Hello, everyone. Thank you for joining us, and welcome to the DraftKings' second quarter 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Matt Rapoport, Vice President of Finance. Please go ahead.
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. We assume no responsibility to update forward-looking statements other than as required by law. During this call, management will also discuss their 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 files with the SEC. Posting the call today, we have Jason Robbins, 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 Allenson, will provide a review of our financials. We will then open the line to questions. I will now turn the call over to Jason Robbins.
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 F strategy that we laid out on our investor day in March, and we are seeing massive new customer acquisition in states without regulated sportsbooks. We generated $115 million of adjusted EBITDA in the quarter. which would have been even better if not for 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 for just the need of done in 2026. Our confidence and 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 served. second quarter, we achieved our best enterprise-wide customer acquisition cost since the first quarter of 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 optimized use of investment. In the second quarter, monthly unique payers growth accelerated 9% year-over-year and more than 6% when excluding World Cup-only customers, 15% year-over-year in the second quarter. It is clear that our super app rollout has already paid 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 growth costs that got to have the best offering across our main verticals, including predictions this NFL season. You need customer confidence in the underlying earned predictions. Requiring these customers, early data on volume per customer and month-over-month retention is similar to a sports book of our predictions customers. As a result of strong acquisition, retention, and engagement, we are seeing rapid volume growth. From April to July, 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 with our coverage across the most exchange, DKX, and in July, we are also seeing meaningful traction on the market-making side as we leverage our industry-leading sportsbook modeling and risk management, take free exchanges and consistently making markets on both singles and combos at a profit. As DKX is live and our market maker is integrated, the opportunity is even more compelling. As DKX 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 three key layers of the prediction 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 three up and running today, which gives us a structural lifetime value advantage over our competitors. While the revenue per customer may be lower than that of our Sportsbook offering, the high-margin profile of the business supports a similar level of gross profit per customer over time. We have driven meaningful lifetime value improvement in Sportsbooks for nearly a decade through our top-rated offerings, and we are confident we can run that same playbook and predictions. To wrap up predictions, the similarity of predictions customer metrics to Sportsbook customer metrics, our advantage 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 enter the season from a position of strength with a strong score, 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, Al.
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 after 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 cost since the first quarter of 2025 and was combined with sports consumer volume increasing 15% year-over-year and sports handle increasing 11% year-over-year while parley handle mix continuing to rise. We had a tremendous NBA season, with total handle growing 7% year-over-year, and parlay mix increasing more than 400 basis points. The World Cup also provided an excellent opportunity to engage customers, with Sportsbook handle approximately 6 times higher than during the 2022 World Cup, and approximately 4.5 times 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 since July after the World Cup ended. We did experience some customer-friendly outcomes in June after seven months of sportsbook-friendly outcomes, mainly driven by the Knicks championship win, which had an outside impact in 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 experience 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 touch from 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.
We will now begin the question and answer session. We ask that you please limit yourself to one question. If you would like to ask a question, please press star 1 to raise your hand, and to withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality, and if muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Stephen Grambling with Morgan Stanley. Your line is open. Please go ahead.
Hey, thank you. I think one of the questions that we often get or pushback we get around prediction markets is, you know, you gave this stat that most of the volume coming through some of your competitors appears to be professionals or, you know, syndicate-type things. Why do you think you're able to capture, you know, 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 and states that don't. Like, we are seeing a very similar customer profile to who we get on OAP. And, you know, I think if you kind of look back at it, and there have been many, as you know, 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 reasons. Two, we have, 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, 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, you know, we looked at a lot, also used in third. So great to see it's an incremental opportunity. And to answer your first question, the reason I think it will be different for us is we're worth offering. And there, because you don't have competitors.
Your next question comes from the line of Dan Pollitzer with J.P. Morgan. Your line is open. Please go ahead.
Hey, good morning, everyone. Thanks for the question. I wanted to touch on the core business. One of your peers, obviously, has been talking about incremental sports investment in the promotional environment. You know, 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? Well, you know, we've always seen fluctuations in promotions. I mean, in the grand scheme of things, them spending a few hundred million more in promotions is not a major shift. and we've always been able to be more efficient with it to continue to be the case. You know, this has been, for years now, 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 OSD side. So, you know, just as we've always done, we are going to stay steady with our strategy. We're going to continue to actually 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 handling. Those are not things that we view as a tradeoff. Great to hear. Thanks so much.
Your next question comes from the line of David Katz with Jeffries. Your line is open. Please go ahead.
Everyone, thanks for taking my question. I wanted to get, Jason, you ran through, you know, some of the economics of players in prediction markets versus OSB players and get a sense of the arc to profitability of those players, you know, given that we've had the experience with OSB. And one of the things we, you know, been asked and delving into is about best execution requirements and predictions and, you know, can you route all of your volume on platform complicated?
So we're certainly planning to shift, as far as the economic TV model, here we do have comparable data on the sports programs of modeling out what's the ultimate monetization of these customers. But I think we've been very, you know, great, you know, just we've studied economics by bringing a little migrate volume over, as I mentioned, to our growth market making in I mean, the good news is right now, customer acquisition looks so strong that we really don't need to assume anything more aggressive or efficiency and a little bit more we spend
Your next question comes from the line of Jordan Bender with Citizens. Your line is open. Please go ahead.
Everyone, good morning. Thanks for the question. Jason, early days you often gave what the cross-sell from like DFS into OSB looked like. Are you going to 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 ads And then maybe the second part of that is, how is ESPN in a role in all of this?
Yeah, 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, you know, it starts with we want a full product suite with jurisdictions as we can around the country. In doing, you know, on that mission, we have, you know, 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 onto 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, you know, is really important as well. So that's really the core of the strategy. And, you know, at this point, we have not heard from DFS or anything else to predictions, but as you can imagine, it's actually a little bit better because we've honed our ability to cross-sell since the early days.
Your next question comes from the line of Sean Kelly with Bank of America. Your line is open. Please go ahead.
Good morning, everyone, and thanks for taking my question. Jason, I just wanted to go back to the prediction market spending target, the $200 to $300 million. And I know you said that tax are a little bit better there, but you're also chasing in Q2. I think we always think of drafting 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're 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 dollar results?
Well, it's a great question you're asking, Sean. You know, we have always been and will continue to be very data-driven as a company, and, you know, what we do is we model out ROI on any capital investments, and we try to make the smartest capital investments with shareholders over the long term. So this is really no different. I do think in this case, though, you know, remember, we already have a huge ESPN, NBC, Amazon, several of these remaining states. And then, you know, as we've noted, we're planning on investing. And if we see something like that line up this fall, then, yeah, I think, you know, at this point, we feel like, given the data we have this quarter, we invested.
Your next question comes from the line of Brant Montour with Barclays. Your line is open. Please go ahead.
Good morning, everybody. Thanks for taking your question. Just looking at the guidance for the rest of the year, it does imply, you know, a pretty big fourth quarter. And I'm just curious if you could give us some sense for, you know, how you think the sort of building blocks can get you there between sort of sports versus iGaming, but more specifically within 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. Thank you.
Yeah, so, I mean, Q4 is always our biggest quarter, so I expect it to be the same. But really what we're in, you know, the other thing we're really excited about August, I think it's going to be a big NFL season. I think a lot of this chatter, you know, sometimes what happens is when there's just overall marketing and awareness and chatter about something it lifts everything and I think what's half-cup impact and now that said the outsides when we put the guidance out there we assumed what we thought we were going to do earlier so really we're not you know up in July it gives me great confidence great thank you your next question comes
from the line of Clark Lampin with BTIG your line is open please go ahead Thanks for taking the question.
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 tax right now and 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 their level that maybe you believe you can achieve or have targeted for the fall thank you yeah yeah 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 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, starting, of course, with CFB and NFL, that we're going to try to port as much of that volume. So to the extent that that means we have to move a little slower or a little faster, because we're holding it 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 multi-year tailwind. It took us several years to bring all of our content. 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'll take. I do think it'll 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 you know in terms of the fees that's a good question you know 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 comics advantage and LTV advantage over the competition your next question comes from the line of Robin Farley with UBS your line is open please go ahead great Thanks.
I wonder if you could kind of help us think about the components of your EBITDA guide. You know, it didn't change, but in total, and not that you're going to give the specific quantifications, but could you kind of talk us through, did, you know, was there like an increase in what you thought you'd make in market making that sort of offsetting some promotional or offsetting, you know, maybe hold impact or just kind of think about what the puts and takes are of the unchanged guide? Thanks.
Yeah, 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 adjustment we're seeing there. I think there could even be a little bit of upside of $1 billion. And then $200 million to $300 million of predictions investment expected on the year. So those are kind of the high-level material enough for us to be really calling out as individual line items.
Okay, thanks. And maybe just as a quick follow-up, in Q2, you talked about the run and decline being a combination of sport outcomes and the higher commercial spend. Can you give us a sense of kind of what the sport was just so when we're thinking about what you're comping, you know, the sport outcome kind of an easier thing to get back in theory? So it's just sort of, you know, kind of a rough proportion of which of those, you know, versus I think what you said would have been up 10% in Q2 in revenue.
Yeah, 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. Your line is open. Please go ahead.
Hey, guys, 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, you know, expectations for what that growth might look like for the balance of the year. Thanks so much.
Yeah, so we're actually iGaming, you know, Despite the fact that we have not performed one of the biggest links, as we launched a product, responding well to that, we've been getting a lot of positive. And our share has really stabilized after several quarters of losing shares. 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. You know, 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, you know, that business is on the rise.
Your next question comes from the line of Jed Kelly with Oppenheimer. Your line is open. Please go ahead.
Hey, great. Thanks for taking my question. So circling around that 600,000 prediction 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, you know, call it your meat and potato sports fans? Thanks.
Yeah, it's a great question. So I think that there's two things going on here. One is, you know, we are obviously still learning and we are, you know, taking a little bit more of a cautious approach in predictions investment for various reasons. One, you know, we're still learning about the numbers and what the ultimate LTVs can look like. Two, there are some regulatory questions that make, you know, the future and exactly what that's going to look like not entirely certain. So, you know, we aren't leaning in quite as hard as we would, say, a new state launch at this point. As those things become more clear, I'll be 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, you know, have been seeing national advertising. So I do believe there's an education for people to understand that they can actually, if you are in California, you can use it 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. But, you know, this is not too dissimilar from when we launched our first, honing our statement, a combination of just general awareness, general market momentum, now being ready for it. Predictions is still a great. 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 things that are 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 McTiernan with Needham. Your line is open. Please go ahead.
Great. Good morning. Thanks for taking the question. Just wanted to circle back on something that you said in the prepared remarks about the flywheel of being vertically integrated. to just hopefully you can dive into that a little bit more, talking about the, you know, the structural advantage and network effect that come from being a vertically integrated prediction market operator.
Well, you know, really important, the question you're asking, and it's been core to our strategy, not just in every product we've had, OSB, but it's really no different conceptually than prediction. So in OSB, when we started off, we were not using our own back-end technology. We were not doing any of our own pricing and trading, and thus, you know, we were so really where you see this flywheel of LTV being, you know, the centerpiece of it. So the first dimension is the technology platform. We are doing our own pricing and trading. So all that value is occurring. The second thing you're seeing, predictions, same story. Predictions, there's really three components. There's market making and DraftKings is playing total unit economics and LTV, which should give us that advantage that we have in sports offerings that other competitors will either be you know slow to catch up on me not even be able to do depending on what capabilities they have in-house so very very similar in exact articles and do
Operator
we can execute it as we've done it before makes sense thanks Jason your next question comes from the line of Ben Shakin with Muzuko your line is open please go ahead hey good morning thanks for taking my question Jason you mentioned acquiring more prediction customers than planned and seeing retention in volume similar to OSB, which is encouraging a slower tax, I believe. But it sounds like, I think if I thought 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, assuming I have?
Well, it's a great question you're touching on because, you know, when I say we spend a little more, it doesn't always mean incremental to enterprise. We're also constantly doing this one because we're getting more efficient performance here. And we have such a large portfolio.
Operator
And then anything particular in the OSB efficiency, EM standpoint?
We saw really efficient OSB spend results on the CAC side as well. I think there were two things. One, you know, obviously it was World Cup. and, two, I think being able to really have this broader message has helped everything lift. So in the core, for example, in Q2, we saw 40 more acquisitions, 2025, Q1 2025 efficiency, and I think next quarter is going to be much more efficient just based on seasonality. So really experience.
Your next question comes from the line of Joe Stoff with Susquehanna. Your line is open. Please go ahead.
Good morning, Jason. 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, do you think?
Any 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 more recently, maybe I'll talk about some recent features that we're going to continue to ramp. Some predictions, combos has been back in there. we just launched as a big moment for us in terms of upgrading the consumer
offering thanks a lot we have now reached the end of the Q&A session I will turn the call back to Jason Robbins 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
