Legendary Short Seller Sees DraftKings as a Betting Favorite

Jim Chanos admits he completely missed the point about sports gambling in America. Nobody cares how much they lose. 

A short seller who famously predicted the fall of Enron, Chanos told the Financial Times he’s now all in on the US gambling industry’s prospects after realizing how many terrible gamblers exist across the country. 

Coming Up Short

Chanos began shorting DraftKings more than two years ago, saying the company spent way too much on marketing and had uncertain profitability. That first idea wasn’t entirely preposterous: You can’t watch any sporting event without being bombarded by DraftKings commercials or ads for rivals like FanDuel and BetMGM featuring a litany of celebrity spokespeople. For its Super Bowl ad this year, DraftKings employed Kevin Hart, Ludacris, Tony Hawk, David Ortiz, Emmitt Smith, Lisa Leslie, Julius Erving, and WWE’s The Undertaker.

It was these companies’ roads to profit that Chanos, who recently shuttered multiple hedge funds he’d been running for decades, was more mistaken on:

• In 2018, the Supreme Court struck down a law federally prohibiting sports gambling, and the vice has become fairly ubiquitous, with a record 73.5 million Americans planning to wager on the NFL this season alone, according to a recent American Gaming Association survey.
• Chanos called off his DraftKings short after noticing the growth of riskier bets with less transparent odds that boosted operators’ margins, he told the FT. These include in-game bets and proposition bets like wagering that a certain player will score a game’s first touchdown.

“The thing that we underestimated — that I think is going to be a benefit for all these companies for a while anyway — is what bad bettors the US gamblers are,” Chanos said. There you have it: The Jim Chanos Dumb and Dumber guide to investing. 

Getting in the Black: Between 2019 and 2022, DraftKing’s revenue jumped to more than $2.2 billion from $323 million, and it projects to hit $3.7 billion this year. Profitability is still a concern, but not for investors, as its share price has skyrocketed more than 200% this year. And all those terrible bettors have DraftKings anticipating a full-year profit in 2024.