much revenue predictions bring in on their own. The company says only that the margin per customer is lower than sportsbook revenue.
One detail from the first quarter update stands out. DraftKings said early third-party data shows predictions customers lose money faster than sportsbook customers.
The legal question behind the entire setup remains open. Federal courts disagree on whether sports event contracts count as sports betting under state gambling law.
New Jersey has asked the Supreme Court to settle the dispute. Until a ruling comes, DraftKings continues selling football contracts in the 18 states that have not legalized sports betting.
