DKNG - NASDAQ

Good day, and thank you for standing by. Welcome to the DraftKings' Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mike DeLalio, Senior Director of Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us today. Certain statements we make during this call may constitute forward-looking statements that are subject to risks, uncertainties and other factors as discussed further in our SEC filings that could cause our actual results to differ materially from our historical results or from our forecast. We assume no responsibility to update forward-looking statements other than as required by law. During this call, management will also discuss certain non-GAAP financial measures that we believe may be useful in evaluating DraftKings' operating performance. These measures should not be considered in isolation or as a substitute for DraftKings' financial results prepared in accordance with GAAP. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available in our earnings release, letter to shareholders and earnings presentation, which can be found on our website and in our annual report on Form 10-K filed with the SEC. Hosting the call today, we have Jason Robins, Co-Founder and Chief Executive Officer of DraftKings, who will share some opening remarks and an update on our business. Following Jason's remarks, our Chief Financial Officer, Alan Ellingson, will provide a brief review of our financials. We will then open the line to questions. I will now turn the call over to Jason Robins.

Thank you, Mike. We closed 2025 on a high note, setting new quarterly records for revenue and adjusted EBITDA. Fourth quarter revenue grew 43% year-over-year to nearly $2 billion. Adjusted EBITDA was $343 million, 4x the prior year period. Adjusted EBITDA margin expanded by more than 1,000 basis points year-over-year to 17%. We repurchased another 8 million shares during the quarter, and we expect to remain active with repurchases as our adjusted EBITDA continues to grow. We are in a strong position. Our sustainable advantages in product, technology, trust and marketing continue to drive higher LTV and efficient customer acquisition. AI and machine learning amplify each one by making our products better, our platform faster, consumer trust stronger and marketing more efficient. The result is predictable in improving cohort economics, reinforcing our conviction that we have built an efficient and powerful long-term business model. We are excited to share more details at our Virtual Investor Day on March 2. Now we take our next step. Predictions is rapidly developing into a massive incremental opportunity, and we are moving with urgency. We expect to emerge as the leader in this nascent category. We plan to deploy growth capital to build the best customer experience and predictions and acquire millions of customers. This year, we anticipate significant step function improvements to our predictions offering, including the integration of Railbird and launch of our market-making division. We are targeting hundreds of millions in annual revenue for DraftKings Predictions in the years ahead. We believe there is much more upside over the long term. This should translate to meaningful incremental adjusted EBITDA. In Predictions, we have the playbook to execute and win. Before I go deeper on Predictions, I want to highlight the strength of our core business. In fiscal year 2025, we grew revenue 27% year-over-year to above $6 billion. Adjusted EBITDA more than tripled to over $600 million and exceeded the high end of the guidance range we provided in November. We reported positive net income for the first time and repurchased 16 million shares during the fiscal year. The business is scaling in a durable way. Since fiscal year 2022, we've grown customers by nearly 6 million, revenue by roughly $4 billion and adjusted EBITDA by more than $1 billion. Every year has been better than the last because our LTV flywheel continues to improve, powered by our sustainable advantages. We expect our revenue and adjusted EBITDA to grow for many years to come. I also want to directly address the most common question we are getting. Could a growing Predictions category overlap with Sportsbook over time? To date, we are not seeing a discernible impact from Predictions on our revenue. In our newest Sportsbook state, Missouri, adoption of our offering was higher than in any other state launch in our history through the first 2 months, and activity per customer has been strong. In the fourth quarter, our overall Sportsbook handle accelerated to 13% year-over-year. In January, our Sportsbook handle increased 4% year-over-year, even after 2 consecutive months of Sportsbook friendly outcomes and as our parlay handle mix continued to surge. Internal and third-party data suggest Predictions impacted our January handle only very slightly and primarily impacted low-margin customers. Consequently, the impact to our revenue has been de minimis. Now I'd like to focus on Predictions. We have been building DraftKings for more than 14 years. When a new growth lane opens, we move fast and execute at scale. Predictions is the most exciting new growth opportunity we have seen since PASPA was struck down in 2018. Early signals are strong. On Super Bowl Sunday, DraftKings Predictions had the second most downloads in its category and delivered 3x its prior record for daily trading volume. Customer retention is also strong so far, even with a product that is early and positioned to improve rapidly as we add content. In Predictions, speed and execution, combined with a strong brand, smooth interface and real sports modeling, trading and technology expertise will determine long-term leadership. This is where DraftKings thrives. The opportunity here could be large. Based on analyst estimates, Predictions could represent a $10 billion annual gross revenue opportunity in the years ahead. We expect to capture it across multiple business lines, including the customer-facing platform, our own exchange and market-making. We expect the volume on DraftKings Predictions to keep building with growth accelerating through 2026 and beyond. Our goal is simple. We intend to lead the Predictions category. As such, we support the CFTC's engagement on event contracts and the advancement of a more defined and durable regulatory framework. The CFTC Chair recently directed agency staff to establish clear standards for event contracts to provide certainty for market participants. We view this direction as constructive. Clear rules should reward operators with strong compliance and responsible engagement infrastructure and support the expansion of sports-related Predictions over time. We bring sports, trading and technology together at scale, backed by strong distribution. We originate prices and manage risk every day in our Sportsbook. We have hundreds of data scientists and machine learning engineers building sports models plus a dedicated trading desk that fine-tunes live pricing in real time. We combine that with a trusted brand, a large customer database we can activate efficiently and marketing relationships like ESPN and NBCUniversal that give us flexible, high-intent inventory to deploy as returns dictate. We have run this playbook before. In Fantasy, Sportsbook, iGaming and Lottery, we've built leadership positions by steadily bringing critical technology in-house. In Sportsbook, we successfully integrated acquisitions and continued investing deeply in our proprietary technology to deliver the #1-rated product. Our Sportsbook product is far ahead of our peers in uptime, which is the percentage of a game during which odds are available. Predictions is the next chapter of this same strategy. We have already designed our product to improve rapidly. Our product is built to scale. DraftKings Predictions already connects to multiple exchanges so we can stay nimble as trading options evolve and continuously expand content availability and liquidity. Our recent Crypto.com integration was an immediate upgrade in breadth and engagement, adding new trading options across categories such as player performance markets, golf, UFC and politics. Next, we plan to integrate Railbird near the middle of this year to improve innovation velocity and strengthen customer economics by owning more of the stack. We are also launching market-making because liquidity is a core part of the customer experience in Predictions. Contract listings, fees, market structure, and distribution matter, but tight 2-way markets with depth are what attracts participants. Exchanges see liquidity by incentivizing market-makers and DraftKings can lead market-making for sports contracts because we model sports probabilities exceptionally well, and we have the infrastructure to provide liquidity across a broad spectrum of contracts. This creates two revenue engines for DraftKings in Predictions. First, transaction fees, as we own the customer relationship through DraftKings Predictions and offer a platform to trade across sports and non-sports. Second, trading economics from market-making and proprietary trading on our own exchange and where it makes sense on other exchanges. Over time, we also intend to introduce exclusive combination trading options that may become a major differentiator as the customer experience evolves. With that, I will turn it over to our Chief Financial Officer, Alan Ellingson, to discuss our results and guidance.

Thank you, Jason. Before I cover our fiscal year 2026 guidance, I'd like to discuss our 2025 financial performance starting with the fourth quarter. Please note that all income statement measures discussed, except for revenue, are on a non-GAAP adjusted EBITDA basis. Our fourth quarter revenue grew 43% year-over-year to nearly $2 billion, adjusted EBITDA was $343 million, 4x the prior year period. Adjusted EBITDA margins expanded by more than 1,000 basis points year-over-year to 17%. We repurchased another 8 million shares during the quarter, and we expect to remain active with share repurchases as our adjusted EBITDA continues to grow. Results were strong across all our verticals in fiscal year 2025. Fantasy revenue increased as Pick6 has begun to scale. Year-over-year, Sportsbook revenue increased over 30%, while Sportsbook net revenue margin expanded by more than 100 basis points. iGaming revenue increased 20% as we expanded our offering and attracted a broader demographic. Lottery revenue benefited from a stronger jackpot environment as well as rolling out Scratcher Games and Keno in additional states. And we delivered all this while launching our fifth vertical, Predictions. Sportsbook had a standout fourth quarter. Revenue increased 64% year-over-year to $1.4 billion. Handle growth accelerated for the second consecutive quarter to 13% year-over-year. Sportsbook net revenue margin increased 250 basis points to 8%. Parlay handle mix increased nearly 500 basis points. This continues the multiyear trend that is driving our structural net revenue margin higher. Sports outcomes were Sportsbook-friendly in the fourth quarter, and our overall hold percentage was slightly above 12%. As many of you are aware, variance is random in nature and in the short term, can either be a tailwind or a headwind for our business. For the 2025 to 2026 NFL season, our NFL hold percentage was 16%. I would also like to touch on the scale of our Sportsbook business for the fiscal year 2025. Our Sportsbook handle increased 11% year-over-year to $54 billion. Our total potential payouts across all open wagers or capital at risk was $2.5 trillion due to the multiplicative nature of parlays. We achieved this scale even though our Sportsbook is only available to about half the U.S. population. As a result of our strong fourth quarter, we had an excellent year. We grew revenue 27% year-over-year to above $6 billion. Our adjusted EBITDA more than tripled to over $600 million and also exceeded the high end of the guidance range that we provided in November 2025. We repurchased 16 million shares during the fiscal year. We also reported positive GAAP net income for the first time. I am particularly proud of that last fact that we generated positive net income for the fiscal year 2025, as it demonstrates how efficient and powerful our business model is becoming. As Jason mentioned, we expect to share more about the strength of our business model and our sustainable advantages at our Virtual Investor Day on March 2. Now I'd like to touch on our fiscal year 2026 guidance. We are excited about both our results and our business trajectory. In fiscal year 2026, we expect DraftKings to achieve between $6.5 billion and $6.9 billion of revenue and between $700 million and $900 million of adjusted EBITDA. Our revenue and adjusted EBITDA guidance ranges reflect expected investments in DraftKings Predictions, line of sight jurisdiction launches and disciplined planning as business conditions evolve. We assume state tax rates will remain consistent with where they are today. That concludes our remarks, and we will now open the line for questions.

[Operator Instructions] Our first question comes from the line of Dan Politzer from JPMorgan.

I was hoping we could kick things off talking about prediction markets. Jason, the tone of your letter and comments certainly reflect the pivot in how you're thinking about this with you, I think, going so far as to say that this is the most exciting growth opportunity since PASPA. I guess the question is, why are you so much more aggressively leaning into prediction markets now? What have you seen in the past 2 months, either from a regulatory backdrop, broad social acceptance or recent rollout of DraftKings Predicts that gives you the confidence that this investment makes sense. And perhaps most importantly, how are you thinking about the level of investment required for 2026, given some of your peers have talked about $200 million to $300 million there?

Well, first of all, we have been excited about predictions for why I think you're right, we're more excited and I wouldn't say it's a change of tone as much as an acceleration of our excitement. I think part of it is there's been a real lean in from the CFTC. What went from sort of a hands off. We're not going to comment posture from the previous interim chair is now full-fledged affirmation that this is something that the CFTC considers to be firmly under their jurisdiction. They intend to defend in the courts and they're going to issue real guidelines and regulations. So anything that creates a stable regulatory environment that allows us to operate more freely is a great upside thing for us. And then you combine that with what we're seeing in our early numbers and what we're seeing in the broader numbers from some of the others in the market, and it's clear that there's a lot of growth potential here. I've seen analyst estimates as high as $16 billion. We centered around $10 billion, which is kind of the average of a bunch and some back of the envelope math we were doing as well. But it's clearly a huge opportunity and we're incredibly well positioned. And I think the biggest thing that was sort of holding us back, if you will, before was the regulatory uncertainty and that has since been cleared up. So with that, I think, really, really excited and you combine that with what we're seeing in the numbers. And I think it's going to be a big year. As far as the investment level, one of the great things for us is we already have a lot of what we need. We have the pricing models. We have the marketing. Yes, we'll probably spend some incremental marketing, but we can repurpose a lot of our marketing. We have a ton of national spend targeting the sports customer already. So there's a ton of synergy there. I think it's a huge advantage for us that we can do that.

Got it. And then just for my follow-up. In terms of the guidance, obviously, there's an implied deceleration in revenues. I think it's around 11% in 2026. Can you maybe just give us the building blocks there for how you're thinking about sports betting within that? And then certainly, handle, that's been a focus. You mentioned January was up 4%, but in terms of just the building blocks for sports and kind of that broader revenue growth guide for 2026 would be helpful.

Yes. I just want to start a little bit on philosophy. So first several years we were public, we were very conservative in our guidance. We consistently were beating and raising and we kind of got away from that a little bit. I look at 2023, at the beginning of 2023, we guided to what all of you thought was a disappointing number. We got killed. I think we were down like 16% on the day. And then we proceeded to beat and raise every quarter for the rest of the year and got it back and then some ended up, I think, about $300 million better on the EBITDA side, adjusted EBITDA side from what we originally guided. So I like that playbook a lot better, and we got away from that. I thought we had a good year last year. So it's very frustrating to me that we missed our guide. That was a self-inflicted wound that we did that. We ended up growing our adjusted EBITDA by $440 million. We had a great revenue growth year at 27%. How we could do that and miss a guide is just shame on us, right? So I think we really went back the other way. We said, let's make sure we put something out there that we feel really good about. It kind of went like this. My team came in and showed me a number and said, we can hit this, and I said, no, go make it lower. And they went back and they said, okay, now really like we're sure we can hit this. And I said, I don't care make it lower again. And that's what we got. But for me, missing numbers again is just not acceptable, and so it's not something we're willing to do.

Our next question comes from the line of David Katz from Jefferies.

Along that same vein as the follow-up. I appreciate the conservatism and the candor there. Can you just maybe walk us through 2026? And just help us -- and this may be better suited for Alan, help us understand how to -- what could drive the revenue higher, right? Is there what do we have for prediction markets in that revenue guide in particular? And obviously, you've given us a pretty a wider field of play, right, on the EBITDA side as well, right? What could cause us to be higher or lower as we go through the year, particularly around Predictions. I think that's the part that we're trying to embed in the models.

Yes. So I think Predictions really is all upside. There's nothing in terms of revenue in the guide. We're assuming that this is a year that we spend a lot on customer acquisition in terms of new user offers. There probably will be some revenue realistically, but it's just too early to quantify, so we didn't put any revenue in the guide. So I think that's definitely a source of upside. And I think the core business has a lot of upside too. Everybody gets hung up on handle, and we've tried to sort of start to educate people that you can't look at that in isolation, a little bit more behind that. So if you look at last year, first 10 months of the year, January through October, right, before we issued our last guide, we had a net revenue margin of around 6.5%. And since then, November, December, January, February to date, so almost the last 4 months or so, we've had a net revenue margin of over 9%, which is about 40% higher. So this has to affect handle, right? So in the beginning of the NFL season, when customers were winning, we had really high teens handle growth a few weeks in that sort of October time frame. And then as we started doing better and as we started also being more efficient with promo, we started seeing more revenue growth. We did great, as you saw from Q4 revenue-wise, but the handle is going to slow a little bit. Even despite that, we're still growing handle, especially if you look outside of NFL, outside of NFL, every single sport is up double digits right now in terms of handle growth. So now that NFL is over, I expect we'll return to something more like what you guys probably expected. But you're going to see a slowdown in handle growth when we're winning that much and also when we're optimizing promo.

Our next question comes from the line of Stephen Grambling from Morgan Stanley.

Maybe to follow up on that question. I was hoping you could maybe give a little bit more detail on perhaps what you're seeing in terms of NGR spend in some of the older states, the ones that have been legal longer versus some of the newer. And then as you think about this year and maybe over the next couple of years, maybe how to think through increasing penetration versus increasing spend per head?

We're seeing growth pretty much across states, state cohorts, I should say. So regardless of age, in terms of NGR, obviously, there's differences in where that's coming from. And I'm sorry, what was the second part of your question?

How you think about increasing whether it's a penetration of customers within a state, like what the opportunity looks like there versus increasing spend per head?

I think it's got to be both. I mean the reality is that, especially in the older states, the customer growth is going to slow over time, but we still have a lot of upside in terms of monetizing customers. Our retention numbers look great. And so as we drive that parlay mix up as we add more things, I think you're going to continue to see increased monetization. In January, for example, our parlay handle mix was still up another 300 bps year-over-year. So still seeing really strong growth there. So that feels like a lever that's going to continue to produce dividends for at least the next several years. And if you look at some of the parlay mix numbers in Europe and other parts of the world, it's much higher than where we are today. So it seems like there's a lot of upside there. And I still think there's a ton of room to optimize promo. I mean we are just starting to deploy AI in our promo engine in terms of optimization. And I think that's a huge lever for us to get more efficient and probably produce better results on the top line, too.

Our next question comes from the line of Eric Sheridan from Goldman Sachs.

I just want to come back to the Predictions topic and ask it maybe just from a bit of a different angle. As you think about the different outcomes that can produce return on the investments in Predictions. How are you thinking about the levers of either expanding activity among existing users, widening sort of pool of people in your platform and sort of expanding the pie on the payer side? How should we be thinking about sort of it as a lever for user growth and activity growth in terms of trying to measure the return?

Well, since the product is so similar, it really isn't something that we see is largely incremental to our existing customers. And that's why we don't see much cannibalization from prediction operators in the states that we have been in. So really, for us, it's about incremental customers and other states. Some of the biggest states in the country like California, Texas, Florida, we were not present in with OSB, and we have Predictions there now. So there's opportunities for us. It was about half the country population-wise, that we were able to launch Predictions. And so that's something really exciting. In some ways, I think of it as like even though it's not exactly the same thing, but just to sort of paint the picture of why we're excited. It would be like if you told me we opened up the rest of the U.S. overnight to some lesser version, but still very strong version of sports product that could really monetize the customers and engage the customers in ways that we never were able to with Fantasy Sports.

Our next question comes from the line of Ben Chaiken from Mizuho.

Just one on Predictions. Jason, how do you plan to build liquidity in the Railbird exchange? And maybe related, do you view the DraftKings OSB platform as a competitive differentiator in this context?

I think the second one helps answer first. Absolutely, it's a competitive differentiator. I mean everything from our pricing models to our data science around player behaviors to our vast array of marketing and data behind that. We just have so much infrastructure and so much data to be able to build on and leverage. And I think that given the similarities of the products, it's going to be hugely advantageous for us. In terms of the liquidity question, I think, first of all, virtually every market-maker out there is lining up at the door, trying to get set up for Railbird. Obviously, they know we've come to really be aggressive in play here. So they're pretty excited. So we're going to have all the same market-makers that you see on other platforms. And then I think the DraftKings market-maker is going to be a real differentiator in terms of creating liquidity, particularly in some of the new types of markets and combo type of markets that we set up. And again, because we have the pricing models, because we have the trading desk, we have all the things that you need already, we should be able to really quickly become one of the largest, if not the largest market-makers out there. So I think that gives us a huge advantage in terms of supply and liquidity, and we haven't decided yet how many exchanges we want to operate on and exactly how we want to do that, but we'll definitely be operating our market-maker on Railbird.

Our next question comes from the line of Brandt Montour from Barclays.

So on prediction markets, could you guys help us with just what you spent or what you achieved sort of in late December post the launch? Why wasn't it very splashy? And then when you think about your advertising plan here going forward, how do you get around the fact that most of your work over the last few years has been more national advertising, but this is obviously going to be different with obviously a lot of legal OSB states that you wouldn't necessarily want to be advertising prediction markets in those markets or maybe you would. So maybe you could help us with that.

So when we first launched the product in December, it was very bare-bones. It still is, frankly, but we've added a lot over the last few weeks. But we wanted to make sure, obviously, that we had a product that we felt was competitive, which we really are starting to feel like now. And then also, as we start to launch Railbird, which is coming next quarter, and we start to put more through our fully integrated stack, we're going to capture more of the economics, and that helps a lot, too, to get the returns that you want on the marketing spend. But for us, it's really about having the best product and making sure that when we really come and start being more aggressive that we feel like we have a very strong offering out there, and I don't think we're far off from that. In terms of the question around marketing, I think this is actually a huge advantage of ours. Most customers don't really even understand the difference. So I think the national marketing footprint is a big advantage because we can drive people towards our product, and we can use it in ways that we can rotate messages and have slightly different things, but in essence, it's the same general message to the customer. And I think that provides us a ton of leverage and synergy. It will drive value to both products at the same time. And we actually have a lot more detail on that because I know it sounds a little opaque now, but we have a very clear strategy that we're going to lay out at our Investor Day. I don't want to spoil it now, but I'm pretty excited about it that I think will answer your question directly on how we can really leverage that spend and get a huge synergy out of the national marketing spend that we have already.

Our next question comes from the line of Trey Bowers from Wells Fargo.

I was wondering if you'd be willing to just kind of break down a little more granularity around the revenue guide. Is it kind of an expectation of a certain level of handle all year and then different levels of hold and promo against that? Or I know you said that there's too much focus on handle, but I think the investors would love to get a sense of kind of the high end and the low end of the range what went into that.

Yes. It's tricky because you can build it up that way, but then what happens is you're going to have periods throughout the year that you hold higher and you have less promo that handles a little bit lower and then you're going to have periods where there's customer-friendly outcomes or promos hit more, and that ends up pushing handle. So I think we feel much more comfortable in sort of the -- some products of all this. I think by the way, that was part of where we messed up going into 2025 that we've gotten a lot smarter on as we had this sequential, we're going to get this much handle and this much hold rate improvement from all the parlay mix and we're going to cut promo by this much, failing to maybe account for the fact that when you cut promo, even if it's efficient -- sorry, even if it's inefficient when you cut promo, you're going to have some impact. And when you hold better, whether it's because of outcomes or because of more parlay mix, it's going to have some impact on handle too. Obviously, the net is still very positive for us. If you look at it, we had a huge growth year in terms of revenue, but those things do move in tandem. So we can build it up that way. But I think the big difference now is we're sort of looking at it, these things all interact together and if we have plans to raise hold and to cut promo, yes, that will have an impact on handle. It doesn't always play out that way, though, because of outcomes and other things that cause variance.

And I guess just a quick follow-up. The monthly unique player number was flat year-over-year. You called out that Jackpocket was down. But can you guys just give a little more color around how that number should trend over time? And if that's even the right KPI to look at or would really be curious just kind of thinking about player counts and further penetration into kind of your younger states.

Yes. So for those who remember, it feels like a long time ago, but 2024, the theme of the year for us was just significant outperformance on customer acquisition, and that just was way more than we expected. Customer acquisition came back down to earth a little bit in 2025. It was definitely still healthy, but it was a big drop from where we were in 2024 and more in line with where we thought we would be probably going into 2024. So good year, but with lower customer acquisition, you're going to see MUP decline because a lot of the early -- basically a new customer counts in the MUPs as you're getting them all year and then a lot of those new customers churn. And then once they've gotten through that early churn period, the retention numbers are really high. And of course, from a revenue retention standpoint, we're still seeing over 100% retention each year after a new user cohort is acquired. So really healthy on that front. But if you look at MUPs, you're going to see a real impact from customer acquisition. And obviously, Jackpocket had a bit of an impact, too, with taxes and some of the other things. So if you take that away, we had about 5% growth in MUPs.

Our next question comes from the line of Robert Fishman from MoffettNathanson.

Can you talk about how you would characterize the competitive environment and promotional intensity today and expectations may be baked in for the year ahead, both in OSB and prediction players? And then separately, can you just update us on the legislative front and whether production markets are pushing more states to start to consider legalizing OSB?

So first question, I think it's a very rational competitive environment from a promo standpoint right now. Promo is not a huge thing in prediction. So really, where we see some of the things happening there is more on the external marketing spend side, but really rational in terms of promo levels at the moment. Obviously, we said we have a conservative guide. So we're prepared if things change, and we'll be able to deploy more. But as of now, we do think we have some cushion on the promo front in there. And then -- sorry, what was the second question?

Just around the legislative front for prediction markets.

Yes. I mean, so definitely getting traction on that. I think also with tax increases, we are getting a lot of traction pushing back there. In my view, states would be absolutely crazy right now to raise OSB taxes with everything going on with Predictions. So definitely getting some good traction on both that and on future legalization. Hard to know yet because we're still in the midst of the sessions, whether it's going to make a difference in pushing any new bills over the line. But I am optimistic from what I'm hearing. I mean it is definitely a point of discussion in the states, and I think something they're taking very seriously. So I wouldn't be surprised if that's the difference between getting a state or 2 done this year or not.

Our next question comes from the line of Robin Farley from UBS.

I wonder if you could help us understand -- I know you said you're not including prediction market growth in your guide. But in the EBITDA number, how much of that is a built-in EBITDA loss? Can you help us quantify for your prediction market start-up costs so that we could think about the EBITDA from your core business? And also there was something in the language of your guidance that about line of sight states or something that seems to imply, you were including some start-up costs for new states in your EBITDA guidance, which I think you haven't done in your more recent guidance, but maybe you can clarify if that's what was in there.

Yes. So on the latter question, good capture, Robin. We did put Maine iGaming as well as Alberta in there. So there is some spend allocated to those states. We don't have exact timing on launch yet, but we feel certain enough that they're around the corner that we were able to quantify appropriately and put it in there. In terms of the Predictions question, no revenue, as you noted, is in the guide. So not assuming we're going to get anything on the revenue side. From a spend perspective, I'll break it out into kind of two categories. There's fixed cost, which is double digits, but not that significant. There's mostly existing head count that we can repurpose and there is a lot of new head count too, that we had to hire. So there is something there. But there's a lot of synergy also with some of the things we talked about in terms of the pricing models and other components of the business that we've built and the people operating those. So it won't be entirely incremental. It will be tens of millions. And then I think marketing, we're expecting to spend. So there is some incremental marketing there for competitive purposes, I don't want to give an exact number. But as I also noted, I think a huge advantage we're going to have is that we can repurpose some of our national spend and we can also utilize some of our national spend to drive both OSB and Predictions simultaneously. And we're going to talk a lot more about our strategy for that, which is really a big strategy unveil across product and marketing and bunch of other things on Investor Day, which I think will better explain how we're approaching marketing. And at that point, we'll have more specifics on this.

I appreciate that. Just as a quick follow-up question. You mentioned -- you call it combination trading options, which I guess is like -- would be sort of equivalent like a parlay offering in prediction markets. Can you talk about whether the fact that you have the sports data that at the moment, I think the other prediction markets don't have access to or aren't able to purchase because of sort of gaming license regulatory reasons. It seems like there will be a huge advantage that your -- that you have that data already. And I mean, in other words, isn't that a major advantage over prediction markets that wouldn't be able to access that data to create their own parlays?

I think both that data as well as our vast historical database that we've built all of our pricing. Remember, it's been years that we've been investing in building our pricing models to take all of this in-house. We bought SBTech and integrated in 2021. It wasn't until basically last year when we finally brought all of the major sports in all of the major markets in-house. So it takes time to amass that type of database. It takes time to build those models and really hone those models so that they're working at a level that's ready for prime time. We have all that already. And you're right, we have the data coming in, too. So I think from that standpoint, we're going to be extremely well positioned.

Our next question comes from the line of Clark Lempen from BTIG.

I have one on promo. Jason, I know you said you're seeing a rational promo environment within prediction, but I'm curious if -- as we think about the core Sportsbook market, have you seen any uptick in intensity from smaller-scale operators? And if so, is that something that's sort of reflected in the guidance? Is there potentially room for sort of less promotional leverage built into the forecast?

Well, we did build in some cushion. As I said, it's a very conservative approach to the guide. So I don't think that, that is untrue, but not for the reason you're saying. We are seeing a very rational environment across both predictions and our traditional online sports betting and iGaming competitors. We have not seen a surge in promotional activity in a few years, thankfully. So hopefully, that continues.

Okay. Alan, I guess, just sort of a quick one on marketing. To the extent that you do end up using a lot more of the sort of Amazon and NBC and ESPN national inventory that you have for prediction. Is there still flexibility in '26 if you're seeing better LTVs and sort of CACs and response rates from the core customers to lean in there? Or how would you, I guess, sort of assess the room to do both.

Absolutely. And this is one of the reasons why we're being so measured in our rollout of prediction markets as we start to evaluate the value of these customers. We do have flexibility to lean into marketing spend appropriately to make sure we're capturing long-term value. We're in this to win, and that means spending the appropriate amounts in 2026.

Our next question comes from the line of Jordan Bender from Citizens.

You might get into this in more detail at the Investor Day, but a question we often get is who are these prediction market players. So from the 2 months that you've been live, your just general expectations, can you just kind of shed light on that? Are they Sharks? Are they Whales? Do they play Pick6? Do they play Fantasy? And just a follow-up. I'm just thinking through the comments around maybe the underperformance on the handle for the NFL. Do you think that's just [ storyline ] driven and kind of match ups? Or is there anything else to kind of pull out in that [indiscernible]?

Yes. I mean the most common theme we're seeing with prediction players is they tend to be Californians and Texans. So I think that's really the big theme. Otherwise, they look a lot like our existing customers. And sorry, what was the second question?

Just anything to impact on the underperformance in handle and the NFL compared to everything else.

I mean, really, it comes down to the point I made earlier on the net revenue. So we had a -- just to remind everybody, January through October, first 10 months of 2025, we had about 6.5% net revenue margin. That was then -- since then, it has been over 9%, which is a 40% increase. So you're going to see some changes to handle when your revenue is going up that much from other levers. That's the biggest thing. I think another point of evidence in that is if you look at the non-NFL Sports, they're actually up double digits in handle growth. We haven't been holding in promo. We haven't had a strong net revenue margins there. Obviously, there's some player crossover. And if you split it out from players that are not playing NFL and are just playing those, their handle is up even more. So it really clearly points towards there's just fluctuations in handle. But even despite that, we're still growing handle right now. I mean January handle was up. We had handle growing in the high teens after we had some low whole weeks to start NFL earlier in the season. But overall, really you have to look at the kind of net revenue. And I guess you're not going to see 0 effect to handle when you increase your net revenue margin at 40% over a 4-month period after 10 months of holding of -- having it at 6.5%.

At this time, I would now like to turn the conference back over to Jason Robins, CEO, for closing remarks.

Thank you all for joining today's call. We are really excited and positioned really well for success in the future. Please join us at our Virtual Investor Day coming up in March. We have a lot of exciting new things to unveil there, including our strategy for winning in Predictions. Hope to see you all there. Thank you and be well.