Hello everyone, thank you for joining us and welcome to the DraftKings third 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, please press star 1 again. I will now hand the conference over to Matt Rapoport, 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 earlier in our SEC filings that could cause our actual results to differ materially from our historical results or forecasts. 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 in 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 and predictions to $650 million to $700 million. Our predictions customers are highly engaged, retaining at high levels and trading significant volumes. In totality, we expect our 2026 cohort to pay back in approximately 20 months, well below our two-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. We expect the adjusted EBITDA investment predictions to step down to $300 million at the midpoint. In the core, we expect adjusted EBITDA to grow to $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 midpoints, 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 two-year paybacks we targeted in this already run rating to approximately $350 million in 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% on trades on DKX across brokerage, exchange, and market making in September and October. We captured approximately two-thirds of that gross revenue, with third-party market makers capturing the rest. The results have been remarkable. In just a few months, we have become the clear number three predictions exchange 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 number one in the industry, an 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, as DKX lists 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 roadmap, 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 taker fees, a low volatility, high gross margin revenue stream. We are also increasingly excited about the emerging non-sports opportunity. Nearly 20% of our predictions customers have already traded non-sports markets, and non-sports consumer volume per customer is 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 crypto markets to 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 six, lottery, and non-sports predictions. Even if sports contracts were to end in July 2028, we estimate our 2026 cohort would 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 four 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 one fewer week of college football and NFL. The 12% growth number is a true like-for-like comparison. We continue to see healthy handle and revenue growth, further substantiating our view that prediction market operators are having no discernible impact on our sportsbook business. Our sportsbook hold 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 invested 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 Cashingo 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, or 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. 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 and 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 and 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, up approximately 360 basis points from this year at the midpoint of guidance. We expect prediction revenues of $650 million to $750 million, and adjust EBITDA investments and predictions of $250 million to $350 million, stepping down to $300 million at the midpoint, as the customers we acquire this year contribute meaningful gross profit. We will continue to monitor regulatory developments related to sports predictions and will adjust our level of predictions investments accordingly. Regardless, we expect predictions to be a tailwind to adjust Viva Da 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.

We will now begin the question and answer session. We ask that you limit yourself to one question. If you would like to ask a question at this time, please press star one to raise your hand. To withdraw your question, please press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. And if you're 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 Julie Hoover from Bank of America. Your line is open. Please go ahead.

Hi, thank you for taking my question. Jason, can you just walk us through the decision to increase core prediction 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 mid-year 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. And 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 four years or less. and that's because of the excellent cross-sell we're seeing onto other products we have including the non-sports predictions so really feel like that was a you know good justification obviously we typically target three-year paybacks in our core business so it's a little bit longer than that but that's in the you know case where sports contracts go away in the case where they don't it's much faster than our core business so kind of you know mid middle of the road would be in line with where our core business payback targets are.

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

Thanks. Jason, I think one of the big questions that I've 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 activity is most similar to the third quarter of 24, yet marketing proactive is up materially versus that period. So how should investors reconcile those numbers versus the commentary on paybacks and the core margins?

Yeah, I think the way you have to look at it is really an acquisition point of view. So obviously we had a lot of states that for the very first time 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 an OSB. More recent states have ramped faster. Earlier states ramped 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 you know 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 and If you look back to 2024, what 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 of 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. Your line is open. Please go ahead.

Morning. Thanks for taking my question and 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. 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 You know, compelling as one of those binary outcomes suggests, right? Like, is that, you know, somewhere on the decision tree, you know, also, and how does that economically turn out?

Yeah, 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, you know, 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 are the paybacks look like? So that's why we looked at those two is 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 wanted to feel good that even in the case that probably the most significant, you know, rollback of all sports contracts that was likely an outcome, we wanted to feel good that even in that case, we were getting paybacks that were acceptable to us.

Perfect. Thank you.

Your next question comes from the line of Eric Sheridan from Goldman Sachs. Your line is open. Please go ahead.

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 were 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, you 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 so the spend that we incrementally did in predictions with 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 six to non-sports 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. In terms of the brand halo in states that have OSB in 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.

Thank you.

Your next question comes from the line of Dan Pulitzer from JP Morgan. Your line is open. Please go ahead.

Hey, good morning, everyone, and thanks for taking my question. I had 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 efficiencies there. But can you talk through the marketing, G&A, and product and technology spent for the core business and what that looks like this year and next year and maybe put some numbers around it? Thanks.

Yeah, 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 costs this year, and I think that'll continue into next year. And we have many initiatives lined up to continue to focus on costs all the way up and down the P&L. 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 costs, but also how we think about the entire P&L and every dollar we spend.

Thank you.

The next question comes from the line of Trey Bowers from Wells Fargo. Your line is open. Please go ahead.

Hey guys, thanks for the question. 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. Do 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 two of that would be just a better sense, you mentioned a lot of local kind of I think we just love a little bit better feel for where all these dollars are going. Thanks.

Yeah, 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, it 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 would for an OSB launch. On your first question, so to 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 new customer promotions. So next year, you're really going to see an inflection. 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 half a billion, which I think is a pretty strong ramp considering this was our first year to be able to get there. And we'll be ahead of that, obviously, on the gross revenue side. All of those numbers, too, are based on where we're currently running. 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 four or five 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 of that. 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 to $700 million this year, we're going to do that much in just revenue alone, $500 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 were 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 headcount that we have today. 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.

Thanks.

Your next question comes from the line of Barry Jonas from Truist Securities. Your line is open. Please go ahead.

Hey, guys. You recently exited the Utah market for sports and some other prediction markets. How should we think about risks 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. Thank you.

Yeah, 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, you know, 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. 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'll be something that we can work through with them easily. That's helpful. Thank you.

Your next question comes from the line of Brant Montour from Barclays. Your line is open. Please go ahead. A kind reminder to unmute yourself locally if you are. 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. Your line is open. Please go ahead.

Great. Thank you. I have kind of a big picture question for Jason, but also just wondering if Alan can clarify that the predicted market loss is specifically in Q3. I know you guided to it for Q4, but I don't think we have that number for Q3. Jason, my question is this. Looking at the scenario, when you talk about if it stops in the middle of 2028, it would only be a four-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 six-year payback period and maybe not an investment you would make just in non-sports. 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, you know, billion dollars 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 if 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'd 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 predictions. 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 states to all legalize 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 non-sports piece 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 in and be like, oh, we're counting on this thing that's not even something that we focused 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 four-year paybacks anyway. And I'll remind you, it's not just the non-sports. It's PIC6 and other products, too, that we're seeing cross-sell on. But I actually think there's a ton of upside from non-sports. I think non-sports could be You know, 25, 30%, maybe even more of the size that sports is today. So, you know, 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 this. I was thinking we have to defend our turf and win this market on sports. But now that we've seen some early signal, I'm actually pretty excited about the non-sports 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. Your line is open. Please go ahead.

Hey, great. Thanks for taking my call. Just going back on the core, you know, it does seem next year you are harvesting some margin, although you do have some competitors still spending aggressively in those markets. So 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? You're okay in pulling back on this investment. You won't lose significant share in sports in court. Thank you.

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. I don't think we're pulling back. If you look at our performance, we were basically tied with FanDuel for number one in the industry on sports betting this quarter. 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 three 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 number three 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.

Thank you.

Your next question comes from the line of Grant Montour from Barclays. Your line is open. Please go ahead.

Everybody, 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 a really, obviously, you know, compelling growth number. I'm trying to reconcile that against the plus 7% GGR accelerated, 12% GGR. You know, I know this is comparing apples and oranges, but has, you know, with this reacceleration of iGaming investment, are you changing your strategy toward, you know, Lower Average Value Players, how is retention looking? Anything around that to help us understand this strategy, just given you're investing more into a market that some of your peers have described as moving through the maturity curve here.

Yeah, 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, you know, in past years, for those who have been following us a little while, I've seen when new customers perform ahead of what you expect, you have more new customer promo, which in the Thank you for joining us. Again, we're not assuming iGaming accelerates any further from here. We're just kind of taking where 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. We'll be able to realize the benefits of those cohorts throughout the year and not just have that short-term hit.

That's good color. Thanks, everyone.

Our next question comes from the line of Jordan Bender from Citizens. Your line is open. Please go ahead.

Good morning, everyone. Thanks for the question. You know, so clearly, you know, we're seeing another wave of spending here across the sports spending and iGaming industry, which tells us, you know, there's always more to be spent in this space. So, you know, 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 spent for next year kind of that absolute maximum you think it 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 signal, then 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, is this going to ramp more like a sports betting business, a state, excuse me, that we would launch now? Is it going to look more like an early state that has slower ramps 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' retention rates, spend levels would look like in NFL. Got a little bit of World Cup data, but World Cup's 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 sports setting data that we had to be able to say this is what we think these customers will perform 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 to the 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 one 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, you know, $200 million, $300 million of incremental adjusted EBITDA every year to the core. 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 operating leverage from not having to increase fixed costs either.

Helpful. Thank you.

Your next question comes from the line of Clark Lampin from BTIG. Your line is open. Please go ahead.

Thanks. Good morning. Maybe following on Jordan's question here, if we assume that, you know, a billion dollars 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, you know, 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 to core versus prediction? Thanks, guys.

So, I mean, these 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 you know 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 you know four-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 there you're right there is some upside there and I do think that's that's going to weigh in and I know we allocate our local spend but the vast majority of the incremental is local spend we are allocating some of our national to 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 right? Sorry, I just want to make sure that I got 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 states that is going 100% 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.

Thanks a lot. I appreciate the detail.

Your next question comes from the line of Ben Chaikin from Mizuho. Your line is open. Please go ahead.

Hey, good morning. Maybe back to iGaming. I think it was to Brian's question. You know, I think there was an implied cut, if I'm not mistaken, in the 26 numbers of around 100 to 150 million. It sounds like some of that's hold on the OSB side, some of 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 know, you're analyzing a few new regions and if you get Maine, etc. Thanks.

Yeah, so, you know, 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. 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'll 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 that. I think the underlying 26 has an EBITDA cut of around $150,000.

Oh, yeah, yeah. Yeah, so most of that, about 60% of that is sport outcomes. And the remainder is new customer acquisition and 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 kind of your goal here?

We are accelerating share, but really what we're looking at is just more customers coming in at more efficient CACs. So with that, you're going to get higher new customer promotion just from raw customer accounts. And so, you know, 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 a ton of historical data. I mean, these are not like 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. Thanks.

Your final question will come from the line of James Hardiman from Citi. Your line is open. Please go ahead.

Hey, good morning. Thanks for fitting me 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 predictions 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 a function of higher revenues, or will we see lower investment and many more. Thank you so much for joining us today.

All in, we're going to be generating quite a bit of gross profit from the 26 and 27 cohort, probably somewhere north of a billion dollars in 2028, were we to see sports predictions stick around for the whole year. So a lot of it's coming from that. Obviously, as the market matures, we're going to optimize our customer acquisition spend, too. So Thank you for joining us. That's really the way to think about that is that just becomes a harvest period, but also really, you know, very little investment. Sorry, excuse me. The latter becomes a harvest period, but in the former, we would probably continue to invest at some level, just like we do in online sports betting and iGaming. Either way, it should be positive.

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

Thank you all for joining us on today's call. We're 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.