The Business Behind DraftKings

It’s a Sunday afternoon. A group of friends is spread across the couch, NFL RedZone blaring on the TV, but one of them isn’t watching the screen; he’s glued to his phone, tracking a live parlay that’s one touchdown away from paying out. He scrolls to the online casino tab, thinking he can claw back what he lost on the 1 PM games with a few hands of blackjack. Then a notification pops up: Would he like to bet on whether it will rain in New York tomorrow? He taps yes without thinking twice. Three different products, three different transactions, all inside one app, and the company behind all of it is DraftKings. Most people think of DraftKings as just a sports betting app or an online casino. But when you look closer, there’s a much more interesting business hiding underneath.

DraftKings was founded in 2012 by three friends in Boston as a daily fantasy sports company. The company grew quickly, raising over $1 billion across several rounds of financing between 2012 and 2024 (Investopedia). Rather than pursuing a traditional IPO, DraftKings opted to go public in 2020 through a reverse merger (a process in which a private company acquires a publicly traded company to bypass the lengthy IPO process) with Diamond Eagle Acquisition Corp, a sports betting technology provider (Investopedia). In 2025, DraftKings generated $6.05 billion in revenue, up 27% from the prior year, and reported net income for the first time in company history, a meager $3.7 million, compared to a net loss of $507.3 million in 2024 (DraftKings). So how did a company losing half a billion dollars a year suddenly turn the corner?

Behind DraftKings are two main revenue streams that together account for 93% of total revenue: Sportsbook and iGaming.

DraftKings Sportsbook is the flagship product and what the brand is most known for. Customers place pre-game and live bets across sporting events at odds based on the likelihood of each outcome. DraftKings earns revenue from the spread between total wagers accepted and the payout made (Umbrex). In 2025, the Sportsbook generated $3.83 billion in revenue, accounting for roughly 63% of total revenue and grew a staggering 31.8% this past year (DraftKings). The iGaming platform is the second pillar, an online casino offering everything from slots to live dealer table games. Where the Sportbook depends on the sports calendar, iGaming drives high-frequency engagement, giving customers a reason to open the app in the off-season. Revenue is generated through the standard casino model; DraftKings is the house that holds a built-in mathematical edge on every game. iGaming generated $1.80 billion in revenue in 2025, accounting for roughly 30% of total revenue and grew 17.5% from the prior year (DraftKings). 

At its core, DraftKings makes money through regulated digital gaming, whose long-term economics depend on scale, repeat behavior, and continuous product innovation to retain customers across both platforms (Umbrex).

To understand how DraftKings finally turned profitable, you need to understand two concepts: customer acquisition cost and lifetime value. Customer acquisition cost is the money DraftKings spends to bring a new customer onto the platform. In DraftKings’ case, that means offering aggressive sign-up bonuses and free-bet promotions to acquire customers. For years, DraftKings was spending so much to acquire each customer that it was losing money before that customer even placed a bet. This is the main reason it took the company over a decade to turn a profit (Q4 2025 was the first profitable quarter in company history). Lifetime value, or LTV, is the total revenue DraftKings expects to generate from a single customer over the entire time they use the platform. And this is where the business model gets interesting. Once the customer is acquired, the DraftKings LTV flywheel kicks in. A flywheel is a business concept in which different parts of a company feed into and reinforce one another, creating a self-sustaining cycle. For DraftKings, this means a customer acquired through a free-bet promotion on the Sportsbook is introduced to iGaming, then Daily Fantasy, and now Prediction Markets. Each additional product increases how much they spend on the platform, and the more products a customer uses, the harder it is to leave. This crucial shift from investing heavily to acquire customers to spending little to retain them is exactly what led the company to its first profitable quarter. 

In his letter to shareholders, CEO and Co-Founder Jason Robins identified prediction markets as the company’s single biggest and most important opportunity going forward (DraftKings). A prediction market is a platform where people can buy and sell contracts tied to the outcomes of future events; anything from the result of a presidential election to who wins the Super Bowl is allowed on a prediction market. The key distinction from a traditional sportsbook is regulatory: prediction markets are classified as financial derivatives and are regulated at the federal level, while gaming commissions (gambling) are regulated at the state level. That distinction is everything for DraftKings. Because prediction markets are not legally considered sports betting, DraftKings can offer them in the 17 states where it is not licensed as a sportsbook operator (WSJ). DraftKings is deliberately focusing its prediction-market efforts on sports, complementing its existing Sportsbook in states where it can’t legally operate (WSJ). The targets are exactly the markets you’d expect: large, high-population states like California and Florida, where the traditional licensing process has been politically or legally blocked (WSJ). Those are enormous markets sitting right in front of the company with no clear access through conventional sports betting. The financial upside of prediction markets is even more compelling because prediction markets are not yet subject to state gaming taxes, which further amplifies margins by an estimated 10 to 30 percentage points (WSJ). And the speed of entry is dramatically faster. Missouri, the most recent state to approve DraftKings’ traditional Sportsbook, required extensive legal battles and more than a year of regulatory process before a single bet could be placed (WSJ). Prediction markets bypass that entirely. For a company whose growth has long been throttled by the pace of state-by-state legalization, this is the fastest and most capital-efficient path to expanding its footprint that DraftKings has ever had.

This brings us to one of the biggest threats facing the company: legal battles. DraftKings has to fight tooth and nail for approval in each state, navigating a different set of laws and regulatory hurdles every time. On top of that, the company faces civil lawsuits from customers alleging DraftKings fuels gambling addictions through aggressive promotions and targeting (Forbes). The same tools that power the flywheel are the ones drawing legal scrutiny. Combine that with direct competition from FanDuel and BetMGM driving up customer acquisition cost across the industry, and growth for DraftKings may not be as straightforward (LegalSportsReport). Nonetheless, a company reporting profit for the first time in its history is clearly making the right moves, and with prediction markets opening new doors that bypass traditional licensing processes entirely, DraftKings has more paths to growth today than ever before.

To close out the article, I will give a SWOT analysis for DraftKings to evaluate the company’s position by identifying internal strengths and weaknesses alongside external opportunities and threats. 

Strengths 

1. Brand Recognition 
2. Growth in Core Revenue Streams 
3. Product Innovation and Offering 

Weaknesses 

1. Ongoing Litigation 
2. High Customer Acquisition Costs 
3. Thin Profitability 

Opportinities 

1. State-by-State US Expansion
2. Prediction Markets 
3. Enhancing Existing Product Features 

Threats 

1. Strong Market Competition (FanDuel, BetMGM, etc)
2. Regulatory and Government Risk
3. Seasonality and Sports Calendar Dependence