State Gambling Expansion Follows Budget Pressure

Prediction markets are surging, but DraftKings is moving in the opposite direction. Is the issue market share? Rising customer acquisition costs? Or simply a reset from last year’s growth expectations?

In this episode, Bernie McTernan, CFA, Managing Director and Senior Analyst at Needham & Company, breaks down the rapidly changing prediction-market landscape. We discuss Kalshi’s first-mover advantage, DraftKings’ strategy to replicate its regulated sportsbook playbook in currently unregulated states, Novig’s aggressive customer-acquisition push, and whether prediction markets meaningfully expand the long-term TAM for companies like DKNG.

With negative estimate revisions weighing on the stock, elevated short interest, and DraftKings trading at roughly 11x forward EV/EBITDA, the debate becomes increasingly interesting: how much of the bad news is already priced in—and could today’s investments create a much larger earnings opportunity over time?

“The stock's probably fifty percent lower than it was and the TAM's doubled.”

“Prediction markets aren't just sports. Soon you'll be able to bet the whisper number.”

“This is gonna be Robinhood on steroids.”

“The numbers are going down, short interest is going up. Why do you think that the investments and lower revisions this year are actually gonna have a benefit next year?”

Stocks: $DKNG, $FLUT

Topics: DraftKings, Kalshi, Prediction Markets, Sports Betting, FanDuel, iCasino, Novig, Polymarket, Customer Acquisition Cost, Market Share, Regulation, EBITDA, Sportsbooks

Not Investment Advice

[00:00:00] Introduction to Bernie McTernan, Managing Director and Senior Analyst at Needham & Company.
[00:01:40] Kalshi's rumored $40 billion private valuation.
[00:02:45] What DraftKings' first NFL week of prediction-market share actually looked like.
[00:04:30] The retention data that killed the original bear case on sportsbooks.
[00:05:00] Mid-teens to 30–40% share — the playbook DraftKings wants to run again.
[00:08:00] Why the prediction-market regulatory battle could end up at the Supreme Court.
[00:11:40] The data showing almost no customer overlap between Kalshi and DraftKings.
[00:18:00] Hedge fund hit rates and betting the number instead of the stock.
[00:20:15] Fast futures, crypto, and the iCasino land grab.
[00:21:50] The potential path from $1 billion to $5–6 billion of EBITDA.
[00:27:45] Why states legalize gambling — budget deficits, not morality.
[00:31:25] A trough multiple on estimates burdened by TAM expansion investments.
[00:43:45] Novig's $50 million ad and the Caesars cautionary tale.

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Doug Garber on LinkedIn:
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Bernie McTernan, CFA Links:

LinkedIn:
https://www.linkedin.com/in/bernie-mcternan-cfa-84045a23/

Needham & Company:
https://www.linkedin.com/company/needham-&-company/