An arbitrator in New York sent a shockwave through the US sports betting industry Friday by ruling that Fox Corp. can purchase a sizable stake in FanDuel from a $20 billion overall valuation.
Largely an afterthought in the US marketplace to date, Fox can become a major shareholder in FanDuel at what appears a reasonable price for the dominant sportsbook of the first half-decade of legal sports betting across the United States.
The Judicial Arbitration and Mediation Services (JAMS) ruling in the case against FanDuel parent company Flutter gives Fox “a 10-year call option that expires in December 2030 to acquire 18.6% of FanDuel for $3.72 billion, with a 5% annual escalator,” according to Fox.
That escalator moves the current-day price on the equity stake to about $4.1 billion.
What Fox said about right to buy equity stake
Equally important is Fox’s disputed contention that Flutter must receive Fox’s consent or arbitrator approval for a potential FanDuel IPO in the US for at least the next few months. Flutter disagrees with that claim, saying it agreed to shelve any action toward an IPO until a final decision on Fox’s rights comes in early 2023.
A statement from Fox called the arbitration ruling “fair and favorable:”
“FOX is pleased with the fair and favorable outcome of the Flutter arbitration …
“FOX has no obligation to commit capital towards this opportunity unless and until it exercises the option. 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.”
Flutter pleased as well
A statement from Flutter CEO Peter Jackson also praised the ruling:
“Today’s ruling vindicates the confidence we had in our position on this matter and provides certainty on what it would cost FOX to buy into this business, should they wish to do so.
“FanDuel is winning in the US market and the clear #1 operator, a position driven by its exceptional market leading betting product and efficiency in acquiring customers at scale. The team remain focused on maintaining our leadership position and we look forward to updating the market on our progress at our US capital markets day on November 16.”
History of lawsuit between Fox, FanDuel
The origins of the dispute stretch back to the infancy of legal US sports betting in 2019; Flutter acquired The Stars Group that year. TSG operated Fox Bet in partnership with Fox.
The terms of the deal allowed Flutter full ownership of Fox Bet in exchange for Fox receiving options to purchase 50% of Fox Bet, in addition to the 18.6% stake in FanDuel. Fox filed suit in 2021 over the valuation of FanDuel as it relates to its right to buy the 18.6% equity stake.
Flutter’s transaction to complete a nearly whole acquisition of FanDuel placed the sportsbook’s value at more than $11 billion. Fox wanted that valuation applied to its option, but Flutter countered by asserting “fair market value” would apply at the time of purchase.
What’s a market leader really worth?
In 2021, a heated environment created industry speculation of a FanDuel valuation north of $30 billion. The operator controls more than 40% of US market share through nearly five years since the fall of PASPA.
Fox Bet, meanwhile, appeared to take a backseat among Flutter brands during the dispute. Despite the reach of Fox Sports, the sportsbook routinely ranks at less than 1% share in markets where it operates.
Fox claimed Flutter denied it the necessary resources to operate Fox Bet. Flutter’s press release indicates “the tribunal has denied FOX’s claim in its entirety and has ruled in favour of Flutter holding that commercially reasonable resources have been provided to FOX Bet.”