DraftKings and Flutter Entertainment filed quarterly reports. People who run prediction markets told investors how much money they made letting other people guess at things. Shareholders nodded approvingly. The business model involves taking a cut of every transaction where someone bets on whether something will happen. This is somehow different from a casino.
The reports show prediction markets are growing. More people want to wager on outcomes they have no control over. The companies facilitating this behavior are profitable. Wall Street analysts will now spend three weeks building discounted cash flow models to justify price targets they already decided on.
Retail traders saw the earnings reports and immediately checked if they should buy calls. They will not read the actual filings. They will scroll Twitter for someone else's interpretation, preferably in thread form with rocket emojis. Then they will make a trade based on vibes.
The beautiful part is that people betting on prediction markets are now watching prediction market companies report earnings. It's recursive gambling. You can bet on the thing, then bet on the stock of the company that let you bet on the thing. Some genius is probably already building a prediction market where you can bet on DraftKings' next earnings beat.
Flutter Entertainment operates in multiple jurisdictions. DraftKings spent years lobbying states to legalize sports betting. They succeeded. Now they collect fees every time someone in Indiana puts fifty bucks on whether it will rain in November. The technical setup on both stocks is completely irrelevant, but the chart goes up when the earnings number is big.
The real winners are the CFOs who get to explain quarterly volatility by saying "user engagement exceeded expectations." Translation: more people lost money faster than we thought they would.
Photo by Maxim Hopman on Unsplash
Leave a Comment