A long-running dispute involving one of the leading online sports betting sites in the United States is nearly resolved in a way that could lead the operator to greater independence — but it could also signal the beginning of the end for a lesser-used book.
Flutter Entertainment PLC and Fox Corp. announced recently that there was an arbitration ruling regarding their disagreement over the latter’s right to an ownership stake in FanDuel, which Flutter already owns 95% of.
Fox and Flutter have a business connection due to Flutter's acquisition of Stars Group Inc. in 2020, which ultimately gave Fox the option to buy an 18.6% equity interest in FanDuel Group. The two companies then became embroiled in a dispute over the price at which Fox could buy that stake.
Dublin-based Flutter said on Monday that the arbitration ruling sets out that the exercise price of Fox's option is based on a $20-billion valuation of FanDuel, not the $11.2 billion valuation that Fox wanted. That puts the cost of the 18.6% stake in FanDuel at somewhere around $4 billion, depending on whose numbers you use and when Fox opts to buy it, if ever.
But the outcome may increase the likelihood of Flutter spinning off FanDuel in an initial public offering at some point (although current market conditions are ugly). Moreover, it may plant the seeds of destruction for FanDuel’s less-popular cousin: FOX Bet.
According to the Earnings+More newsletter, analysts at Jefferies said a FanDuel IPO by Flutter is “again up for discussion,” and they added that they “see strategic merit” in such a move.
“The remaining matter before the tribunal is whether and, if so, under what conditions FOX is entitled to participate in an IPO of a parent company of FanDuel, should one occur,” Flutter said in its press release. “Flutter has agreed that it will not proceed with any potential IPO, if at all, until the tribunal has resolved this remaining matter or both parties have reached an agreement on the matter.”
Another day, another winner! pic.twitter.com/ycq7mVxtxQ
— FOX Bet Sportsbook (@FOXBet) October 29, 2022
Nevertheless, Flutter added that a binding arbitration decision regarding a possible IPO is expected in early 2023. Fox reiterated in its release that Flutter can’t pursue a FanDuel IPO without Fox’s permission or approval from the arbitrator.
And, in the meantime, Fox can weigh whether to pull the trigger on the 18.6% stake in FanDuel.
“FOX has no obligation to commit capital towards this opportunity unless and until it exercises the option,” the company said. “This optionality over a meaningful equity stake in the market leading U.S. online sports betting operation confirms the tremendous value FOX has created as a first mover media partner in the U.S. sports betting landscape.”
FOX on the run
Flutter's release also raised another finding from the arbitration ruling that could mark the beginning of the end for FOX Bet.
That finding, Flutter said, was that "commercially reasonable resources have been provided to FOX Bet," which is run by Flutter but uses a Fox trademark. Fox had claimed Flutter had failed to provide those resources to its FOX Bet operation, but the arbitration tribunal disagreed.
This, Flutter added, means that Fox still has the right to buy up to 50% of the business that contains the operations of FOX Bet, the free-to-play Super6 game, and PokerStars U.S. Fox, however, will need a license. Failing that, the sportsbook could be shuttered before next year's NFL season.
“In the event FOX does not get licensed and exercise its option in relation to TSG US, both parties have a right to terminate their agreement in relation to FOX Bet in August 2023,” Flutter’s release stated. “Should either party do so, this would result in a termination of the FOX Bet business. In this event Flutter would retain ownership of PokerStars US and Super6, while the use of the FOX Bet brand name would reside with FOX.”
Standing up for the little guy?
The loss of FOX Bet could sting the pride of a few corporate executives, but the online sportsbook has nowhere near the same level of popularity as FanDuel in the U.S., where Flutter says FanDuel now controls about half the market. FOX Bet is currently available in only four states: Colorado, Michigan, New Jersey, and Pennsylvania.
That said, there is a chance Fox tries to make a go of it with FOX Bet. A recent Reuters story said "people familiar" with the thinking of the Murdoch family, who controls Fox, "say they are serious about the sports betting opportunity" presented by the possible recombining of Fox with News Corp., another Murdoch-related entity.
"Fox has got a far-reaching audience so it does make sense, if you're going to launch (sports betting) into the U.S., that you have that Fox network, distribution and partnership," John Ayoub, a portfolio manager at Sydney-based Wilson Asset Management, told Reuters. "But we'll probably need a little bit more detail."
