SBJ Betting: It’s everywhere, and it’s not taxed

We’ll get to the highlights from DraftKings’ annual Investor Day held earlier this week in a moment, but first let’s hit on two strikingly simple facts that emerged from it, which stand as the most important takeaways:

• Opening the prediction market spigot on California, Texas and other states that have not yet legalized online sports betting has led DK to confidently predict that its revenue from sports betting in North America will increase from about $17 billion last year to a projected $31 billion to $36 billion by 2030.
• DraftKings expects gross margins from predictions to be 60% to 80%, compared to 50% from sports betting, largely because it won’t be paying state taxes on the revenue.

Sports betting is now available in all 50 states, and DraftKings doesn’t have to pay taxes in 24 of them.

If you walk away understanding only two things about the stampede toward sports prediction markets, it should be those.

DraftKings devoted much of its hourlong presentation to crafting a compelling argument that it quickly will rise to the top of the prediction market fray. It did not take questions from analysts.

Most of the headlines stemmed from DK’s announcement of a single, rebranded DraftKings Sports and Casino app that will house its sportsbook, predictions, casino and lottery products, moving the latter three to the app that already hosts its sportsbook. User experience will vary based on which of those are offered in each state.

DraftKings already was paying to advertise nationally, even though its product was only available in about 60% of U.S. households. Putting both predictions and traditional betting on the same app, with the same look and feel, allows DK to use the same campaign — and the same digital executions — to push consumers to both.

“Predictions make those [advertising and sponsorship] assets more valuable overnight, because we can now convert that demand in places where sportsbook isn’t live today,” said Jeanine Hightower-Sellitto, who joined DraftKings as SVP and GM/predictions in July. “One brand, one app, and one funnel ... that is a real structural advantage in [customer acquisition cost] efficiency and in speed to scale.”

Hightower-Sellitto said DK will grow its predictions capabilities rapidly this year, adding “combos” (predictions parlance for parlays), the launch of a market making unit that will provide liquidity on both sides of bets and the integration of Railbird, the CFTC-regulated exchange that DraftKings acquired last year. Those will be followed by the rollover to the redesigned “Super App.” It plans to later add in-house capabilities as an FCM (futures commissions merchant) and DCO (derivatives clearing organization), allowing it to capture more profit from each bet and to better control the customer experience.

“This is the same playbook we’ve run again and again,” Hightower-Sellitto said, “Launch, iterate fast and own the parts that really matter.

“Our goal is clear. By the start of the NFL season, we intend to deliver an industry-leading sports predictions experience and scale it profitably from there.”

A few more digits and tidbits that emerged from the presentation:

• The combination of DraftKings deal with ESPN and the NBA’s deals with Prime Video and NBC will have the brand present in about 70% of the league’s national telecasts this year, a massive leap from last year, which it was “barely present.”
• The mix of highly profitable parlays reached 32% last year, up from 28% last year. That continued a steady increase that began after 2021, when it was 20%. Net revenue margin has increased accordingly, reaching 7.1% last year, up from 6% in 2024 and 3.2% in 2021. Parlays represented 33% of bets by first-year customers, an indication that there’s no longer a learning or discovery curve.
• As promised, DraftKings dialed back promotions in states with higher tax rates. Promos were 2.9% of handle in the five states with tax rates of 30% or more, with the lowest held to 2%. It was as high as 4.2% in other states.
• DK has spent $6 billion on sales and marketing since 2018, It now reports brand awareness of 88%, one point higher than FanDuel but 19 points better than an unnamed No. 3. The company said it is the “preferred brand” of 38%, seven points higher than FanDuel. No. 3 was at 10%.
• The sportsbook averaged 517 “live betting options” per game last year, up from 124 in 2022.
• 11 million customers, $6 billion in revenue, $620 million in adjusted EBITDA and about 6,000 employees in 2025.

The most interesting storyline to emerge from last week’s Flutter Q4 earnings call stemmed from lower handle and lost market share that FanDuel attributed to a particularly successful NFL season.

It was a reminder of the sometimes-paradoxical relationship between a sportsbook’s handle and its revenue. Increased handle often is an indicator that more people are betting, or that people are betting more as they move from casual to avid behavior. But it also can be reflective of a cyclical response to winning or losing.

The back two-thirds of the football season were especially good to the sportsbooks and harsh on bettors, allowing FanDuel to deliver above average margins on 10 of 11 weeks, with some producing sportsbook win rates of 30%. For the season, FanDuel’s margins on football came in at 19%.

The downside of that is that sustained losing led some to stop betting, or to turn to another sportsbook where they had more funds.

“When you compare that with last year [when many got the better of sportsbooks during football season] and the very substantial step up in margins year-over-year, you would expect to see a commensurate drop in handle, right?” said Peter Jackson, CEO of Flutter. “It is the math in terms of how it works from the customer play ... I suspect that there were some of our customers who, to use another sporting analogy, put their cues back in the rack and stopped betting. We will have to reactivate those customers.”

Jackson said FanDuel should have done a better job of stemming those losses through “generosity,” the term the company uses for bonuses, bet tokens, odds boosts and other promotional offers it uses to keep customers betting.

“There is a hangover impact that you get for a couple of weeks after those very high margins,” Jackson said. “It is something we will make sure that we address. Personalized generosity is the way to deal with that because, of course, even when we are talking about very high margins, there are still averages and there are customers who have done well and customers who have done badly within that.”

Growth or decline in handle in a single month, or even a quarter, doesn’t always indicate a swing or trend.

Prediction app isn’t a long-term play

While FanDuel has launched a prediction app that it plans to expand dramatically in time for next football season, the company still sees it as a short- to medium-term play. The long-term benefit will be a jumpstart of legalization in states that have stalled, he said.

“We believe that prediction markets will accelerate state regulation of online sports betting and iGaming,” Jackson said. “This, in our view, is the most valuable long-term opportunity in the U.S.

“There is new [total addressable market] to go after. Prediction markets will enable us to acquire new sports and entertainment-first customers into the FanDuel ecosystem ahead of potential regulation. We can deliver attractive returns by providing sports [betting] to the 40% of the U.S. population who cannot currently access online regulated sportsbooks.”

He said FD doesn’t believe prediction markets are “having a meaningful impact” on its sportsbook business.

Loyal launch

FanDuel plans to launch its first loyalty program in the second quarter, Jackson said.

“We must be one of the few consumer businesses in the states that does not have a loyalty program, full stop, for sports,” Jackson said. “We saw a very unusual situation after the last couple of years where we have seen low margins in football, then very high and very sustained periods of margin, and we did not have the right playbook or tools really to be able to deal with it.”

Location matters

When Jackson pointed to the lesser “quality” of NFL teams and “lack of marquee players” in playoff contention this season, I sensed a misdiagnosis.

Eight of the 14 teams that made the playoffs also made it the year before. The six who were in last year but out this year: The Chiefs, Ravens, Commanders, Lions, Vikings and Bucs. Replacing them were the Bears, Niners, Patriots, Seahawks, Panthers and Jaguars.

That’s not a drop in “quality.”

But ... it makes sense that the ’24 cohort could drive more handle.

All four teams that make the AFC and NFC championships games that year — the Chiefs, Bills, Eagles and Commanders — came from legalized states. This year, neither team in the NFC championship game — the Seahawks and Niners — came from a legalized state.

If you count each game as an appearance, legal states (not counting Florida, where only Hard Rock is licensed) had 18 team appearances in ’24 and 14 in ’25. There were seven games where both teams were from legal states in ’24, compared to three in ’25. One more legal state team made the playoffs in ’24 than in ’25.

With Illinois, Arizona and Colorado still to report January results, U.S. handle is pacing 3% behind where it was last January. December also closed out as down, falling 4% from 2024. That was the first year-on-year decline since January ’23.

If January ends up down, it will mark the first back-to-back months of U.S. handle decline since the COVID shutdown.

With Arizona’s December report finally in, we also can close the books on 2025. U.S. handle was $166.15 billion, up 11% from $149.58 billion last year.

• UFC signed bet365 as its new sports betting sponsor, with exclusive gambling and fantasy rights in the U.S. and Canada, reports SBJ’s Terry Lefton. Bet365 replaces DraftKings, which held UFC rights since 2021.
• F1 has spent the past two years developing a comprehensive betting strategy before diving into the sector, and now it’s starting to install that plan with its first officially licensed gaming operator in Super Group’s Betway before the 2026 season begins this weekend in Melbourne, writes SBJ motorsports writer Adam Stern.
• A bill would make two significant changes to Kentucky’s sports betting scene: It would raise the legal wagering age from 18 to 21, and it would ban prop bets on athletes in Kentucky colleges, reports the Lexington Herald-Ledger.
• FanDuel is losing the president of its sports division, as Mike Raffensperger is leaving the company, per Sportico.
• Mick Mulvaney, a former chief of staff for President Trump’s White House during his first term, is the executive director of Gambling Is Not Investing, a “new coalition” that’s targeting sports prediction markets, notes Front Office Sports.