DraftKings recently unveiled its new market-making division, launching its proprietary prediction market exchange, DKeX, at a time when prediction markets are gaining momentum. The timing aligns with the World Cup knockout stage, even as the NFL regular season remains months away. With sophisticated pricing and algorithmic modeling, DraftKings aims to enhance its prediction market offerings through this new internal market-making unit ahead of the upcoming fall sports season.
During the company’s first-quarter earnings call, CEO Jason Robins expressed optimism about DraftKings potentially becoming one of the top three market-makers in the industry, thanks to its extensive resources in data science and pricing. He highlighted that the company exceeded $3 billion in annualized consumer volume during an initial testing phase and sees promising synergies by integrating DraftKings Predictions into its newly launched “super app.” Robins stated, “DKeX provides a vertically integrated foundation for DraftKings Predictions, strengthening our prediction markets content and capabilities, giving us greater control over the technology that powers those offerings, and enabling us to move faster as we continue enhancing our unified app.”
Despite this enthusiasm, uncertainty looms over DraftKings' ability to generate enough trading fees to balance its substantial investment in prediction markets by 2026. The company has indicated it could face category losses of up to $300 million this year, a figure that some analysts consider conservative.
DraftKings formally entered the prediction market sector last December with the launch of DraftKings Predictions, which is regulated by the U.S. Commodity Futures Trading Commission. However, partnerships with CME Group and Crypto.com have limited DraftKings' revenue-generating options via trading fees. Competing market-makers traditionally earn revenue through fees on trading volume and from the bid-ask spread.
Most industry leaders generate income from trading fees, while others are working to establish their own market-making divisions. For example, Polymarket recently introduced a new fee structure for its maker-taker model as the NCAA Final Four approached, while Kalshi uses a parabolic formula to enhance liquidity, making limit orders for market-makers significantly cheaper than market orders.
In terms of its fee structure, DraftKings assesses market-takers a fee that varies based on the contract price:
– Contract price of $0.01 to $0.19: $0.01 per contract
– Contract price of $0.20 to $0.96: $0.02 per contract
– Contract price of $0.97 to $0.99: $0.01 per contract
The maker fee is set at $0.0025 per contract.
Following the announcement of its new exchange, DraftKings’ shares increased by 11%, reaching approximately $27.59 per share. Nevertheless, this is still a significant decrease from the low $50s in post-Super Bowl market activity in 2025. Some analysts believe that the new exchange could trigger a resurgence for the company.
Market-making is seen as a highly profitable pursuit, with gross margins of nearly 95%, according to Citizens analyst Jordan Bender. The exchange business presents a substantial opportunity for DraftKings to enhance its EBITDA, with projections of $243 million in total market-making revenue by 2027. However, the company anticipates a significant investment in prediction markets for 2026, estimated between $200 million and $300 million, and Bank of America has warned that losses could hit $550 million.
As the second half of the year approaches, analysts are highlighting 2026 as a pivotal year for prediction markets. Kalshi has announced its pursuit of new funding that could value the company at $40 billion, following a valuation of $22 billion earlier this year, effectively doubling its previous valuation from 2025.
Soaring valuations across the prediction market space have sparked discussions about potential mergers and acquisitions. The establishment of integrated platforms like DraftKings’ new exchange has “set the stage” for more M&A activity among exchanges, sportsbooks, and consumer-facing firms, as noted in a recent Bernstein report.
