Flutter has announced a $4.2 billion deal to buy up a further 37% stake in FanDuel Group from its early private equity investors.
Flutter bought a 58% stake in FanDuel back in 2018, with today’s deal taking its ownership stake up to 95%. Market access partner Boyd Gaming owns the remaining 5%.
The London-listed operator will pay $2 billion in cash and the remainder in 11.7 million new Flutter ordinary shares.
The cash element will be funded through cash on the balance sheet and an equity placing to raise approximately $1.5 billion.
Flutter shares jumped 12% today in London following the news, despite the dilution.
Fast-track for FanDuel Group
The original deal in 2018 gave Flutter the opportunity to acquire the remaining 37% stake in FanDuel in two tranches in July 2021 and July 2023 at prevailing market valuations.
However, Flutter said the early investors (known collectively as “Fastball”) took the deal now at a discount in exchange for price certainty and liquidity.
Flutter noted the deal gave FanDuel an enterprise value of $11.2 billion; a discount of over 40% compared to the $20.3 billion value of DraftKings.
“Our intention has always been to increase our stake in the business and I’m delighted to be able to do so earlier than originally planned and at a discount to its closest peer,” said Flutter CEO Peter Jackson.
“I would like to take this opportunity to thank our partners in Fastball for their tremendous support over the last 2½ years and for their ongoing commitment to Flutter as soon-to-be shareholders in the wider group. We look forward to continuing to grow our US business, alongside our key media partner FOX, as further states move to regulate sports betting and gaming.”
FanDuel is the largest operator in the US sports betting market, with a 46% online sportsbook market share during Q3. It also had a total online gambling share of 29%.
What is FanDuel worth?
The $11.2 billion tag is a far cry from the circa $558 million that FanDuel was valued at when originally sold to Flutter, just weeks after the US sports betting ban was repealed.
In fact, that valuation is now being disputed in court by FanDuel co-founder Nigel Eccles and a group of early employees.
That case had its first hearing this week, although a final resolution will likely take years.
US spin-off?
The cleaned-up ownership structure could also make it easier for Flutter to spin out FanDuel and list it in the US.
After all, at $20 billion, DraftKings is trading at 37x its expected revenues of $550 million in 2020.
On the same multiple for FanDuel’s 2020e revenue of $850 million, the company could be worth $31.5 billion. That makes Flutter’s deal quite the bargain.
Morgan Stanley analyst Thomas Allen said the deal was a negative for DraftKings. $DKNG shares fell 2% in early trading.
Fox also in the mix
Fox Sports participated in the Flutter equity raise, although no specific financial details were given.
Fox Sports will also be given the option to purchase 18.5% of FanDuel at fair market value in July 2021. That price will be determined by third-party banks.
Fox CEO Lachlan Murdoch added: “We are delighted to participate in this capital raising. Maintaining our ownership stake in Flutter signifies our long-term commitment to Flutter, and ongoing confidence in management’s ability to execute against the fast growing US opportunity.”
