In a moment of coming together, Fox and Flutter seemed to be satisfied following an arbitration decision from New York‘s Judicial Arbitration and Mediation Services (JAMS) group.
The dispute stems from a deal that originated in late 2020, whereby Fox gained an option to acquire an 18.5% stake in FanDuel. As part of the deal, the parties agreed to opt into binding arbitration, which is how this dispute ended up at JAMS as opposed to a New York courthouse.
A breakdown took place in April 2021, prompting Fox to initiate the arbitration provision contained within the deal. The dispute centered on FanDuel’s value for exercising the acquisition option. Ultimately, the arbitration decision sets FanDuel’s value as of December 2020 at $20 billion, plus a 5% annual escalator calculation.
The decision clears the path for both Fox and FanDuel (and its parent company, Flutter) to move forward.
Breaking down the decision for Flutter, Fox
The decision saw both Fox and Flutter claim that they were pleased with the outcome, and this is ultimately a win for the arbitration system.
The key terms include:
- Fox Corporation has the option to acquire 18.6% of FanDuel at a $20 billion valuation
- The valuation is based on the fair market value of FanDuel as of December 2020
- The valuation is subject to a 5% annual compounding value adjustment
- This translates to a current valuation for FanDuel of $22 billion
- The cost to acquire 18.6% would be $4.1 billion
Why December 2020?
The valuation is based on the value of FanDuel in December 2020, which is when Flutter struck a deal to acquire an additional 37.2% stake in FanDuel from Fastball Holdings, LLC. This followed Flutter’s initial acquisition of 57.8% of FanDuel in May 2018. The deal was structured so Flutter could acquire 18.6% of FanDuel in July 2021 and then the remaining 18.6% in July 2023 (the remaining 5% stake in FanDuel was to be held by Boyd Gaming, who acquired the stake via a market-access deal.)
How does Fox get involved?
As part of the 2020 deal, Fastball’s interest in FoxBet was scheduled to end, but Flutter intended:
to offer to FOX Sports the option to purchase 18.5% of FanDuel at fair market value in July 2021, with substantively the same terms and valuation mechanism that FOX Sports and Flutter previously agreed would have applied to the Fastball put and call options.
This set the stage for the arbitration proceedings that resulted in a decision on November 4, which will create added clarity in the sports betting market moving forward as additional pieces begin to fall into place.
What is in the arbitration award
The arbitration process took place under the New York JAMS alternative dispute resolution services group beginning in April 2021.
According to Flutter’s press release, Fox filed two supplementary items to be considered as part of the arbitration in addition to the debate over the valuation. The first item related to whether “Flutter had failed to provide commercially reasonable resources to the operation of Fox Bet.” The tribunal ultimately rejected that claim finding that the support provided by Flutter had satisfied their obligations.
The second aspect worth noting is that Fox maintains the right to acquire up to 50% of The Stars Group US, which contains the Fox Bet operations, Super6, and PokerStars US brands. Fox, however, must be licensed in order to exercise this option, and both parties can terminate their agreement as it relates to Fox Bet in August 2023 should either party so desire.
According to the press release, a termination could result in the end of the Fox Bet business. Flutter would retain PokerStars US and Super6, but the Fox Bet brand would return to Fox.
Matters still to be considered
While the tribunal’s decision seems to have cleared a lot of room for moving forward, the Flutter press release noted that there remains at least one issue to be resolved at a later date, probably early in 2023.
The remaining question centers on whether Fox would get to participate in an initial public offering of a FanDuel parent company should one ever take place.
In the interim, Flutter has agreed not to proceed with any such offering until the tribunal reaches its binding decision on the matter.
What to make of all this?
Arbitrations are often seen as friendlier alternatives to litigation . While both sides have been able to claim they are happy with the result, there are definitely questions about what this means for the market moving forward.
While we likely will not have a clear picture until August 2023 just what this means for Fox Bet, FanDuel and Fox Bet have been two companies that have had divergent paths in the still-early days of the regulated US market.
As it stands, FanDuel is the biggest brand in the market and Fox Bet, despite the powerful brand, has struggled to gain a foothold in the states that it is operating. The decision leaves Fox with a decision to make ahead: whether to spend exercising its option or to perhaps move on to a different area.