Flutter is facing a growing number of problems as it considers an IPO of a portion of its FanDuel asset in the US.
FanDuel CEO Matt King announced his sudden departure from the company this month, surprising investors and analysts alike.
Flutter stock dropped 5% following the announcement as the company admitted the departure would “affect the timing of any potential US listing.” Flutter kicked off a search for King’s replacement, but there is not a huge pool of candidates qualified for such a job.
Changing environment for FanDuel IPO
That uncertainty is far from the only hurdle for a FanDuel IPO to overcome.
For starters, the wider market is not what it was when the IPO was first mooted back in March. DraftKings and Penn are both down around 40% from their highs at time of writing.
Applying a similar discount to FanDuel drops the suggested $35 billion valuation to around $21 billion.
What’s more: simply by listing, FanDuel increases the supply of sports betting companies in the stock market, potentially driving prices down further.
No Fox assets in FanDuel IPO
It is important to remember too that initial valuations were built around the entire FanDuel Group, including Fox Bet and PokerStars.
We since learned that Fox would not allow those assets to be included in the IPO, thanks to an ongoing dispute with Flutter.
That could knock off another chunk of value as the dispute between Fox and Flutter continues.
What is Fox Bet worth?
Flutter executives downplayed the importance of those assets in a recent earnings call, saying Fox Bet was “struggling.” It also pointed out that 90% of US revenues came from FanDuel and the TVG horse racing brand.
But of course, Flutter is incentivized to minimize those assets. So what do the numbers say?
Industry analyst Chris Grove said DraftKings was a “reasonable comp” for establishing a Fox Bet valuation. The two operators both have a mainstream brand with national reach and a number of unique assets, Grove said.
Of course ,Fox Bet has less scale than DraftKings, but it has the market-leading poker brand in PokerStars. It might not have a DFS customer database, but it does have 5 million users of the free-to-play Super 6 prediction game.
The math of the potential deal
Fox Bet/PokerStars had just under $100 million in revenue in 2020. DraftKings is trading around 20x its trailing-12-month revenues, so applying that multiple to Fox/PokerStars gives an approximate $2 billion valuation.
But the Fox assets go beyond the gambling brands. Fox has also threatened to stop advertising the FanDuel brand across its networks, so what is that worth? Flutter again played down the importance of that at its Q1 results, but we can get an approximate value from similar deals.
The PointsBet deal with NBC, for instance, was worth around $500 million over five years. The announcement also added around $1 billion to PointsBet market cap.
Additionally, Fox controls the Super 6 game. Given Action Network and its 1.5 million customer database just sold for $240 million, Super 6 alone could be worth potentially $1 billion.
Taken altogether, the Fox assets that would be excluded from a FanDuel IPO could reasonably be worth $3+ billion.
What next for Flutter?
Bringing it full circle, that mooted $35 billion FanDuel valuation from March could well be half of that now. So is the juice still worth the squeeze?
“I can’t believe they will push ahead with this,” said Simon French, a gaming consultant at Bixteth Partners “They need a period of consolidation, calm markets, and a new CEO.”
Flutter declined to comment further on its IPO plans when contacted by LSR. But for now at least, the best move might be no move at all.