From DFS to Derivatives: How DraftKings Keeps Evolving

In the difficult post-recession economy of 2012,  three friends just wanted to engage in their passion for baseball. Sure, there were fantasy sports leagues who focused on season-long battles between friends and coworkers, but they moved almost as glacially as the game itself. 

Their idea was a daily head-to-head baseball contest where you could compete with people across the country. And as they say, the rest is history, though friends Kalish, Robins, and Liberman may remember it as less of a sure thing in those early years. 

Still, in 2013 the company paid out $50 million in winnings to contestants and by early 2014 had struck deals with the MLB and had more than 50,000 monthly users and a million registered players. It was breakneck expansion despite a lot of concern about the legality of the product. And this growth was funded by aggressive marketing and deep pocketed VC funding linked to Wall Street.

In 2015, in a dreary Albany November, this boiled over with a cease and desist order from the New York Attorney General claiming that the company was engaged in an illegal gambling operation. A legal loophole had been carved out in the 2006 Unlawful Internet Gambling Enforcement Act, which shut down online poker in the US, for games of skill. 

DraftKings said they were offering a skill-based product, but the NYAG disagreed. The nonstop advertising across both traditional and online media, plus unchecked growth that saw more than $3 billion paid out by DraftKings or their archrival FanDuel in 2015, was always going to catch the attention of Attorney Generals, and Nevada, Mississippi, and Illinois, amongst others - also took action. 

In New York, they suspended operations while they spent most of 2016 pressuring the legislature to rewrite the law to ensure that they were covered by the skill-based exception in the Federal code. They were eventually successful in persuading Albany to rewrite the legislation, and by the Fall of 2016 were back offering daily fantasy sports contests in the Empire State. 

From Legal Loophole to Market Leader

Flash forward ten years to this week's DraftKings earnings call, and you’ll find that while the company has grown tremendously, its DNA and that vision of original founder Jason Robins who is still CEO, hasn't changed. They still see themselves as more tech disruptor and innovator rather than a mature casino company with nearly 5 million monthly users, no longer interested in double-digit casino growth. 

It would be easy to sit back and rest on your laurels when your sports handle alone (total amount wagered) has reached $54 billion last year, and total revenue across the company is a massive $6 billion. Average monthly revenue from those average monthly users was up more than 43% in 2026, mostly on the back of increased sportsbook gold which hit 16% in the 2025-2026 NFL regular season.

Total share of the US sportsbook market sits at 33%, almost identical to FanDuel, nearly entirely due to the six-year head start that these companies had by offering that legal loophole of daily fantasy sports betting, and adding millions of users before the floodgates of legal sports betting started post-PAPSA. 

That same head start even spilled over into the seven states offering iGaming legally in the US, with DraftKings Casino having a 24.3% share slightly behind FanDuel Casino at 28%. Again their early mover advantage on the back of what many at the time believed to be a very grey market product set the way for billion-dollar companies today. These legally ambiguous beginnings are very pertinent here as DraftKings faces down the latest in a long line of existential threats: Prediction Market sites and trading apps. 

Betting on Everything

Prediction markets are based on binary yes/no event contracts. A simple yes or no on some future event. This might be, will Gold close over 5,000 an ounce by the end of March, a more closely traditional use of futures contracts. But according to Kalshi prediction market and others, it might also be, will the Seahawks repeat as Super Bowl winners next year?

Much as in the early days of DFS, the controversy around the legality of futures contracts on sports events is hotly contested. But this time, these fledgling companies have a big brother in their corner in the form of the Commodities and Futures Trading Commission (CFTC). 

And without branching off into a long tangential debate about the Constitution, it would appear that the Federal Government in general, and the CFTC in specific have broad powers to regulate these markets that they are unwilling to devolve to the states. 

They are on record as saying they aren’t interested in whether a contract looks like sports betting, only that it's being traded on a Designated Contract Market, in which case the state is no longer the primary authority. The matter is now being fought out in state courts across the country much as DraftKings and FanDuel found themselves badgered in 2016. 

While the issue will likely be settled by either the Supreme Court or Congress at some point, new CFTC Chairman Michael Selig has made his thoughts on the matter crystal clear by withdrawing proposed rules that would have banned sports and political contracts. 

A Familiar Storm

Several state courts have so far ruled that the Commodity Exchange Act preempts state gambling laws, though other courts have ruled in favor of state police powers being more important than federal commodity laws.  

Another interesting parallel between 2016's DFS lawsuits and today’s prediction market battle is the insider trading narrative. In late 2015, Ethan Haskell, a mid-level manager at DraftKings won $350,000 in a FanDuel contest. Earlier that week he had made a simple mistake and posted non-public ownership percentages of various players in that week’s DraftKings contest to a well-known blog.

A rather overblown investigation would show that he hadn’t committed insider trading, had not in fact had access to the data until after FanDuel had locked betting for their contest, that didn't stop NYAG Schneiderman from attempting to nuke DK from orbit using this case as a pretext for his cease and desist letters. 

Prediction Markets are also facing huge backlash from what many consider to be insider trading abuses, though honestly, there does appear to be much more substantial abuse of the system here. A perfect example was a $400,000 win on Polymarket concerning the capture of Venezuela's President just hours before it occurred. 

Already, some bills that would more tightly regulate these markets against insider trading have been introduced. Perceived lack of trust and integrity can impact not only public trust and market liquidity but also draw unwanted attention from lawmakers and regulators, a lesson that CEO  Robins is unlikely to have forgotten. 

Evolving Again

But what Robins made clear this week is that despite having built a very successful and stable casino company, and despite those lessons from the early days when DraftKings Daily Fantasy Sports was just one lawsuit or Cease and Desist letter from being wiped out, neither he nor the company is willing to back away from what he called the most exciting new growth opportunity since 2018, despite its shaky legal ground. 

Having helmed DK through cease and desist letters, AG investigations, legislative rewrites and a Supreme Court decision that essentially rewrote all the rules around sports betting, Robins is no stranger to legal uncertainty. And in case investors had forgotten it's where he feels the most comfortable. 

Clearly, at least some were caught off guard. The stock nosedived nearly 14% on the news that the company intended to spend tens of millions in chasing prediction market growth rather than in stock buybacks. Lowered guidance probably didn’t help matters either as consensus for Fiscal Year 2026 amongst analysts had been $7.3 billion in revenue, which the company guided down to $6.7 billion.

But if history is any guide, DraftKings has rarely grown by waiting on regulatory dust to settle. The company spent its formative years in ambiguity, grew in a storm of controversy, and finally found maturity as legal sports betting markets evolved across the country. Every step along that road required not just capital but conviction, and a tolerance for legal risk that other gaming operators weren’t willing to shoulder. 

Prediction markets, for all their promise, will ultimately be shaped by the courts or Congress just as DFS once was. It may grow into that permanent parallel wagering ecosystem that many believe will be governed at the federal level, or it may be struck down in its current form, or see strict regulations on advertising, insider trading, and which markets it can operate in. 

Either way, DraftKings doesn’t seem prepared to cede an inch of ground to new upstart competitors. From DFS, to Sportsbooks, to iGaming and now new derivative style contracts, the company continues to evolve, even when Wall Street would prefer they didn’t.