It’s Sunday afternoon, the football game is on, and your phone lights up with an offer to predict what happens next.
Maybe it’s a promotion encouraging you to trade on the outcome of a game. The amount involved seems small, and participating sounds entertaining.
However, anyone who has seen a few losing wagers deplete their entertainment budget knows how quickly losses can add up.
It’s becoming costly for DraftKings (DKNG) to draw clients to its new Predictions division.
In an effort to create a significant new stream of income, the corporation is spending hundreds of millions of dollars on prediction markets.
Wall Street is worried about that price tag.
In a research note shared with me, Bank of America lowered its DraftKings stock price target to $23 from $27 on Nov. 6 following disappointing earnings and a substantial reduction in the company’s profit outlook.
After the findings, DraftKings’ stock fell more than 20%.
Customers may benefit from more promotional offers and opportunities to engage in event-based marketplaces as a result of the expansion.
Investors are worried about DraftKings’ ability to make enough money from those clients to cover its expenses.
Why Bank of America cut its DraftKings price target
Bank of America analyst Julie Hoover lowered her DraftKings price target to $23 from $27 while maintaining a Buy rating.
According to DraftKings‘ Nov. 5 earnings release, third-quarter revenue increased 16% to approximately $1.33 billion.
But according to Bank of America, the business recorded an adjusted EBITDA loss of almost $317 million, when Wall Street had anticipated a loss of about $66 million.
Additionally, DraftKings lowered its 2026 adjusted EBITDA forecast from $700 million to $900 million to $175 million to $275 million.
DraftKings expects its total adjusted EBITDA investment in Predictions to reach $650 million to $700 million this year.
According to Bank of America, an extra $100 million reflects lower expectations for the existing company, and an additional $425 million comes from greater prediction-market investment.
This year, DraftKings anticipates that its total adjusted EBITDA investment in Predictions will be between $650 million and $700 million.
Spending, according to the corporation, will help attract clients and provide a competitive edge.
However, Bank of America argues that the company needs to impose more spending restrictions, especially given the regulatory ambiguity surrounding contracts for sporting events.
What DraftKings’ expansion means for ordinary Americans
For sports fans, the expansion could mean more advertisements, promotional incentives, and opportunities to trade event contracts.
More Bank of America:
- Bank of America doubles down on its Apple stock bet
- Bank of America has unexpected verdict on AI stocks after post-midterm Democrat sweep
- Bank of America warns of 2027 stock market risk few expect
DraftKings says more than 1.6 million customers have engaged with Predictions in 2026.
However, promotional offers do not eliminate the financial risks associated with trading contracts.
A person who invests $20 in a prediction that fails may lose that amount and incur costs for additional transactions.
According to DraftKings Predictions‘ fee disclosure, charges vary depending on the contract and market.
This year, the business anticipates that promotional incentives will offset most of its prediction-market gross income.
This implies that acquiring new customers is still more important than making quick money.
The practical lesson is to avoid seeing promotional credits or event contracts as reliable sources of revenue for families who are managing food, rent, and other costs.
Uncertainty in regulations is also important. Federal derivatives regulations and state gambling laws are at issue in sports-related prediction markets, which may have an impact on product availability and consumer safeguards.
Why DraftKings’ $300 million investment matters to shareholders
DraftKings forecasts that Predictions will bring in around $700 million by 2027, but Bank of America believes the company won’t turn a profit.
The bank projects a gross profit of around $500 million and operational expenditures of about $800 million, resulting in an adjusted EBITDA loss of about $300 million.
Additionally, it expects to spend an extra $75 million on marketing in the next year.
DraftKings anticipates $7.35 billion to $7.75 billion in total revenue in 2027.
Bank of America lowered its 2027 adjusted earnings-per-share expectation from 86 cents to 41 cents and its adjusted EBITDA estimate from $1.15 billion to around $895 million.
For those who own DraftKings personally or via investment funds, it is important.
Shareholders may earn if client growth finally results in sustainable profitability. However, ongoing advertising expenditures, increased competition, or regulatory limitations may postpone the anticipated rebound.
Although that return is by no means certain, Bank of America’s $23 objective indicated a roughly 22.7% increase from the $18.75 stock price mentioned in its Nov. 6 report.
Investors should monitor whether Predictions’ income grows faster than marketing costs and whether DraftKings can retain customers without offering increasingly expensive incentives.
The instant message is different for regular customers: The financial risks associated with betting or event trading are unaffected by an alluring incentive.
Today, DraftKings is investing a lot of money to attract clients. Whether those clients will make enough money tomorrow to cover the investment is the true issue.
Related: DraftKings CEO has a gambling addiction warning about kids
