Cool idea, nicely written.
However, it's a little confusing as to who the main character of your story is. We are introduced in great detail to Annie McGoldrick, but then as soon as she decides to count sheep, we shift into what seems to be the "old man's" story, and we never go back to Annie.
The old man's story shifts from moments of contemplation about the ethics of invading people's dreams to bet on sheep being counted, to something more personal about his daughter/granddaughter. He does eventually tie us back into Annie, but only by implying that this dreamer might be "his Annie."
The confusing part was how they got into the dreams. That's a big, big part of your great concept here, so I think you should definitely explore a way to loop the readers into that world. How do those men get into people's dreams to bet on their sheep? I'd be interested to find out!
Just a few "technical" things about the writing:
When you initially start Annie's dream valley, you contradict the setting by saying, "grass soaked in moonlight, sheep illuminated by the summer sun."
Spell out Fifty Pounds, etc. in the dialogue about the bets.
"Soon, the crowd had encircled the pen into which the sheep leapt."
This may be grammatically correct, but it reads like a sentence from an English textbook. Loosen it up a bit, show your personal style. You've described her valley and her bed in great detail, so it wouldn't hurt a bit to tell us that Annie has built a personalized little pen for her sheep. (Maybe it's rose bushes pruned into shape, rather than a regular fence? Something feminine?)
Once we know sheep are jumping into the pen, you can simply say something like, "As more and more sheep leapt into the pen, the excited men gathered at the fence, sweaty betting slips clutched in their hands."
Something better, of course, that's off the top of my head. But it makes the flow a bit more "casual" and lets your personal voice shine through.
"Oh yeah," his companion smiled smoke tendrils slipped from his nose...
*As* smoke tendrils slipped? *And* smoke tendrils slipped?
I think this is a nice concept. Since it's not "flash fiction," you have plenty of room to expand and *show* us the "magic" you selected for your genre. Give us a glimpse into how these people get into dreams to bet on the sheep. More to the point, how do they get into someone's *imagination*, because Annie's not asleep when the story first begins.
The more you put in there, the more you'll be forced to explore the relationship between Annie and the old man betting on her sheep.
Overall, nicely done.
Good luck with your story!
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