Michael Burry — the investor made famous by “The Big Short” for correctly calling the 2008 housing collapse — has made a new contrarian move. He announced Wednesday he purchased a full-sized position split roughly 60% in Flutter Entertainment (NYSE: FLUT) and 40% in DraftKings (NASDAQ: DKNG). Burry bought Flutter at approximately $107 per share and DraftKings in the low-$26 range. Both sportsbooks have been under significant pressure, and that pressure, according to Burry, is exactly what makes them interesting.
The core of Burry’s thesis is regulatory arbitrage. Prediction markets — online platforms that allow users to bet on real-world events using event contracts — have exploded in popularity and siphoned users away from traditional sportsbooks. DraftKings is down about 45% from its 52-week high, while Flutter has slid 65% from its August peak, in large part due to this competition. Prediction markets currently operate in a regulatory gray zone, avoiding many of the state gaming taxes and compliance costs that burden regulated operators like DraftKings and Flutter. The U.S. Commodity Futures Trading Commission is currently in active legal battles over jurisdiction. Burry’s bet is simple: the political and regulatory environment will not allow prediction markets to keep undercutting the established, tax-paying sports betting industry. “I believe that the political climate will not tolerate this,” he wrote. “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.”
For retail investors, this trade offers a clear risk-reward setup. If regulators crack down on prediction markets — as Burry expects — DraftKings and Flutter stand to recapture significant market share and customer spending. Both companies are also exploring their own prediction market products, so they are hedged either way. DraftKings is showing improving operational leverage as a business, while Flutter is one of the world’s largest gambling companies with strong global scale. With both stocks trading well below their peaks and a high-profile contrarian investor building a position, FLUT and DKNG are worth serious consideration for investors willing to sit on a regulatory catalyst that could arrive within the next year.
