With DKNG Stock in 2026, Prediction Markets Loom Large

Even with an impressive rally that carried the stock 21% higher in the last month, DraftKings (NASDAQ: DKNG) investors may well be ready for the calendar to turn to 2026. The last month helped make up some ground, but DraftKings stock is still down 8% on the year.

For those not familiar with this sin stock and wanting to get a handle on what went wrong this year, DraftKings' 2025 struggles largely boil down to two forms of idiosyncratic risk: another run of good luck by football bettors and the emergence of prediction markets.

If DraftKings executes on prediction markets in 2026, the stock could soar. Image source: Getty Images.

Bettors' football success is relevant because it's weighing on DraftKings' financial results, leading to downward revisions of 2025 guidance. Prior to the start of the current NFL campaign, DraftKings appeared set to post its first profitable year, but that target now appears elusive.

For DraftKings, prediction markets will be vital in 2026

Investors actively following DraftKings and other sports wagering equities are aware that prediction markets, notably Kalshi, drove headline risk for those stocks in 2025 amid reports of soaring volume on those derivatives exchanges, leading to significant erosion of market capitalization for DraftKings and FanDuel owner Flutter Entertainment.

Prediction markets enable bettors and traders to buy and sell event contracts, whose prices fluctuate like those of financial instruments. That's different from placing a bet on DraftKings or a comparable platform, where wagers are placed at fixed odds, meaning that once the bettor makes the wager, their odds don't change.

As for how prediction markets could affect DraftKings stock in 2026, that's a multichapter story. Following DraftKings' October acquisition of Railbird Technologies, the company plans to launch its DraftKings Predictions mobile app in the coming months.

The good news is that DraftKings saw a competitive threat and moved to get involved rather than have its lunch eaten. Just as important, perhaps even more so, are expectations from some sell-side analysts that DraftKings will achieve shorter payback periods and better margins with event contracts than with standard sports wagering. Plus, DraftKings Predictions will be less promotional-intensive, meaning the company will spend less money to acquire customers in the event contracts space than it does in sports betting. Add it all up, and the operator's foray into the event contracts space could be additive to its profitability quest.

DraftKings must get the pricing right

Yes, news of DraftKings Predictions has provided relief to weary investors, but the real task will be execution, and that involves offering a better product than Kalshi and companies of that ilk.

Indeed, it's true that sports bettors' loyalty isn't so much to brands as to the bookmaker with the best odds and payouts. That has some investors worried about DraftKings' ability to ward off the prediction markets challenge. Good news for DraftKings shareholders: The company is a contender, not a pretender, on the pricing front.

Citizens analyst Jordan Bender has tracked DraftKings and FanDuel pricing against Kalshi this NFL season, and for nearly all of those 13 weeks, the gaming companies offered better odds than the prediction market. If DraftKings can carry that over to its event contracts platform, the stock could thrive in 2026.

Todd Shriber has no position in any of the stocks mentioned. The Motley Fool recommends Flutter Entertainment Plc. The Motley Fool has a disclosure policy.