Money Stuff: GameStop Has Enough Stock Now

GameStop Corp. is sort of trying to buy eBay Inc. Not really. We have discussed the proposal a few times, and my basic point is that this is less “GameStop wants to buy eBay” and more “GameStop’s chief executive officer, Ryan Cohen, wants to be CEO of eBay.” EBay is a much bigger company than GameStop, and GameStop does not have enough money to buy it. Instead, GameStop has proposed a merger in which it will give eBay shareholders some cash, but also they will roll their stock into a combined company in which they will own most of the stock. The point of the transaction, from the perspective of eBay shareholders, is not that their company would be acquired by another company: They’d still own most of the stock, and the stock would mostly represent the same business. Rather, the point of the transaction is that their company would be run by Ryan Cohen. He thinks that’s attractive. EBay’s board does not. It’s not clear to me, yet, what eBay’s shareholders think.

If you think of the transaction that way, it’s a little silly to say things like “eBay has $50 billion of stock, and GameStop has only $10 billion of stock, so GameStop doesn’t have enough stock to buy eBay.” That’s not how this works: GameStop would be buying eBay with, economically, eBay stock. I once wrote that “eBay is financeable — people own its debt and equity now! — so Ryan Cohen should be able to finance it.”

Still, GameStop would technically be buying eBay with its own stock, and, in fact, GameStop didn’t have enough stock: Its corporate charter didn’t authorize nearly enough shares to do the eBay transaction. Oops! Yesterday GameStop fixed that:

GameStop Corp. … announced that its stockholders approved all proposals presented at the Company's 2026 Annual Meeting of Stockholders, including an amendment to the Company's certificate of incorporation increasing the number of authorized shares of Class A common stock. The amendment received the affirmative vote of 68.7% of votes cast, and provides the Company with the capacity to issue common stock in connection with strategic transactions, including its proposed acquisition of eBay, Inc.

Terrific. It is unclear to me whether eBay’s shareholders want Cohen to run eBay, but clearly GameStop’s shareholders want that. For one thing, they like Cohen, who has done a good job turning around GameStop. For another thing, you know, they like a good time, and Cohen seems to be having fun. I’m not sure that’s what eBay’s shareholders want, but it’s gotten him the stock he needs anyway.

Arguably what you want, as a merger arbitrage trader, is dispersion in merger outcomes. Your job is to bet on which mergers will close. If the answer is “every merger always closes,” then the job is easy but won’t make any money: Everyone knows that mergers always close, so merger targets will immediately trade up to the deal price, so you won’t be able to capture much spread by betting on mergers. If the answer is “no merger ever closes,” then you have similar problems, but also if that’s the answer then no merger will ever be announced: Companies will know that they can’t complete any mergers, so they won’t bother trying.

More generally, if the regulatory regime for merger approvals is very clear and predictable, you won’t get much dispersion. Companies will be able to predict the regulatory outcome, so they will only bother negotiating mergers that will get approved. Every merger that is announced will close, and everyone knows it, so betting on those deals won’t make you much money.

What you want is a more unpredictable regime in which lots of companies think their deals will get approved, but some of them are wrong. You want a regime where a lot of mergers are announced optimistically, but many of them are blocked surprisingly. And then, of course, you want to get the surprises right. (Another model is possible — more like “you want every announced merger to close so you make a steady boring profit” — but the first model is how you make the big bucks.)

Back when Lina Khan ran the US Federal Trade Commission, I argued that she was great for merger arbitrageurs, because the Khan FTC (1) tried to block a lot of big mergers and (2) often failed, because she was pushing novel aggressive antitrust theories. I wrote that this “probably annoys some merger arbs in their day-to-day lives but in the long run makes their lives better,” because it increases the dispersion of outcomes and thus the returns to skill in merger arbitrage. Deals were more uncertain, so there was more premium to be captured by betting on them correctly. 

Then Donald Trump became president, and everyone assumed — certainly I assumed — that the FTC would get less aggressive, which would have the opposite effect. “Now there will be tons of mergers, and they will all go through, and the spreads might be more modest but they’ll be a lot safer,” I wrote.

But that’s not quite what happened, reports the Financial Times:

The Trump administration’s permissive stance on dealmaking has created a “complexity premium” for merger arbitrage investors betting they can navigate clashing US federal and state rules as well as overseas regulation. ...

The widening spread has pushed potential returns 2.5 percentage points higher since 2021 — which can be worth hundreds of millions of dollars in extra profits for savvy investors who bet correctly on blockbuster deals.

“You have this interesting paradox where the US regulatory environment from an antitrust standpoint has become more favourable, and that’s driving this boom in megadeals, at the same time global regulatory complexity has increased,” said Suzanne Gibbons, head of research at Davidson Kempner, which has more than $38bn of assets under management.

The paradox is roughly that US antitrust regulators, who are probably the ones that corporate executives pay the most attention to, are now like “sure yeah do all the deals you want.” This has the effect of making companies optimistic about merger approvals, so they announce a lot of deals. But foreign antitrust regulators — and US state regulators — do not necessarily agree, and in fact might have gotten more strict as a sort of backlash to the Trump administration. And so more mergers are surprisingly blocked. You get more dispersion and more complexity, and higher returns to being right.

“The banks are re-tranching,” as we sometimes discuss around here, and this is a fun one:

Hedge fund Seer Capital Management LP is seeking an insurance-backed lending facility to bolster its returns when buying credit risk from banks.

The New York-based firm and its advisers, Cantor Fitzgerald and insurance broker Lockton, are working on a transaction that would see First Abu Dhabi Bank PJSC lend about $300 million for investments in significant risk transfers, according to people familiar with the matter.

The facility, which is likely to be finalized later this year, would be insured by Nationwide Mutual Insurance Co., the people added, asking not to be identified because the preliminary terms of the deal are private.

Like:

1. A company borrows money from a bank. The bank now has a senior claim on the company’s cash flows.
2. The bank puts some of those senior claims (loans) into a pot and issues junior claims on the pot to a hedge fund (here, Seer). The junior claims are called SRTs, significant risk transfers. The SRT buyer takes the first loss on the corporate loans; the bank takes the second loss. Now the bank has a senior claim on its senior claims on corporate cash flows; the hedge fund has a junior claim on those senior claims.
3. The hedge fund puts some of those junior claims into a pot and issues senior claims on the pot to a second bank (here, First Abu Dhabi). Now the hedge fund has a junior claim on a junior claim on the first bank’s senior claims; the second bank has a senior claim on the junior claim on the first bank’s senior claims.
4. The hedge fund also buys the second bank insurance: Now the second bank has a senior claim (the insurance wrapper) on a senior claim on a junior claim on the first bank’s senior claims.

Ultimately the insurance company owns some corporate-loan credit risk, but in a quite diffuse and indirect way. The original bank also still owns some of that risk, but it is cushioned from the first loss by a rather complicated pillow.

I just think it’s neat? People periodically worry about this SRT ouroboros; it seems a bit odd for banks to sell off some risk to hedge funds in Step 2, only for other banks to buy (some of) it back in Step 3. My view is more like: There are a bunch of people and institutions in the world, and they each have their own idiosyncratic preferences for risk. Some of them want to own high-risk, high-return lottery-ticket-type stuff. Others want to own the safest possible AAA bonds. Others have weird unique preferences somewhere in between. The raw materials of finance — companies that need to raise money to do business things by issuing stock and borrowing money — do not necessarily satisfy all of those preferences; loans to companies might be too boring for some investors (Seer?) and too risky for others (First Abu Dhabi?). The job of finance is to refine those raw materials into pure products that give everyone exactly the risks they want.

Sure sure sure:

Susquehanna International Group has lined up $500 million to work with institutions that want to use prediction markets to hedge the economic risks associated with various World Cup outcomes.

The Philadelphia-area trading firm said in a statement on Wednesday that it will make the money available to facilitate trades with companies that have a stake in specific teams winning or losing.

Companies that might want to hedge World Cup-related risks include “sponsors, media and broadcast partners, hospitality providers, consumer brands,” according to Ric Best, head of prediction markets at Susquehanna.

“Risks could include promotions, rebates, giveaways, or other customer incentives that can be impacted by team performance,” Best added. …

Already, there are signs of broader economic impacts from the winners and losers in the World Cup knockout stages. Beer sales in Latin America could fall short of investor expectations after Brazil and Mexico were both knocked out of the competition, Morgan Stanley analysts said this week.

We have talked a couple of times about sports hedging. Basically:

1. Prediction markets are, empirically, mostly for sports gambling.
2. Prediction market promoters would rather say that they offer companies the ability to hedge real-world risks that cannot be hedged in traditional financial markets.
3. The polite synthesis is that companies can hedge real-world sports risks by sports gambling.

Are there real-world sports risks? I mean. One category of real-world sports risk is that companies can create those risks. “Promotions, rebates, giveaways, or other customer incentives”: If a company says “hey we’ll give you free beer if the Knicks win,” now it has a real-world sports risk, which it can hedge by betting on the Knicks. I do not find this particularly impressive but other people do. We talked once about a bar that offered free drinks if the Knicks won, and hedged by betting on the Knicks on Kalshi. 

Another category of real-world sports risk is that some companies are sports teams, and they can hedge the fundamental risk of their business, which is losing at sports. We talked once about a Spanish soccer team that hedged its risk of getting relegated from La Liga by trading with Susquehanna. That is a real hedge to a real economic risk but also, you know, that’s a sports team betting on itself to lose? Seems bad? From a sports perspective? [1]

But I guess there is a third category, which is like “some non-sports economic activity is correlated with sports results.” The main example does always seem to be beer sales. Also, like, sneaker and jersey sales. And, fine, I guess. “You have never bet on a sports game,” I wrote last month, “or met anyone who has bet on a sports game, to hedge some existing economic risk.” But maybe a beer company has.

There is sometimes debate about whether commodities companies should hedge their underlying commodity. One theory is that it is good business for, say, a gold miner to hedge the price of gold; another theory is that investors buy gold miners’ stock to get exposure to the price of gold, and hedging at the corporate level defeats the purpose of being a gold miner. [2] If the shareholders want to hedge the gold price, they can do that themselves; there’s no reason for the company to hedge.

I suppose we might eventually have a similar, but dumber, debate about sports hedging. “Investors buy stock in Latin American beer companies because they are bullish on Latin American beer demand, and it is counterproductive for those companies to hedge Latin American beer demand by betting against Brazil in the World Cup.” 

There’s the famous Peter Thiel interview question, “what important truth do very few people agree with you on?” I think my answer would be: “Polymarket’s main prediction market is not allowed to take bets from US traders.” This is true. “You acknowledge and agree that you are not permitted to access, use or trade with the Contracts on the Platform if you are residing in, a citizen of, organized in or located in ... the United States,” say Polymarket’s terms of use. (There is a separate US app, but those terms apply to the main, crypto-based Polymarket.com market.)

But nobody believes it. “Though the New York-based company has been banned from offering its primary crypto platform in the U.S. since 2022, … social-media creators are paid to specifically target U.S. users, who can still access the site with a virtual private network,” reported the Wall Street Journal last month. “Americans traded $571 million on Polymarket politics bets despite U.S. ban,” CoinDesk reported this week. In April, US federal prosecutors charged a US Army soldier with illegal insider trading on Polymarket, unperturbed by the fact that Polymarket was not legally allowed to take his bets. It is very easy for US traders to bet on Polymarket, and nobody — not the traders, not US regulators or prosecutors, obviously not Polymarket — cares. US traders are not allowed to trade on Polymarket, and they do, all the time, and that’s that.

Anyway we talked last month about the Strategy thing. Basically: Polymarket had a contract on whether Strategy Inc. would sell any Bitcoins by May 31. Strategy did sell Bitcoins by May 31, and disclosed those sales in its regular weekly disclosure on June 1. Polymarket nonetheless resolved the contract to “No,” for stupid reasons, which made people who had correctly bet on “Yes” angry. I sympathize with them — Polymarket should have resolved the market the right way, rather than the wrong way — but also do not care very much. Sometimes the unregulated offshore casino makes the wrong decision!

Two of them have now sued, The Block reports:

Two plaintiffs have filed a complaint against Polymarket alleging breach of contract and deceptive practices in the resolution of a prediction market tied to whether Strategy would sell bitcoin by May.

The lawsuit, filed by William Wood and Thomas Bush in the New York Supreme Court on July 3, names Polymarket, CEO Shayne Coplan, CMO Matthew Modabber, and other related entities and individuals as the defendants.

Here is the complaint, which takes a long time to say that Polymarket should have resolved the market the right way rather than the wrong way. Fine.

But here is what bugs me. I don’t know where Wood and Bush live. They filed their case in New York state court, using New York lawyers. The complaint doesn’t say where they live, just that each of them “is a natural person.” But it sort of implies that they live in New York. “The challenged transaction occurred at least in substantial part in New York because Plaintiffs purchased, and held shares in, a rules-based market service whose material platform functions … were created, administered, controlled, approved, ratified, or materially performed through Defendants’ New York-based operations,” it says, and “Defendants’ false advertising occurred in New York … and Plaintiffs reasonably relied on those advertisements.” What it doesn’t say is that they live outside of the US, or that they are not US citizens. (And it does say that they traded on the main Polymarket.com site, which is technically off-limits to US investors.)

Perhaps that is an accidental oversight and in fact they are not US citizens, don’t live in the US, and filed their lawsuit in New York state court only because that’s where Polymarket is. But if they live in the US, can’t Polymarket just say “no, you were not allowed to use our service, our terms were very clear, you probably used a VPN to evade them, you tricked us, get out of here, you can’t ask for your money back”? I don’t know if that would work — and in fact Wood and Bush have arguments for getting out of Polymarket’s terms of service for other reasons — but, you know, kind of? If you snuck into the casino illegally, can you really complain about how it resolved your bets? 

I write sometimes about this general approach in crypto, which is to be very lax about know-your-customer requirements when you’re accepting money from customers, and very strict about those requirements when you’re returning the money. 

Back in 2024, it was a bad idea for Polymarket to let Americans bet on its site illegally; Polymarket founder Shayne Coplan’s apartment (in New York) got raided by the FBI because of all the Americans betting illegally on Polymarket. In 2026, though, it’s an intriguingly good idea. Polymarket is no longer going to get in trouble for letting Americans bet on its site illegally, but if the Americans lose money and sue, Polymarket can be all “I am shocked, shocked to find Americans on my gambling site” and refuse to pay them. 

We talked yesterday about (1) the index rebalancing trade, in the abstract, as a way that multistrategy hedge funds provide liquidity to index funds and (2) the fact that two portfolio managers at Millennium Management made $3.7 billion doing it last month. A reader emailed to point out that, on June 5, S&P Dow Jones Indices announced that Marvell Technology would be added to the S&P 500 index on June 22. One important component of the index rebalancing trade is anticipating what stocks will be added to the index before they are announced, and one can assume that at least some index rebalancing portfolio managers were long a bunch of Marvell a week or two before that announcement.

Which would have been convenient because, on June 2, “Nvidia’s CEO Jensen Huang hailed Marvell Technology  as the next trillion-dollar firm, sending its shares up 32.52%” in one day and adding something like $70 billion of market capitalization. If S&P 500 funds own about 18% of the stocks in the index, [3]  and if index-rebalance managers bought 30% of the Marvell stock that indexers would demand before June 2, then they made about $3.7 billion that day. It’s possible that the June index rebalancing alpha was mostly caused by the “Jensen Huang says stuff” factor.

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