Predicted Market Boom Impacting Gambling Stocks, Short Sellers Gain Over $2.3 Billion This Year

Hedge funds have made substantial bets against online gambling stocks this year and have already reaped at least $2.3 billion in profits. According to data provider S3 Partners, short-sellers of Flutter, DraftKings, and Entain have respectively recorded paper profits of about $2 billion, $351 million, and $35 million since the beginning of 2026, with some of which have been cashed out after being closed out.

Investors are concerned that the rapidly rising predictive market is siphoning off the $17 billion US sports betting market. The share price of Flutter, the world's largest publicly traded gambling group, has fallen by more than 50% since 2026, and its most direct US competitor, DraftKings, has also dropped by about 30% this year. Entain, listed in London, has also fallen by about 30% during the same period, a company that owns UK betting brands such as Ladbrokes and Coral, and operates BetMGM in partnership with MGM Resorts.

Disclosure documents show that DE Shaw has been continuing to add to its short position in Flutter since October 2025, with the current shorting ratio accounting for 1.49% of its London-listed shares; Two Sigma Investments has increased its short position from 0.61% at the end of 2025 to 2.17%, becoming the largest single short in the London-listed shares of Flutter.

Additionally, AQR Capital Management, Marshall Wace, and Balyasny Asset Management have all newly established short positions against Flutter this year; Marshall Wace, Millennium International Management, and Capital Fund Management have shorted Entain. Among them, Marshall Wace once held a net short position of 1.7% in Entain in April, the largest scale so far this year, and has since partially cashed in on the profits.

Barclays analyst Brandt Montour pointed out that with the rise of the predictive market, investor sentiment towards US sports betting companies has reached an "extremely pessimistic level". Citigroup analysts last month also downgraded their rating on Flutter from "Buy" to "Sell", mainly worried about the difficulty in achieving its US profit targets.

However, Montour expects a "relief rebound" for Flutter and DraftKings. He believes that the predictive market is currently facing stricter regulatory scrutiny, legal disputes over whether it should be considered gambling, and concerns that it could facilitate insider trading, all of which may limit its further expansion.

The predictive market, which bets on future events in a binary outcome format, is currently regulated by the Commodity Futures Trading Commission (CFTC) in the US as derivatives, thus bypassing state-level sports betting bans and taxes, and has attracted tens of billions of dollars in bets per month. In the UK, Chancellor of the Exchequer Rachel Reeves substantially raised online casino and betting tax rates in the budget in November last year, leading to Entain booking a £488 million impairment in March this year, and Flutter also warned in February that the new taxes are significantly dragging down growth.