Chanos Shorts DraftKings, Calls Business Model Flawed, Still Bearish on Wynn Resorts

Posted on: December 2, 2021, 12:27h. 

Last updated on: December 2, 2021, 12:59h.

Citing frothy valuations, Kynikos Associates founder Jim Chanos is betting against some high growth stocks, including a pair of gaming names.

Chanos DraftKings
Kynikos Associates founder Jim Chanos, seen above, maintains a short position in Wynn. He also revealed a new bearish trade in DraftKings. (Image: David Paul Morris/Bloomberg)

In an interview with CNBC, Chanos said he’s been short DraftKings (NASDAQ:DKNG) for most of this year, while reiterating that Kynikos maintains a bearish position in Wynn Resorts (NASDAQ:WYNN).

His comments prompted traders to sell those stocks. Earlier today, DraftKings was trading higher by more than one percent, but it’s now in the red in late trading. Wynn is higher by almost eight percent, but off the highs of the day. In the case of the Encore operator, market participants are paying more attention to analysts advising to buy the dip in travel equities than they are Chanos’s commentary.

The Kynikos boss said valuations on some emerging growth companies, including DraftKings, got out of whack over the past year. He’s using those dislocations to identify short targets.

It tells you just how nuts things got over the past 12 months in some of these high growth names that are getting hit now,” he said in the interview.

In addition to DraftKings and Wynn, Chanos revealed he’s also short food delivery firm DoorDash (NYSE:DASH). He said the company is failing to churn out profits at a time of elevated demand for its services.

Piling on DraftKings

Chanos revealed his firm’s bearish position in DraftKings on the same day one sell-side analyst slashed his price target on the flailing sports betting stock to $50 from $70. That’s while another said it’s likely the company’s fourth-quarter and 2022 revenue will disappoint Wall Street.

“You can believe in sports betting, you can bet on football and basketball to your heart’s content. But this business model is flawed,” said Chanos.

He brought up a familiar refrain regarding DraftKings: lack of profitability. Entering this year, consensus wisdom held that the online sportsbook operator could turn profitable on the basis of earnings before interest, taxes, depreciation and amortization (EBITDA) in 2023. However, at least one analyst puts that timeline at 2024 while another says profitability will evade the company until 2025.

Chanos adds that under its current structure, DraftKings is likely to continue losing cash, regardless of how rosy its revenue projections are. He didn’t say when Kynikos established its short position in DraftKings. But the stock is off almost 33 percent year-to-date, indicating it’s a winning bet for the hedge fund.

Wynn View Mostly Known

As noted above, Wynn is trading higher despite the comments from Chanos. That could be the result of market participants already knowing Kynikos is short that stock — a position revealed by Chanos in September.

At time, he called the casino operator overvalued, saying it should be trading in the $40s. It resides around $82.30 at this writing.

Today, Chanos reiterated the view that Wynn is richly valued, and that’s the case even when ignoring potential vulnerabilities in Macau, the company’s largest market.