Wells Fargo Downgrades DraftKings After 72% EBITDA Guidance Cut

Wells Fargo has downgraded DraftKings (DKNG) after the company cut its 2026 adjusted EBITDA guidance by 72% at the midpoint, lowering it to $225 million. The downgrade centers on rising spending at DraftKings Predictions, a weaker-than-expected first look at 2027, and regulatory uncertainty around the new prediction-markets product. Shares stood at $18.70 after the report, down 46% so far this year.

The core business is not the problem. DraftKings runs a sportsbook and an online casino, and both were broadly in line with expectations once unfavorable sports results were set aside. Wells Fargo's concern is the forward story, not the current operation.

What triggered the downgrade?

The guidance cut came first. DraftKings reduced its 2026 adjusted EBITDA outlook to $225 million, a 72% reduction at the midpoint, and attributed most of that cut to spending on DraftKings Predictions. The company is investing heavily in a newer growth initiative, and that spending now weighs materially on near-term profitability.

The 2027 outlook deepened the concern. DraftKings issued its first guidance for that year, and the numbers came in roughly 20% below consensus. That gap suggested to investors that the earnings ramp will be slower, or more expensive, than the market had priced in.

How serious is the regulatory risk?

DraftKings itself has quantified the exposure. The company said a 2028 ban on sports prediction markets would stretch the payback period on its investment. The prediction-markets bet is therefore not just costly, it is also exposed to policy risk. If regulators restrict or ban sports prediction markets, the return on that spending could be delayed or diminished.

That combination—heavy upfront spending, a much lower 2026 EBITDA guide, a 2027 outlook below consensus, and regulatory uncertainty around prediction markets—made the risk/reward less attractive in Wells Fargo's view.

What has the market done?

The reaction has been severe. Beyond the 46% year-to-date decline to $18.70, DraftKings has paused its share buybacks, removing a key source of support for the stock.

For investors, the mechanics are straightforward:

• 2026 adjusted EBITDA guidance: cut 72% at the midpoint, to $225 million
• 2027 outlook: about 20% below consensus in its first look
• Buybacks: paused, removing a potential floor under the shares
• Share price: $18.70, down 46% year to date
• Core business: broadly in line with expectations excluding unfavorable sports results

What does this mean going forward?

Wells Fargo is signaling that near-term earnings visibility and capital-return support have weakened, even though the core sportsbook and online casino held up operationally. The investment case now rests on whether DraftKings Predictions can earn back its spending before regulation, competition, or a slower ramp erodes the return—and until the company restores buybacks or raises guidance, that question stays open.