A potential FanDuel US public listing would not include Fox Bet and PokerStars, Flutter announced Thursday.
It is another sign Flutter is not backing down from its ongoing dispute with Fox.
The two companies are about to start an arbitration process over the value of a 2021 option that allows Fox to buy an 18.6% stake in FanDuel.
What is the beef between Fox and FanDuel?
In short, Fox thinks it can exercise the option at a cheaper price, while Flutter has said the valuation will be based on “fair market value.”
Flutter said the appointment of the arbitrator was almost finalized, suggesting the process will start soon.
As part of the pre-arb maneuvering, Fox threatened to remove FanDuel ads from its networks. It also threatened to withhold the Fox Bet/PokerStars assets from a potential FanDuel IPO.
Relative strength ahead of FanDuel IPO
But Flutter dismissed the impact of that in its Q1 earnings call on Thursday.
Firstly, it published the FanDuel/Fox Bet splits for the first time, reflecting the relative strength of the two businesses. FanDuel Group accounted for 91.6% of Flutter US revenues in Q1. Fox Bet and PokerStars came in at 8.4%.
Across the full FY20, FanDuel Group did $800 million in revenue vs $96 million for the Fox Bet assets.
Meanwhile FanDuel did $-148 million EBITDA compared to $-71 million for Fox Bet. Those economics strongly favor FanDuel Sportsbook.
Scale is king
“FanDuel creates tremendous embedded value,” Flutter CEO Peter Jackson said. “The customer acquisition costs compared to lifetime value are very good. We get better operating leverage as we push more volume.
“Contrast that to Fox Bet, which is struggling. The product is not as good because we still have to use the legacy Stars Group sports betting platform. Customer acquisition is lower on the sports side. Fixed costs are higher. As a result, we don’t get the same benefit from operating leverage.
Jackson added: “It gives us visibility to what it’s like for smaller competitors chasing us down in the states. It’s hard.”
Plenty more advertising partners in the sea
Flutter also played down the importance of losing Fox as an advertising partner.
CFO Jonathan Hill said: “Fox is not a huge component of marketing spend for FanDuel. FanDuel was successful before the merger when Fox became a partner. While we are highly supportive of Fox, FanDuel is not overly reliant on that channel for marketing.”
In short, it seems Flutter is willing to fight its corner in arbitration and risk losing Fox as a partner in the future.
FanDuel IPO is a huge prize
That is an easier risk to take given the size of the spoils. A public FanDuel could be worth around $30 billion, analysts think.
”The clear message is Fox Bet needs FanDuel, not the other way around,” said one London analyst, who asked not to be named.
To be clear, the FanDuel IPO is still not certain. Flutter said the listing of a “small part” of FanDuel Group was still under consideration and no final decision had been made.
Fox sees it differently
Of course, the picture is different from Fox’s point of view. Sources close to the company said a FanDuel valuation would be signicantly harmed by the legal overhang of the arbitration.
It’s also worth noting Fox Bet is still a $100 million revenue brand despite its current inferior product. That would bolster any valuation. And PokerStars and Fox Super 6 are the leading products in their respective fields.
“They would be IPO’ing a significantly weakened business without the Fox assets,” the source said.
FanDuel still going full speed in US
Elsewhere, the Q1 results painted a positive picture for Flutter’s US division.
Revenues grew 135% to $396 million. The company added 900,000 new customers in the quarter, taking average monthly players to 1.6 million. FanDuel/Fox Bet combined recorded a 36% share of the online sportsbook market during Q1.
Flutter’s share price was relatively unchanged following the update.