DraftKings priced its worst case | Seoul's locals bought | Unity's shrinking gap

DraftKings did something companies rarely do. In its own earnings deck, it modeled the day its fastest-growing product could lose its best feature: sports contracts ending on July 31, 2028. Then it told investors it will spend $650 million to $700 million on that product this year, more than twice what its August outlook implied. The stock is down about 20% before the open. The obvious read is that DraftKings is overspending to chase Kalshi. The more interesting question is whether it is buying a bet on the courts, or insurance against them.

But before we get to that, let's take a quick look at the markets and what matters today…

3 Movers in 3 Minutes

1. Seoul's foreign investors ran. Its locals caught them. Asia took Thursday's chip rout and extended it. South Korea's Kospi fell more than 8% early, tripping a 20-minute circuit breaker, and closed down 6%. Foreigners sold a net 2.77 trillion won of Korean stocks. Local institutions and retail investors bought about 2.3 trillion won. Japan's Nikkei fell about 6%, into bear-market territory, and Taiwan lost about 4.5%. The exit started before the election. Foreign investors pulled $31.8 billion from Taiwanese stocks in October, the most in data going back to 2000, according to the Institute of International Finance. In New York, Nasdaq futures were up more than 1% before dawn, and AMD (AMD) and Micron (MU) rose about 7% to 8% in premarket trading. Whatever set off Thursday, foreign money was already heading for the door.

2. Unity's best quarter shrank the gap to a reported $25 billion. Unity Software (U) has held talks to be taken private by Silver Lake, which owns about 8% of it, and Saudi Arabia's Public Investment Fund. Reuters reported the talks, citing people familiar with the matter. The group discussed a valuation of about $25 billion. That was before Thursday's results: revenue up 32% to $622.1 million and Unity's first GAAP profit since its 2020 IPO. The stock jumped 15% while the S&P 500 fell 4.4%, and it is up about 5% more before the open. By our math, $25 billion was about 34% above Unity's market value before earnings. It is now about 11% above. No deal is certain, and terms may change. The better Unity performs on its own, the smaller the gap to $25 billion.

3. Bitcoin's miners are quitting bitcoin. IREN (IREN) said bitcoin mining revenue fell to $28 million last quarter from $67 million the quarter before. It is pulling out miners to make room for AI chips and aims to mostly finish by year-end. AI cloud revenue nearly tripled from the prior quarter, to $200 million. Keel Infrastructure (KEEL), formerly Bitfarms, sold its entire bitcoin treasury and now sells what it mines daily. Core Scientific (CORZ) is converting its remaining mining sites to data-center hosting. The stock market already treats them as AI stocks, not bitcoin proxies: IREN fell 17% on Thursday while bitcoin fell about 5.5%. IREN is up about 15% before the open on a revenue beat, even after pushing its $4 billion-plus revenue run-rate target to January. Every miner that stops holding what it digs is one less patient owner of new bitcoin supply.

And with that out of the way, let's get to today's big story: the sportsbook that modeled its own worst case, then raised its bet.

The Sip

DraftKings priced its own worst case. Then it spent more.

DraftKings (DKNG) now expects $175 million to $275 million of adjusted EBITDA this year. In August, the range was $700 million to $900 million. The stock is down about 20% before the open, near $18.75, just above its 52-week low of $18.35.

The reason is Predictions, its prediction-market product. DraftKings will spend $650 million to $700 million building it this year. It says Predictions revenue will be immaterial in 2026, because new-customer promotions will offset "the lion's share" of what it brings in. Sales and marketing jumped to $605.7 million last quarter from $360.4 million a year earlier.

The core forecast came down too. In August, DraftKings said its core business was on track for about $1 billion of adjusted EBITDA. Now it expects $875 million to $925 million. The engine funding the bet is now expected to earn less, in the same quarter the bet got bigger.

What $700 million buys

DraftKings' case rests on its unit economics. More than 1.6 million customers have used Predictions this year. On its own exchange, trades generated an 11.1% take rate across all participants in September and October, and DraftKings kept 65.6% of it. It expects this year's customers to pay back their acquisition cost in about 20 months. It guides to $650 million to $750 million of Predictions revenue in 2027.

The geography matters more than the math. Predictions offers sports contracts in states where DraftKings' sportsbook is not licensed, including California, Texas, Florida and Georgia. For a company whose growth was capped by state-by-state legalization, it is a route into the three most populous states without a state license.

The slide most investors skipped

Deep in the earnings deck is a downside case. DraftKings modeled sports event contracts ending on July 31, 2028. After that date, it assumes a Predictions customer is worth 20% of what they are worth with sports. Under that scenario, customers signed in 2027 take 41 months to pay back instead of 18. This year's group, it estimates, pays back by May 2028, before the assumed cutoff.

That 20% carries a lot of weight. So far, nearly 20% of Predictions customers have traded anything other than sports.

The date is an assumption, not a forecast. But few companies ever put a number on how their own product could be shut down.

The courts are writing the other half

The week DraftKings raised its bet, appeals courts went against Kalshi. On Nov. 3, the Second Circuit refused to stop New York and Connecticut from enforcing their gambling laws against Kalshi's sports contracts while it appeals. A day later, the Ninth Circuit, whose rulings cover California, declined to rehear its August decision in Nevada's favor. In that ruling, the panel wrote that the substance of the contracts "is sports gambling, regardless of whether Kalshi calls them swaps." The Third Circuit sided with Kalshi in New Jersey, and New Jersey has asked the Supreme Court to take the case.

States do not need a final ruling to shrink the market. After Utah filed criminal charges against Kalshi and its founders, DraftKings and FanDuel pulled sports contracts from their prediction products in the state within two days, and Fanatics said it would stop taking trades there. Washington is on the other side: the U.S. and the CFTC have sued Utah, arguing federal law overrides state gambling statutes.

A hedge with a price tag

Here is what a 20% drop may be missing. DraftKings, like FanDuel, holds sportsbook licenses in more than two dozen states. Kalshi holds none. If courts decide sports contracts are gambling, Kalshi's biggest product shrinks state by state, and DraftKings' licensed sportsbooks lose an unlicensed competitor. If they do not, DraftKings has a product in states its sportsbook cannot reach. It is paying to stand on both sides of the ruling.

The catch is position. Kalshi says it handles more than 75% of prediction-market trading volume, and it raised money last week at a $40 billion valuation. DraftKings and FanDuel's parent, Flutter (FLUT), were worth about $26 billion combined at Thursday's close, before DraftKings' after-hours drop. By Needham's count, DraftKings' exchange took 3% of sports prediction volume in the NFL's opening week, against 76% for Kalshi.

What settles it

First, this morning's call, the first chance to hear whether next year's $250 million to $350 million of Predictions spending is a ceiling. Second, whether 2027 Predictions revenue lands near $700 million once promotions fade. Third, the Supreme Court, which could decide whether the July 2028 slide stays a hypothetical.

The Market Sips Takeaway

Until then, sip slowly!

The Market Sips Desk

Reply prompt: If the Supreme Court rules that sports contracts are gambling, who comes out ahead, DraftKings or Kalshi? Hit reply and tell us.