- Jim Chanos closed his short position against DraftKings after seeing how bad US gamblers were at betting.
- The sector has "become a better business than we thought it would be," he told the Financial Times.
Legendary short seller Jim Chanos has abandoned his bearishness towards the US sports betting sector after uncovering a key theme among American gamblers: they're not very good at it.
That comes as online gambling platforms have offered riskier forms of betting during games.
"The betting numbers have continued to be strong in the US, stronger than we thought they'd be," he explained in a recent Financial Times interview. "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 first opened short positions against the gambling platform DraftKings in mid-2021, over skepticism of its business model, noting that its marketing spending was surpassing the firm's revenue.
"You can believe in sports betting, but this business model is flawed," he said that year.
But Chanos eventually closed the short in July 2022, after observing a surge in riskier gambling with unclear odds. According to FT, this ranged from in-game bets to multi-layered, accumulator wagers, with Chanos calling some of them "really bad-odd bets."
"So it's become a better business than we thought it would be and we saw that during last year's football season and that's why we covered our short," he explained.
As gamblers quickly moved away from typical pre-game bets, the amount of money betting firms keep for every dollar wagered also jumped. This margin is set to reach 9%, rising from 6.7% five years prior, FT said, citing data from Macquarie.
Chanos' DraftKings short earned his hedge fund $10 million when he closed the position last year. Since the start of this year, DraftKings shares have soared 218.72%, and the platform has pushed out FanDuel for the top spot in the US online betting market. The firm has turned profitable in the second quarter.
DraftKings was among many of his high-profile short bets, which have included Enron and Tesla. But the investor has since closed his hedge funds, claiming that the marketplace has become difficult to predict.