Fox’s FanDuel shoot-out has all or nothing odds

The fight involves Fox’s option to buy an 18.6% stake in FanDuel in July

  
People are seen on Wall St. outside the New York Stock Exchange (NYSE) in New York City, U.S., March 19, 2021.

People are seen on Wall St. outside the New York Stock Exchange (NYSE) in New York City, U.S., March 19, 2021.

REUTERS/Brendan McDermid

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

NEW YORK - Rupert Murdoch’s Fox and Dublin-based Flutter Entertainment used to be friends. Now the $22 billion media firm is suing the sports betting group over the price of a stake in FanDuel. The discrepancy in valuation is wide enough that it’s easy to see why Fox is going to the mat.

The fight involves Fox’s option to buy an 18.6% stake in FanDuel in July. The sticking point is related to an earlier transaction in December. Flutter increased its control of the U.S. betting site when it agreed to purchase the 37.2% owned by shareholder Fastball for $4.2 billion. Fox even lent a hand in raising money and Chief Executive Lachlan Murdoch acknowledged the significant opportunity for sports betting in the United States. The deal implied that FanDuel was worth approximately $11.2 billion.

Now Fox claims it is entitled to pay the same price for FanDuel that parent Flutter coughed up in December. Raising the stakes even further, the $38 billion London-listed Flutter confirmed in March it is mulling an initial public offering for a small slice of FanDuel in the United States.

Little wonder why Flutter Chief Executive Peter Jackson would consider an IPO. Shares of rival DraftKings, which went public through a special purpose acquisition company around a year ago and is worth $26 billion, are up nearly 390% in a year. Over the same period, Flutter’s market value more than doubled.

If FanDuel were to list, it could potentially be worth four times as much as the value that was pegged late last year. FanDuel is expected to generate nearly $2 billion in revenue in 2022 according to research firm Davy. Meanwhile, DraftKing’s enterprise value is worth some 20 times its sales for next year. On the same metric, FanDuel could be valued at around $40 billion.

Fox, meanwhile, already has a strategic relationship with Flutter through Fox Bets, and even with its stake, Flutter would remain firmly in control. So Fox wouldn’t be getting a whole lot more out of owning a stake beyond a financial foothold in a growing and influential sports betting business. The decision to arbitrate could mean the two companies find a truce. For Fox, it’s worth taking the fight through its rounds.

CONTEXT NEWS

- Fox said on April 6 it filed a lawsuit against Flutter Entertainment to enforce its rights to acquire an 18.6% ownership stake in sports betting brand FanDuel for the same price that Flutter paid for that interest in December 2020.

- On Dec. 3 Flutter agreed to buy an additional 37.2% stake in FanDuel for $4.2 billion from Fastball giving the U.S. sports betting operation an implied enterprise value of $11.2 billion.

- FanDuel’s parent Flutter said on April 7 that arbitration measures with Fox were put in place at the time of its announced 2019 merger with sports betting firm Stars Group in the event of a disagreement between the two parties relating to the option.

- Fox formed a joint venture with Stars in May 2019. As part of Flutter’s merger with Stars, Fox was granted the option of buying an 18.6% stake in FanDuel.

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

(SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS http://bit.ly/BVsubscribe | Editing by Lauren Silva Laughlin and Amanda Gomez) ((jennifer.saba@thomsonreuters.com; Reuters Messaging: jennifer.saba.thomsonreuters.com@reuters.net))

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