Hedge fund short sellers have amassed at least $2.3bn in profits this year betting against online gambling companies, as shares in Flutter, DraftKings and Entain have cratered under pressure from rising prediction markets and UK tax increases. Flutter, the world's largest publicly traded gambling company, has seen its shares plunge more than 50 per cent in 2026, while DraftKings and Entain are each down about 30 per cent.

The dual headwinds have shattered investor confidence. Prediction markets, regulated as derivatives by the CFTC, now attract billions in monthly wagers and threaten to eat into the $17bn US sports betting market. In the UK, chancellor Rachel Reeves' tax hikes on online betting forced Entain to take a £488mn impairment charge in March. Citi last month downgraded Flutter from buy to sell, citing concerns about hitting US profit targets.

Two Sigma now holds the largest short position in Flutter at 2.17 per cent of London-listed shares, while DE Shaw and Marshall Wace have also built significant bearish bets. Barclays notes sentiment has reached "extreme levels of pessimism," though analyst Brandt Montour sees potential for a relief rally as prediction markets face their own regulatory scrutiny.