Burry’s Head In Sand With New Sportsbook Stakes

One of America’s most prominent investors is essentially betting against a public health movement that aims to address the growing gambling addiction crisis.

This week, the famous stock trader Michael Burry said he has taken stakes in DraftKings and FanDuel’s parent company because he thinks so-called prediction markets are in trouble.

Burry, known as a shortseller who made accurate predictions regarding the 2008 housing market crisis, wrote on his widely read Substack that he invested an undisclosed dollar amount in distressed online gambling stocks.

“I believe that the political climate will not tolerate this [prediction markets],” Burry said in a post Wednesday. “Prediction markets exist in a loophole adjacent to a heavily regulated and taxed industry. In time, prediction markets will be subsumed into regulation and taxation.”

Prediction markets, led by Kalshi, are operating nationwide online sports betting under legally contested federal jurisdiction. They don’t pay taxes like traditional, house-banked sportsbooks. In one fiery example of the legal fight, the City of Detroit in a court filing described prediction markets as “bloodthirsty leeches” for allegedly siphoning away its online gambling tax revenue.

Kalshi has suffered numerous court defeats, most recently in Michigan and New York, but the law governing its product may eventually come before the U.S. Supreme Court. That would essentially be a states’ rights case involving gambling, and experts believe the states will prevail. Burry also believes so.

DraftKings and FanDuel each have prediction market platforms that they offer in states where they can’t do traditional bookmaking. Despite their best efforts, Kalshi dominates the prediction market betting space. Kalshi is reportedly in talks to raise funds at an eye-watering $40 billion valuation, which would be more than the combined value of FanDuel’s parent company Flutter and DraftKings.

The “loophole” that has facilitated the rise of prediction markets isn’t the only reason DraftKings and FanDuel have seen their stocks fall 26% and 50%, respectively, year to date.

States across the country are considering increasing taxes on the industry and/or enhancing consumer protection measures, as problem gambling rates have soared in recent years. Legal betting is unpopular among American voters, according to recent polling, underscoring the political pressure behind reform.

Online sports betting is a poorly regulated market, not “heavily regulated” as Burry believes.

The strongest case the regulated industry has concerns the security and accessibility of account funds and the honoring of winning bets. However, this consumer protection element is undermined by the widespread industry tactic of adding friction to user withdrawals, such as excessive delays.

There is mounting evidence that state-sanctioned online gambling is closely associated with population-level financial harm. More U.S.-based research is on the way, following funding from a Texas billionaire.

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