With additional reporting from Matt Rybaltowski
For much of its time on the stock market, the gambling industry has been concerned with regulation, taxation and whether its growth is actually real. Increasingly, however, a more crippling anxiety has joined the list: activist short sellers and activist investors who can reshape narratives – and impact share prices – within hours.
The most recent and high-profile example came in April when Sportradar was targeted by overlapping short campaigns from Muddy Waters Research and Callisto Research. Their reports alleged that the sports data and betting technology group had indirect exposure to illegal or unlicensed gambling operators across multiple jurisdictions.
The market reaction was immediate. Shares fell by roughly 25% in a single trading session. Lawyers began reviewing the claims. Regulators reportedly took an interest and management was forced into rapid defence mode. That sequence – report, reaction, rebuttal – is increasingly familiar across iGaming equities. And it is what worries executives most.
“Once it’s out there, the market has already moved,” says a spokesperson for a US-listed betting operator, speaking anonymously to iGB. “Even if the rebuttal is strong, the initial damage is often already done.”
Narrative before numbers
Activist short sellers do not simply take positions against companies. They publish detailed research designed to influence how markets interpret those companies in real time. Timing is crucial. Reports are often released just before markets open or around key events such as earnings. That creates maximum attention and minimum minimal response time.
In iGaming, this effect is amplified. The sector already operates in a grey zone of perception: regulated in some jurisdictions, loosely regulated in others and frequently misunderstood by external investors.
“The obvious thing in our sector is that there’s a legal grey market in some jurisdictions,” according to the operator who spoke to iGB on the condition of anonymity. “Companies make claims around it one way or another. So there are quite obvious things to target.” This puts companies in a vulnerable position: once a narrative is published, it tends to move faster than any factual correction.
The Sportradar case
In the Sportradar episode, Callisto Research and Muddy Waters approached the market from different angles but produced reinforcing conclusions.
Callisto alleged that more than 270 gambling platforms using Sportradar’s products were operating without proper licences, including in restricted or sanctioned markets. Muddy Waters deployed a more investigative approach, including interviews with former employees, analysis of technical integrations and on-the-ground research at industry events.
Together, the reports created a single dominant narrative: that exposure to unlicensed gambling activity was more widespread than previously understood. While the firms operated independently, the combined effect was powerful. The share price fall was immediate, but the longer-lasting impact came from what followed: legal scrutiny, media amplification and sustained investor questions about compliance exposure.
Speaking to iGB, a spokesperson for Callisto Research frames its role in direct terms. “Regardless of sector, we focus our attention on companies involved in unethical or illegal practices that are not widely known by the market or the international media,” he said “This allows us to shine a light on issues of public interest and simultaneously identify value dislocations.”
Pressed on how companies typically respond, the Callisto spokesman indicated that short-seller reports almost never prompt the company under the microscope to modify their conduct right away.
“Unfortunately listed companies engaged in questionable practices rarely respond by immediately changing their practices. This would require admitting wrongdoing. It is typically only when investors, regulators or customers start demanding answers that serious internal changes take place.”
Grey markets and easy narratives
The gambling industry is structurally exposed to this type of scrutiny. Part of the reason is perception. Gambling still carries associations with nontransparency, even as large parts of the sector are fully regulated and publicly listed.
“There’s an impression of gambling that a large proportion of activity takes place in the ‘underworld’,” says one betting supplier spokesperson, speaking anonymously. “That perhaps makes these organisations easier targets.”
That perception allows short sellers to build credible-sounding narratives even where underlying compliance may be strong. Allegations around black market exposure or regulatory manoeuvring do not need to prove illegality to be effective. They only need to raise doubt.
Speed and asymmetry
A defining feature of modern activist short campaigns is speed. Reports are typically released in moments of high trading volume, often when management cannot immediately respond.
That creates what one executive calls a “timing asymmetry”. “You are reacting while the market is already moving,” the executive says. “Even if you have a strong rebuttal, the narrative has already formed.”
In iGaming, those narratives often cluster around familiar themes: bonus-heavy revenue models, affiliate-driven user growth, regulatory exposure, or questions about whether the numbers truly show profitability. In the recent case with Sportradar, the stock sell-off appeared to prompt the company to move up their quarterly-earnings call to address the reports head-on.
As of 30 April, Sportradar’s short interest as a percentage of its public float hovered around 6.1%, according to Yahoo Finance. The measure represents the total number of a company’s borrowed and short-sold shares divided by its public float, or the total shares available for public trading.
Generally, when the metric exceeds 10%, it is considered to be relatively high while indicating negative sentiment in a stock. By comparison, approximately 140% of GameStop’s public float had been sold short in the early portions of January 2021. The percentage dipped to 114% by mid-January then suddenly plunged to 34%, providing a harbinger of a historic short squeeze.
In Sportradar’s case, however, the levels are considered low and indicative of standard bearish sentiment.
Investigative activism
One notable shift in recent years is the increasing sophistication of short seller research methods. Muddy Waters and Callisto both rely on a mix of open-source intelligence, employee interviews, technical analysis and field research. In the Sportradar case, this included engagement at industry events such as ICE Barcelona.
The anonymous supplier spokesperson draws a comparison with modern investigative journalism. “The tools available for investigation are bigger than ever,” says the executive. “Anyone can effectively be an investigative journalist now and uncover this kind of information.”
The combination of financial activism and investigative methods is changing how listed gambling companies are examined. It also blurs the line between market research and informal regulatory oversight.
A sector built on assumptions
The effectiveness of activist short selling in iGaming is not only about narrative timing. It is also about the structure of the industry itself. Revenue depends heavily on user behaviour, promotional spend, affiliate marketing networks and cross-border regulation. These inputs are difficult for external investors to verify in real time.
Core measures such as active users, lifetime value and EBITDA margins are highly sensitive to assumptions about customer quality and regulatory stability. One common concern is the gap between reported profits and actual cash flow. Another is whether the cost of acquiring customers is justified by their long-term value, especially in newer regulated markets such as US sports betting.
When those assumptions are questioned, valuations can change quickly.
Activist investors versus activist short sellers
It is important to distinguish between activist short sellers and activist investors. Short sellers seek to profit from share price declines and typically publish critical research reports. Activist investors, by contrast, aim to influence governance, capital allocation or strategy while remaining long-term shareholders. Both are increasingly present in gambling and gaming, but their methods differ.
Recent years have seen activist pressure on operators such as Entain and Penn Entertainment, where investors have pushed for governance changes, strategic clarity or board restructuring. In one notable case, HG Vora engaged in a public dispute with Penn Entertainment over board composition and strategy direction, highlighting that governance activism is now firmly part of the gambling sector landscape. Short activism, however, tends to be faster and more disruptive. It operates through information release rather than shareholder negotiation.
Control of the story
Across both forms of activism, one theme dominates: controlling the narrative matters as much as actual business performance.
In the short term, markets often respond to the first credible version of events. Corrections – if they come – tend to arrive later. That dynamic places pressure on companies not only to perform, but to communicate rapidly, clearly and consistently under stress.
Callisto’s view is that this is not accidental, but structural. “Ultimately,” the firm says, “the primary limiting factor for any activist campaign is the credibility of the thesis. We believe the supposed ability of short-sellers to profit from campaigns that are based on false information is massively overblown- activist investing is already hard enough when your research is credible and we have seen many short reports with well-sourced findings fail to move the needle.”
Short-sellers are dependent on their reputation for their continued existence, the Callisto spokesperson says. “Anyone that wants to put out more than one campaign will be careful to avoid mistakes let alone intentional misstatements.”
A changing information environment
The broader shift is not confined to gambling. Gaming publishers and adjacent sectors are also increasingly exposed to activist pressure.
Ubisoft has faced activist investor campaigns demanding strategic and governance changes. Embracer Group has attracted negative investor sentiment after its rapid expansion and later restructuring. Gambling and iGaming remain unusually exposed because of one persistent factor: uncertainty about where regulation ends and market activity begins, iGB sources agree.
Fending off a short seller attack
In addressing stock analysts on Sportradar’s first-quarter earnings call, CEO Carsten Koerl reiterated that Sportradar strives to uphold the highest ethical standards, while throwing shade at the short sellers. During the 28 April earnings call, Koerl also indicated that he planned to purchase $10 million of company shares when its trading window opened.
Over a two-day span through 5 May, Koerl spent over $4.5 million on 340,000 shares, according to SEC Form 4 filings. Subsequently, he completed an open-market purchase of 157,801 Class A Ordinary Shares at a weighted average price of $13.49 per share. Following the transactions, Koerl held 2,776,073 Class A Ordinary Shares, regulatory filings showed.
As of 25 May, Sportradar had 221.4 million shares outstanding, giving the company a market capitalisation of approximately $4.01 billion. In total, Koerl has added more than 751,000 share since last month’s call, fulfilling his promise to spend at least $10 million on company shares.
Unlike institutional investors, which are required to disclose their long-equity positions, short sellers are not required to publicly report the exact size of their positions. Consequently, it is difficult to ascertain if insiders and short-sellers will engage in a cat-and-mouse game over the long term.
Sportradar closed on Monday at $12.99 a share, down fractionally on the session. At Monday’s close, shares in the data provider were up about 11% from last month’s trough. Sportradar is still down roughly 45% over the last 12 months.
Back up your claims
Activist short sellers and activist investors are now embedded in the financial ecosystem of iGaming. For companies, the challenge is no longer just financial performance. It is resilience in the face of rapidly formed public narratives that can move markets before facts are fully established.
As one commentator puts it, the industry’s task is simple in theory, but difficult in practice: “If you are going to make claims, you need to be absolutely sure you can back them up.” Because once the story is out, the market rarely waits for the second version.
Original article: https://igamingbusiness.com/finance/investment/activtist-short-sellers-reshaping-risk-in-igaming/
