Michael Burry isn’t simply betting on casino stocks.
The “Big Short” investor’s fresh stakes in DraftKings (DKNG) and Flutter Entertainment (FLUT) raise a wider concern for the sports-betting industry: Are prediction markets too huge for authorities to ignore?
That matters to retail investors, since the impact on sportsbook stocks hasn’t only been about user growth, margins, or football-season success.
It has also been about competition from platforms that, to many state regulators, seem like betting, but are organized as federally regulated event contracts.
If that advantage shrinks, Burry’s gamble is actually a regulatory-moat bet.
Prediction markets have posed a danger to Flutter (DraftKings and FanDuel) in the market. Burry seems to be going in the opposite direction, saying regulation may ultimately push those upstarts closer to the same tax and regulatory framework as the sportsbook operators they seek to challenge.
Why that matters is clear from the official business data. DraftKings reported in its first-quarter earnings announcement that it offered live mobile sports betting in 27 states, Washington, D.C., and Puerto Rico, reaching approximately 53% of the U.S. population.
“Prediction markets exist in a loophole adjacent to a heavily regulated and taxed industry,” Burry wrote. “In time, prediction markets will be subsumed into regulation and taxation.”
DraftKings and Flutter may have regulation advantage
The sports-betting market has grown rapidly. DraftKings, FanDuel, and other operators spend big on user acquisition, state licenses, and building national brands in a state-by-state regulated industry.
It established a costly business model. Sportsbooks pay taxes, follow state restrictions, conduct responsible gaming programs, and incur the expense of vying for clients in a congested market.
Prediction markets went another route. Platforms including Kalshi and Polymarket allow users to buy and sell contracts linked to events such as sporting results, elections, and economic data. Now the Commodity Futures Trading Commission is seeking to determine how those contracts should be assessed.
The scale is no longer small. The Federal Register notice on prediction markets noted that the total trading volume across CFTC-registered prediction markets hit $25 billion in 2025, while event contract activity reached $25 billion in March 2026 across categories including macroeconomics, politics, weather, and sports.
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That’s why the problem is important to DraftKings and Flutter Entertainment. They could compete with sportsbooks by being able to provide sports event contracts nationally within a commodities-market framework, thus circumventing some state-by-state gambling restrictions and taxes.
That’s the strain Burry appears to think has hung over the stocks more than the underlying businesses warrant.
The consequence for the hidden investor is simple: DraftKings and Flutter may not need prediction markets to go away. Maybe they only need regulators to bridge the gap between the two paradigms.
That’s a totally different theory than the typical “sports betting will continue to grow” premise. It’s not only about the handle, parlay margins, or how many states have legalized online casino games.
The question is whether the regulated incumbents have already paid the cost of legitimacy— and whether the next wave of challengers will eventually be obliged to pay something comparable.
The recent stats from DraftKings illustrate the operating foundation that Burry is buying into. The company stated its revenue was up 17% at $1.646 billion in the first-quarter earnings statement. DraftKings also reiterated its fiscal 2026 sales projection of $6.5 billion to $6.9 billion and adjusted EBITDA guidance of $700 million to $900 million.
DraftKings also said it had 4.2 million monthly unique payers in the quarter, with average revenue per monthly unique payer up 21% to $131. Its mobile sportsbook footprint reached 27 states, Washington, D.C., and Puerto Rico, according to the same DraftKings first-quarter figures, while its iGaming product was live in five states.
That footprint is expensive but may also serve as a moat when the rules tighten against competitors.
Flutter also has a similar argument through FanDuel, the No. 1 U.S. sportsbook brand.
Flutter said group revenue was $4.304 billion, a 17% year-over-year increase, in its first-quarter financial statement. U.S. revenue surged 6% to $1.763 billion, sportsbook revenue was up 1%, and iGaming revenue jumped 19%. U.S. adjusted EBITDA decreased 26% to $119 million as the company invested in prediction markets and the Arkansas launch.
That combo explains the Burry configuration. DraftKings and Flutter are not perfect businesses, but they are scaled, regulated operators with actual revenue, real consumers, and compliance mechanisms currently in place.
Burry’s bet is that the market has perhaps overreacted to the threat and underpriced the value of regulatory endurance.
Michael Burry turns sportsbook weakness into regulatory bet
Burry said he bought a full-sized holding split about 60% in Flutter and 40% in DraftKings.
It’s a significant show of interest, implying that Burry is looking for more than a short-term rebound. CNBC cited his claim that both companies are attractive operating businesses, and that their shares have been under pressure from the rapid growth of prediction markets.
That’s important because the regulatory argument is already shifting.
In a notice on event contracts dated June 10, the CFTC said it was seeking public opinion on proposed revisions to Regulation 40.11 and the insertion of Appendix F to part 40.
The Federal Register version of the proposal gives investors a clearer timeline. The prediction-markets rulemaking was published June 12, with comments due July 27, under the docket “Prediction Markets; Public Interest Determinations.”
These recent developments help explain why Burry’s trade is not merely about DraftKings or Flutter being inexpensive. It’s about a chance that the regulatory climate will move in favor of enterprises that are already working in the state gambling framework.
But the official record is subtle, too. The CFTC notice doesn’t just prohibit contracts on sporting events. It also argues that the proposal would create a formal framework to determine whether contracts entail specified activities and harm the public interest.
So Burry’s argument is not necessarily a clean bet that prediction markets will be abolished. It is more a gamble that the best capitalized and best regulated operators can survive whatever framework comes out and maybe participate in it.
DraftKings is already headed in that direction. The platform noted in its annual report filed with the SEC that DraftKings Predictions is registered with the Commodity Futures Trading Commission as an introducing broker and member of the National Futures Association, providing a trading venue for event contracts for consumers.
DraftKings also said in its official DraftKings Predictions launch release that the product, launched under CFTC regulation, would be available across 38 states and would connect to several exchanges, starting with CME Group.
The big question is whether investors see the recent dip as a sign of disruption for sportsbooks or an opportunity to buy operators that may be worth more from a regulatory perspective.
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Investors should watch how prediction markets are taxed
For DraftKings and Flutter investors, the critical question is whether prediction markets continue as lightly taxed national competitors or face restrictions more similar to those of traditional sports betting.
If the current gap stays, sportsbook operators could be in big trouble. Prediction markets might be able to offer more contracts relating to sports in more regions, increasing pricing and product pressure with fewer costs at the state level.
If the gap closes, the math is different. DraftKings and Flutter would still face competition, but the competitive landscape would be more level. Their client bases, brands, state licensing, and product investments might mean more in that world.
At the heart of that disagreement is the CFTC’s proposed definition of “gaming.” The proposed definition covers all sports, including e-sports, the Federal Register notice said, with examples ranging from a football player scoring a specified number of touchdowns to an athlete winning a gold medal at the Olympic Games.
Key takeaways from Burry’s sportsbook bet
- Burry’s DraftKings and Flutter positions are less about gambling growth and more about regulation.
- Prediction markets have pressured sportsbook stocks by creating a new competitive threat.
- The CFTC said registered prediction-market trading volume exceeded $25 billion in 2025, showing the category has become too large for investors to ignore.
- DraftKings reported $1.646 billion in first-quarter revenue, up 17%, and maintained fiscal 2026 revenue guidance of $6.5 billion to $6.9 billion.
- Flutter reported 17% group revenue growth, but U.S. adjusted EBITDA fell to $119 million as prediction-market investment became part of the cost structure.
- The investor question is whether the market is underpricing regulatory protection for scaled sportsbook operators.
Those insights illustrate the same problem: Burry is not just buying two gambling stocks because they’ve plummeted. He is wagering the market may be underestimating the competitive danger.
Prediction markets have room to expand. They can still put pressure on traditional sportsbooks.
But if they’re forced by regulators into the same compliance and tax structure as DraftKings and Flutter, the incumbents’ biggest burden might become a competitive advantage. That’s why investors should be as focused on regulation as they are on revenue growth.
The sportsbook story is no longer only about who gets more consumers during football season. It’s about whether the rules of the market are about to change.
Investors should also look at their response. DraftKings and Flutter have also begun to dabble in their own prediction-market products. That adds another element to the transaction. As prediction markets continue to grow, the incumbents may be able to participate, but they also benefit if the category gets more regulated.
Flutter already showed prediction markets are no longer speculative for big bookmakers. Flutter noted in its first-quarter financial report that FanDuel Predicts has debuted a “One App” experience in non-sportsbook states, where users can access prediction markets through the FanDuel sportsbook app.
Sports trading was also permitted in 18 non-sportsbook states, including California, Texas, and Florida, it added.
Flutter also indicated in the same first-quarter earnings statement that it expects investment in prediction markets to be at the top of its previous guidance range of $250 million to $300 million of adjusted EBITDA investment losses.
That does not make the gamble safe, however.
Regulation is a process. Court verdicts can contradict each other. State and federal officials may not agree on who has the last say. Prediction markets may continue to grow even quicker than traditional operators forecast.
But Burry’s trade provides investors with a distinct perspective on the sector. The market could be pricing DraftKings and Flutter as disruptive casualties. Burry seems to view them as enterprises that could do well when disruption meets regulation.
Burry’s real bet is on the cost of legitimacy
Michael Burry’s foray into DraftKings and Flutter is straightforward to read as a value wager on battered gaming stocks.
That’s besides the point, though. Burry seems to be betting that the market has overstated the threat from prediction markets and misjudged how difficult it is to compete long-term around licensed gaming without eventually facing regulation, taxation, or both.
That’s why the official data are important.
DraftKings is not a story stock. It’s a guide for billions in revenue and hundreds of millions in adjusted EBITDA.
Likewise, Flutter is more than simply a FanDuel story. It’s a worldwide betting company with a huge U.S. operation, a developing online casino operation, and a management team that is already spending in the prediction market space.
Regulatory data are also critical.
CFTC is not ignoring the category. It’s proposing laws, defining gambling, assessing public-interest norms, and noting that registered prediction-market traffic has reached a magnitude that counts.
That’s not to say Burry is correct, but it does make his transaction more interesting than a straightforward sportsbook rebound bet.
Operators have spent years creating enterprises under a high-tax, high-compliance framework. That has hit margins and increased operating complexity. It may, however, also offer DraftKings and Flutter an edge if authorities determine prediction markets can’t coexist alongside the gambling sector without similar obligations.
The danger is that prediction markets keep expanding, and the regulatory loophole remains open. The possibility for regulators, judges, or lawmakers is to close that gap, turning DraftKings’ and Flutter’s compliance burden into a competitive asset.
Burry isn’t just wagering that more people will bet on sports. His gamble is that the game’s regulations could matter more than the market currently thinks.
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