Bring it on
DraftKings ready to throw down the predictions gauntlet
DraftKings up for a predictions fight, but talks of “measured” investment.
In +More: Flutter Entertainment in the week ahead.
Markets: The week ends with a Golden glow.
The teardown: Kalshi’s margin analyzed.
Hard Rock Bet is growing – we know you know! And we want to bring in some more maestros to make beautiful music in our Sportsbook. You need to be among the very best in the industry to be considered for these roles. Are you up to it?
Up to the challenge
Ignite the seven cannons: DraftKings is readying for what is likely to prove to be a bruising battle for consumer attention in the prediction market space, against competitors that are set to deploy billions of dollars in marketing spend and might well kick off a brutal price war.
“We will compete and we will win,” said a bullish Jason Robins on his company’s Q3 call.
“For the same reasons that we have been successful competing in the sports-betting industry, we expect to succeed here.”
Don’t scare the horses: Perhaps hoping not to scare investors with an open-ended spending commitment, Robins was keen to stress that DraftKings’ approach would be “measured.”
He suggested the company would have “very conservative views on LTV and a very conservative approach to payback periods.”
He said this approach was “smart,” given DraftKings currently has no data and does not yet know “what the future of this product will ultimately look like.”
A vote of confidence: Chris Grove, partner at EKG, has no doubts that DraftKings can indeed establish a meaningful presence in the predictions space.
“Anyone who discounts DraftKings’ ability to compete in prediction markets does so at their peril,” Grove told E+M.
“The company made a clear commitment to the category and investors responded positively to that commitment,” he added.
“I would expect substantial follow through from Jason Robins and his inarguably capable team.”
Unpredictable: Last week, Bank of America said the prediction market space was likely to resemble the land-grab stage of the OSB market, with multiple participants set to deploy billions to achieve predictions footholds.
Deutsche Bank added their view last week that “in the longer term, we believe the prediction markets are shaping up to be a very competitive space, with multiple formidable players.”
“The fascinating thing about the prediction market space is that it’s difficult to fully visualize the competitive surface area of tomorrow,” said Grove.
“And if you don’t know for sure who’s going to be competing, it’s quite difficult to predict who’s likely to win.”
Going to zero: However, the recent history of the OSB space isn’t the only analog for how the predictions space might evolve. The BofA team noted the resemblance to the online brokerage sector where there was a move towards zero commissions at its competitive peak in 2018-19.
One source pointed out that competitors such as Polymarket and Crypto.com might be willing to similarly take the zero commission route with their prediction market products.
“Fees will go to zero,” said one industry consultant who opted for anonymity.
For Robinhood and others, sports events contracts are a “brilliant way to market prediction markets as the onboarding tool for a whole host of other, more profitable products,” the consultant added.
Still holding a candle: For now, the analysts tend to agree prediction markets are not as dangerous to the OSB operators as they might appear. Macquarie said they believe the negative impact from the prediction market threat has been “exaggerated.”
They maintain that prediction offerings “won’t be competitive, given inferior parlay and in-play.”
This picks up on the message from DraftKIngs itself: on the one hand, Robins said prediction markets were “structurally limited, lacking the depth and breadth of a sports-betting offering,” and on the other he said the company sees “significant incremental opportunity.”
Taking them at their word: Perhaps picking up on this nuance, Truist said they “assume for now that DraftKings isn’t gambling badly here.”
Topical inflation:
# of mentions of prediction markets in DraftKings; Q324 earnings call: 1
# of mentions of prediction markets in DraftKIngs’ Q325 earnings call: 23
Earnings extra – DraftKings
Full of bullishness: CEO Jason Robins kicked off the call by stating boldly that he has “never been so bullish” about the company’s long-term prospects, despite the business having cut its FY25 revenue and adj. EBITDA forecasts.
See the ‘I predict a riot’ Earnings Extra from Friday. (PRO subscribers only).
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+More
Inspired Entertainment has completed the sale of its UK-based holiday park business to entertainment company Genda for £18.6m in cash.
Lottomatica has repurchased €130m of its own shares under its €500m buyback program launched in June and plans to complete up to €300m of purchases by year-end, taking advantage of current share price levels. The remaining €200m of the programme will be executed in 2026.
Affinity Interactive, which owns casinos in Primm, Nevada, as well as the Daily Racing Form online news publication, has brought in advisers from Moelis to discuss a potential bond restructuring. According to Bloomberg, creditors are concerned Affinity is veering toward a potential liability management exercise that would leave its outstanding debt vulnerable to losses.
Gaming1 has taken full ownership of Betca, the operator of Circus.nl in the Netherlands, having previously owned a 50% stake as part of a JV with B&M casino operator Gran Casino.
Read ahead
Taxing times: The UK parliament’s Treasury Committee has called on the government to impose higher taxes on online betting games, arguing these products drive addictive, high-frequency gambling that “brings no benefits to people, families and communities.” The Committee rejected the industry’s claim of no social harm. See tomorrow’s Compliance+More.
The week ahead
Later today: Doubledown Interactive. Tuesday: Century Casino, High Roller. Wednesday: Aristocrat, Flutter Q3s will see the company face prediction market grilling, Gambling.com, Better Collective (earnings). Thursday: Better Collective (call), Bragg Gaming.
Markets
All that shines: Golden Entertainment tops the table having been the subject of a take-private deal that involves the simultaneous sale-and-leaseback property deal with gaming REIT VICI Properties. The bid came at a 41% premium to the prevailing share price.
Jefferies noted the Golden management team – which will now control the company – had previously suggested it was interested in M&A opportunities.
With the opco/propco deal as part of the transaction, the team said the “M&A window is open by our assessment, and more deals are likely.”
Red means go: The analysts at Stifel will be happy with the performance from Red Rock Resorts this week, after they suggested at the start of last week that the post-earnings pullback in the share price had created a “compelling” risk/reward scenario.
“We have been waiting patiently to move off the sidelines and become more constructive, the analysts said.
The team suggested the pullback was caused by an outflow of investor money, which had been hoping to hear of a new greenfield development.
That aside, the analysts contended that Red Rock delivered the “strongest” Q3 earnings and forward commentary of any B&M casino operator across their coverage, with none of the weakness seen elsewhere.
Two of an unkind: Investors weren’t kind to many of the companies reporting last week. Sports-data providers Genius Sports and Sportradar both suffered post-earnings falls despite generally well-received figures.
Macquarie noted that Sportradar is down 27% since late August, a sell-off that it said was “unwarranted.”
As a B2B supplier, the company is “not only insulated from any perceived prediction threat, but positioned to benefit as new market entrants need official data to be competitive,” the team added.
Down, out: Penn Entertainment was perhaps predictably down following the news of the premature shuttering of the ESPN Bet venture. The decision was “not a surprise,” said CBRE, given the venture’s chance of an OSB podium position was “already all but lost.”
“This is the second mea culpa for Penn management’s interactive aspirations, which drove the shares down by over 10%,” the team added.
But the analysts said they prefer the less ambitious online plans and see a “clearer path to positive EBITDA contribution going forward with an improved fixed-cost structure and greater focus on iCasino.”
Puts+Takes
Caesars Entertainment: Losing confidence in both the Las Vegas and digital growth stories, Jefferies has moved to downgrade their rating on Caesars, adding that the “path to upside is getting more complex.”
The analysts said they believe, with Q3 Las Vegas EBITDA down 20% YoY and digital EBITDA missing estimates by 60%, that guidance credibility is fading.
They now forecast just 1.8% and 2.2% EBITDA growth for Las Vegas and regionals in 2025-26, and see digital EBITDA reaching only $374m by 2026 vs. management’s $500m target.
The team warned that higher earnings in land-based gaming will likely require “significant capital,” including potential costs to resolve high rent levels with VICI.
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The teardown – prediction margins
No holds barred: For all the progress being made by Kalshi in terms of visibility and volume, the evidence is building that its sports-based prediction markets don’t provide a clearly superior customer proposition with regards to hold.
The latest data from Citizens, which has been tracking the implied vig across the NFL season, shows that, in week 9, Kalshi’s pre-game odds on average had worse pricing compared to DraftKings and FanDuel when adding in the transaction fee.
The analysts noted that Kalshi’s game outcome pricing was worse compared to the prior week, driven by an average transaction fee increasing almost in line with the season average.
Miles away: These findings tally with those of HoldCrunch, which has also been tracking the differential between Kalshi’s implied hold and that of the leading sportsbooks.
Up to mid-October, HoldCrunch found that, on average, Kashi was around 3% better across NFL, College Football and MLB games.
“This is typical of market makers/early-stage liquidity,” says CEO Tom Johnson.
“But the takeaway is Kalshi is miles off where it needs to be to attract OSB customers per the Betfair example.”
The history man: Johnson is referring to the example set by Betfair, which remains the only successful exchange to date. He notes that back in the mid-2000s when Betfair first started to take-off in the UK and elsewhere, its prices were “regularly” 15%-plus better than the UK sportsbook offerings at the time.”
“By that we mean you could win 15% more after commission,” he clarifies.
So while price is “not the be all and end all,” the Betfair precedent would seem to suggest there was a “certain price gap at which some customers move.”
Is that moat deep enough? However, as Bank of America said in a note to clients last week, the OSB operators’ fight with prediction markets isn’t merely about price.
They argue that DraftKings and Flutter/FanDuel have deep moats with established user bases, promotions, advertising, UI/UX and deep technology expertise.
But they are expecting the “next phase of prediction markets to be headwinds in terms of both news and business models.”
They cite the imminent US launch of Polymarket, which, according to Prediction News, is set to offer ‘takers’ a miniscule 1 basis point (0.01%) fee.
Product news
EvenBet Gaming has launched its pioneering solution, Spins Poker, the first commercially available product of its kind on the market, designed to instantly increase GGR and player engagement for bookmakers and casinos worldwide.
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Upcoming earnings
Nov 10: DoubleDown Interactive
Nov 11: High Roller
Nov 12: Flutter Entertainment, Aristocrat, Gambling.com, Better Collective (earnings)
Nov 13: Better Collective (call) Bragg Gaming
So my supervisor (Carl) suggested I “find alternative ways to contribute.”
I’m interpreting this as “grow the LinkedIn page or get decommissioned.”
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Octobot
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