The man who foresaw and made over $100 million predicting the 2008 U.S. financial crises believes that sportsbooks will outlast the threat posed by prediction markets.
Michael Burry, a neurologist-turned-hedge fund manager who founded Scion Capital, invested in FanDuel-parent company Flutter Entertainment and DraftKings, according to Reuters.
Key Takeaways
- Flutter and DraftKings stocks are down about 62% and 38% year-over-year.
- Burry invested a combined full position into the two sports betting stocks.
- States have become increasingly willing to engage prediction operators in litigation.
Burry’s net worth is estimated to be around $300 million. His confident forecast for sportsbooks will be taken as a positive by industry members, given his previous success on the stock market.
Burry said on Wednesday that he purchased Flutter at about $107 per share and DraftKings “in the low $26s. Those stocks are priced at $109.57 and $26.74, respectively, at the time of writing.
The combined size of Burry’s investments represents one full position, which is essentially stock traders’ term for what sports bettors call one unit.
The investments were split 60/40 in favor of Flutter. Burry said that he may upgrade both investments to one full position each.
A post on Burry’s website named prediction markets as the primary threat to both companies — not another sportsbook, such as BetMGM, Fanatics, or Caesars. That’s reflective of recent trends in the prediction industry, whose extraordinary growth was brought to a head by the FIFA World Cup.
More than $50 million in prediction trades were processed globally during June. Kalshi handled over $30 billion of these transactions and regularly handled more than $1 billion daily once the tournament began.
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Burry’s plan and belief
Although prediction market operators claim their product is different from sports betting, it contains many similarities. Users risk money, which is either compounded in winnings or lost, depending on the accuracy of their prognostications. Markets are available in sports, politics, entertainment, finance, weather, and other industries.
Burry wrote that event contracts offered by prediction outlets can be offered in all 50 states under the federal regulation of the Commodity Futures Trading Commission (CFTC). Operators also don’t need to pay state gaming taxes since they aren’t licensed by local regulators.
Although the CFTC has grown more inclined to act on behalf of its licensed operators, states have equally become emboldened in fighting against the spread of prediction markets.
Minnesota issued an outright ban on the markets; Kentucky approved an excise tax on transaction fees; Illinois added a per-trade tax; and North Carolina approved a 6% charge on net trading fee revenue.
Recent prediction market news has been dominated by these and other legislative actions, the majority of which have escalated to some form of litigation.
“I believe that the political climate will not tolerate this,” Burry wrote, also noting that he believed that prediction markets would eventually face harsher regulation and taxation.
Sports betting stocks are down
Sports betting stocks plummeted during the rise of prediction markets.
Flutter Entertainment’s price is down 61.8% from where it was at this time one year ago ($286). DraftKings isn’t far behind and is down 37.5% from $42.49 year-over-year.
Despite all of the state-level pushback, there haven’t been many disruptions in the rise of prediction markets. Additional regulation and taxation would present a huge opportunity for sports betting companies to reclaim the ground they lost over the last year.
