Investor Jim Chanos Bullish on Sports Wager Stocks, Says US Bettors Stink

Posted on: December 18, 2023, 03:00h. 

Last updated on: December 18, 2023, 03:26h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Citing exotic wagers that capitalize on the deficiencies of U.S. sports bettors, famed short seller Jim Chanos is now bullish on sports wagering equities.

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Kynikos Associates founder Jim Chanos is no longer short on DraftKings and is bullish on U.S. sports betting stocks. (Image: CNBC)

Chanos, the Kynikos Associates founder who recently converted his hedge fund to a family office structure, announced a short position in DraftKings (NASDAQ: DKNG) in December 2021, calling the operator’s business model “flawed.”

His firm initiated its DraftKings short in May 2021 and covered it in July 2022, netting a $10 million profit. That was a smart move because shares of the sports book operator have nearly doubled since Aug. 5, 2022, and have more than tripled on a year-to-date basis.

Chanos saw the light on sports wagering equities, telling The Financial Times he “underestimated” the degree to which U.S. bettors are “bad” at sports wagering. Additionally, the short seller observed that gaming companies such as DraftKings discovered a margin-boosting opportunity via exotic, long-odds wagers that lured bettors searching for big paydays.

Chanos Mentioned In-Game Bets, Same-Game Parlays

DraftKings and rivals such as BetMGM and FanDuel have been able to bolster margins and increase profitability through offerings including in-game live bets and same-game parlays.

For years, U.S. sports bettors preferred to place pregame wagers on money lines, sides, or totals. But they’re increasingly embracing in-game wagers. That’s not necessarily good for their accounts, but it is a positive for operators. In nearly all major team sports, in-game odds can shift on a play-by-play basis — a touchdown, a home run, etc. Those fluctuations typically play into the hands of the house, not bettors.

Likewise, same-game parlays are gaining traction among U.S. bettors. Typically, a same-game parlay lives up to what’s being implied: A multi-leg wager on the same event. In a hypothetical example using a football game, a bettor could pick a moneyline wager, an anytime touchdown by a particular player, and an over/under on a wide receiver’s yards.

Chanos told The Financial Times that in-game bets and same-game parlays subject bettors to terrible odds and highlight a better-than-expected business model for operators. FanDuel and DraftKings, which have a duopoly in the U.S. sports wagering markets, are among the gaming companies that have found emerging gold mines with same-game accumulators.

There’s room for significant live wagering growth in the U.S. because, by some estimates, such bets account for a quarter of the handle today. In more advanced sports betting markets, such as continental Europe and the U.K., the percentage can be as high as 80%.

Chanos Didn’t Tout Specific Gaming Equities

Throughout his career, Chanos has never been shy about naming the stocks in which he held short positions. But in the interview with The Financial Times, he didn’t directly identify a sports wagering equity on which he is bullish.

DraftKings is the most prominent pure-play name in that group currently trading in the U.S. But next month, FanDuel parent Flutter Entertainment (OTC: PDYPY) will be listed on the New York Stock Exchange (NYSE).  Those could be the types of stocks Chanos uses to participate in U.S. sports wagering bullishness, but he didn’t confirm as much.