Michael Burry, subject of The Big Short, has shared his confidence in the long-term prospects of Flutter Entertainment and DraftKings.
In a blog post, he disclosed a substantial portfolio of shares in both companies, with a 60% weighting towards Flutter.
He has posited the idea that prediction markets are simply profiting from a “loophole economy” that won’t last in the face of an oncoming regulatory wave.
Flutter has jumped 2.74% on the New York Stock Exchange (NYSE) since Burry published his blog, while DraftKings is up just under 1% since yesterday (8 July).
The price increases have been attributed in some quarters to the road-worn ‘Burry effect,’ but the trends are a continuation of what has already been a good week for both operators.
The movement is not divorced from Burry’s position though – he has expressed his belief that regulatory restrictions will eventually take their toll on the prediction markets and give relief to their mainstream gambling competitors.
The share price improvement over the past week has also aligned with a number of recent legal and regulatory defeats for prediction market giant Kalshi.
Kalshi’s blows
On 1 July, Kalshi was ordered to stop offering its sports contracts in Michigan.
The next day, it failed in its attempts to defy Nevada, where the regulator has demanded it geofence its product.
And this week, in a huge ruling, Kalshi was denied an injunction in New York to protect its federally regulated status in the face of state gambling enforcement.
The judge found that the Commodity Exchange Act does grant the Commodity Futures Trading Commission (CFTC) authority over swaps and designated contract markets, but does not restrict New York’s power to regulate gambling.
Since the first of these regulatory blows, Flutter has climbed by 6.78% on the NYSE and DraftKings’ stock has risen by a similar 7.54%.
The pattern of regulatory hardships running in conjunction with immense commercial growth have come to define the prediction markets sector up to this point, however, and June also saw Kalshi register a record-obliterating $33bn in trading volume.
In fact, a Macquarie note pointed to “unprecedented momentum” across the entire vertical during the month, with the FIFA World Cup in full swing.
Burry’s soothsaying
Thanks in part to his depiction by Christian Bale, Michael Burry has obtained a near-mythical status among investors.
His decision to short the housing market in advance of the 2008 financial crash saw him make a personal profit of $100m.
Since his correct assessment of the subprime mortgage market and Adam McKay’s subsequent movie, his forward-looking predictions have been monitored closely by investors and casual onlookers.
It has been revealed that he has short positions in Nvidia and Palantir in recent years, but he has gone long on both Flutter and DraftKings, which may have helped the companies continue their recent recovery.
Looking at both operators’ market performance over the past year, it’s clear that the increasing prevalence of prediction markets has contributed to tanking their share prices by roughly 61% in Flutter’s case and 37% for DraftKings.
But Burry says that Flutter is a “fundamentally very good operating business with terrific scale.”
And of DraftKings he comments: “DraftKings is inflecting as an operating business and the value is in the transition I foresee in the near future.”
