Last week, in a combination confessional and gambling advice post, I talked about my online sports betting.
The point then — and now — was that DraftKings provided so many promotions for things such as table games it made it possible for someone like me to be terrible betting on sports and still make money on the site.
Fast-forward to Friday and famed investor Jim Chanos was out publicly with word that he’s shorting the stock of DraftKings. To be short a stock is to be betting on a decline in its price so the shares you borrowed to sell now can be bought back later at a lower price, giving you a profit.
One downside of shorting is your potential losses are infinite, while your potential gains are limited to the price of the stock – it can only go to zero.
And DraftKings stock predictably dropped Friday on the Chanos news, closing at $28.37 a share, off $2.93 for the day. Chanos reasoned that DraftKings spends too much on its marketing and can’t be expected to make money until that changes.
I’m no genius, but I had wondered often about a business model giving away so much money. Chanos seemed to be thinking the same, but I’m doubting he came to this conclusion by eking out $10 in promotional profit dollars as I often did.
I will note that DraftKings has cut back of late on the no-brainer table games incentives, so maybe they had gotten the message prior to the Chanos declaration.
Regardless, Chanos is a bit late to the party with his short. DraftKings stock traded over $71 a share as recently as late March of this year.
Also, lest you paint Chanos as an investment genius, he publicly claimed to be short Tesla stock in May of 2016. By January of 2021, Tesla stock was up 1800. Ouch. Ouch. Ouch
DraftKings can only dream that Chanos will be as wrong on this short bet.
This whole Chanos-DraftKings matter is instructive on several levels.
First, lest you think the experts you see on TV business shows are somehow superhuman, understand they make plenty of mistakes. They just are slow to revisit them.
It also occurs to me, with regret, it’s too late for me to pursue a career as a TV weather guy, for which I seem to be qualified in terms of results.
Allow me to expand. I’m consistently hitting maybe two or three out of every 10 sports bets, which is terrible. Many of my wins are like the situation I’m currently in, an opportunity pointed out to me by my son, where DraftKings offered two betting boosts on the Alabama-Georgia SEC title game, allowing one to lock in a profit by betting both sides.
If Georgia were to win by 7 or more points, I’d get a bigger profit. But even if Alabama covers, I still make more money than I spent on betting on both Georgia and Alabama.
Should Chanos be reading this – about as likely as me running off 50 consecutive correct sports bets – you’re right, Jim, about the DraftKings marketing costs, but . . .
Back to the weather guy angle – they are lionized for being right maybe two or three times out of 10.
At our local station, the Armageddon Severe Weather Stormwatch We’re All Going To Die reports are, more often not, exercises in spewing weather doom porn.
Afterward, if they have overstated things, which is most often the case, they show up in subsequent broadcasts telling the viewers how lucky we are to have dodged a bullet.
And if they actually got it right, there is an orgy of self-congratulation that threatens to tear both rotator cuffs from excessive patting on the back.
Chanos likely will exhibit this behavior down the line. If DraftKings stock continues to tank, he’ll show up on shows to take some bows.
But, if the DK stock soars like Tesla, the Chanos short will be relegated to the dustbin of bad investment decisions and discussion of same will be avoided in pleasant company.
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