Hedge Funds Profit $2 Billion by Betting Against Gambling Giants

(AsiaGameHub) –   In the film The Big Short, the character of Michael Burry, portrayed by Christian Bale, generated $2.69 billion for investors by shorting subprime mortgages. In reality, Burry’s profit was approximately $700 million.

Hedge fund managers have identified a new lucrative target: the gambling sector. So far this year, traders have profited by $2.3 billion from short bets placed against Flutter, DraftKings, and Entain.

FanDuel’s Struggles Trigger Flutter Stock Decline

Two Sigma Investments has established the most significant short position against Flutter, which owns FanDuel. This New York hedge fund has grown its short stake in the company from 0.61% last year to 2.21% this year.

This wager against the betting behemoth has proven successful. Flutter’s share price currently trades at 7298 GBX, representing a decline of over 54% since the beginning of the year.

DE Shaw has also assumed a substantial position against the firm. The multinational investment group began raising its stake last October and was shorting 1.49% of Flutter’s London-listed shares, according to the Financial Times.

A major contributor to the decline has been FanDuel’s inability to expand in the US market while facing competition from prediction markets, which also resulted in the removal of CEO Amy Howe this month. UK tax increases have further impacted Flutter, the owner of major betting brands like Paddy Power, SkyBet, and Betfair.

Short Interest Declines Amid Stock Rebound

Although faring better than FanDuel, DraftKings has also experienced a significant stock price drop this year, yielding gains for hedge funds shorting the company. Its value has fallen nearly 30% year-to-date.

However, short interest has fallen by almost 12% in the last month. MarketBeat data indicates a current short interest of 36.09 million shares, equating to 13.78% of the public float. The company’s share price has increased by 6.76% over the past month.

Likewise, Entain, the parent company of Ladbrokes and Coral and a half-owner of BetMGM, has watched its share price fall roughly 30% this year. Marshall Wace, Millennium International Management, and Capital Fund Management have all taken short positions in the gambling firm.

However, these investors are starting to exit their positions. All three investment groups have decreased their short stakes. Marshall Wace’s position is now 0.99%, down from 1.7% last month. Capital Fund Management reduced its stake from 0.82% to 0.68%, while Millennium International’s fell from 1% to 0.58%.

Short positions against Flutter may also have reached their high point. Both Two Sigma Investments and DE Shaw slightly trimmed their positions this month.

Prediction Market Regulation May Fuel Price Recovery

Gaming stocks have rebounded this week. Entain currently has a consensus analyst rating between Buy and Strong Buy from major analysts on Wall Street and in London.

Barclays analyst Brandt Montour attributed the value losses for Entain, DraftKings, and Flutter to “extreme levels of pessimism” among investors, driven by the ascent of prediction markets.

The valuations of Kalshi and Polymarket have surged. Following a recent funding round, Kalshi is now valued at approximately $22 billion. Polymarket is valued around $15 billion. Their respective valuations last year were about $5 billion and $9 billion.

Nevertheless, growing legal scrutiny of prediction markets could indicate these companies have peaked. Montour anticipates a “relief rally” for Flutter’s share price as legal proceedings intensify against Kalshi and sports prediction markets.

The outcome may largely depend on whether courts ultimately classify prediction markets as gambling or investing. The distinction is subtle. As this year’s volatility in betting company shares demonstrates, investing is certainly a gamble.