EPISODE 168 | LSR Podcast

What Exactly is FanDuel Worth?


25 min
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What Exactly is FanDuel Worth? | LSR 168

Welcome back to the Legal Sports Report Podcast, Ep. #168! A lawsuit about FanDuel’s valuation from years ago reaches its probable end (1:00). The crew discusses a profile in courage in California politics (6:57), DC potentially fixing its biggest mistake (13:00), and what hesitation really means at ESPN (17:15).

Full transcript

Adam Candee (00:12):

Hello, welcome in to episode number 168 of the LSR Podcast. Adam Candee here sitting in for Matt Brown in the host chair. I will try to give you all of the mirth and excitement that usually comes from Mr. Brown this week as I’m joined by Dustin Gouker. You can find us both on Twitter for more of the information and insight that you get from Legal Sports Report. Dustin’s @DustinGouker. I’m @AdamCandee, as Matt would say, “Two E’s, no Y at the end.” Yes, we have a little bit of ESPN new stuff to talk about, although it’s kind of old, it’s still a little bit new. We’ll discuss what is going on around the country in terms of the California election and what we’re expecting from some other state launches.

Opinion: FanDuel departure suit hits challenging block for Nigel Eccles


Right now, Dustin, though, we’re going to start our discussion today with an oldie but a goodie. I think one that will make you happy to go back to talking about the old days of Legal Sports Report back when it was covering almost exclusively daily fantasy sports before the legalization of sports betting. And one of the founders of FanDuel, Nigel Eccles, who ultimately left the company and then there was a fairly sizable dispute over what he and some other initial people involved in the company were paid out when FanDuel ultimately sold, Paddy Power Betfair that’s been litigated in court for a while, and we had a decision come down recently, not favorable to Nigel and those on his side.

Dustin Gouker (01:44):

Yeah, what’s been going on? This has been going on for a while. It’s one of those lawsuits that every once in a while crops back up. There’s several of these hanging out in sports betting and DFS land. But Nigel Eccles, former CEO, founder of FanDuel, had been suing over the acquisition by Paddy Power Betfair of FanDuel, saying that the price of the sale was depressed so that he and some other founders and early investors and a hundred or so employees would not benefit from this. So they were alleging in their initial court case, that basically they were sold at a discount so that they didn’t have to get paid more, so they got paid less, other investors got paid more. Pretty complicated story. But the bottom line is they lost in their appeals court. They’re found to not have a good argument that they just tossed out their reasons for being able to bring this case.


So back to square one, if they do this, if this had happened, it was a lot of money on FanDuel’s side. Certainly it would change how they do it. But in the wake of all of this, Eccles, you know created a company that became eventually, through Paddy Power Betfair and the moves that came afterwards, the largest sports betting operator in the United States. Also, a player in online gambling on the casino. So they’re not out of options entirely. They could possibly appeal this. Our legal analyst, John Holden, I don’t think believes that an appeal would be fruitful or should happen, doesn’t mean it’s going to happen. There is a lot of money at stake here for Eccles and the employees and early stage investors who join this case. So not clear what the next step is, but it could put a little bit of a finale on something that’s been hanging over FanDuel and could have been certainly bad for business if they were forced to pay lots of money for damages, out of all of this.

Adam Candee (03:50):

I will leave the actual legal analysis to a man with a legal degree and expertise in John Holden, and I would encourage everybody to go to Legal Sports Report and read John’s breakdown of the suit. But with you Dustin here today, I think what we can talk about, is what was the trigger level of the valuation of FanDuel at the time, which is in the range of $550 million, which I think now we look at and kind of laugh at the idea that FanDuel would be available for $550 million. Even as crazy as the multiples have gotten in US sports betting — even after that cooled off a little bit — we’re still talking about a company in FanDuel that has such a sizable market share and a better situation on the books than a lot of other US sportsbooks that you would say it would be worth well more than that. And at the time, obviously that’s the case that Nigel and others were making was that, come on now, looking at what FanDuel had the potential to be, it was worth far more than that.

Dustin Gouker (04:47):

And when the Supreme Court case decision came down that changed everything, changed all of our worlds, the valuation was at $1.2 billion prior to that decision based on a variety of factors. But I mean, in retrospect, it is the best deal that anyone has gotten in the sports betting industry by a large margin. We talk about other companies that have been spitballed for similar amounts of money that are certainly not worth that in any way, shape or form. If you go back in time and say, “Oh, I’m paying this much money for the FanDuel name and the brand and everything you got with it.” Now, to be fair, some of that work came after Paddy Power Betfair took over and now Flutter, they took over and they did a lot of this work. They put the work into the product and all of that, but the reason they have such a strong starting point was what Nigel built and the brand that FanDuel had distributed.


And it’s also not, in retrospect, it’s always fun to go back and think about this, FanDuel and/or DraftKings might not be a company anymore if that decision had come down. So that’s the other side of this coin, is that everything had to break right. There’s no way, I don’t think DraftKings and FanDuel both, just on the daily fantasy sports model, would’ve survived. And it’s still just amazing in retrospect that these are one and two not even close still as we sit here and this case harkens back to that era when DraftKings and FanDuel were in a lot of uncertainty, but also built for themselves what became the starting point for businesses that grew exponentially over the years.

Adam Candee (06:28):

And as you say, one and two, and as you know well, could have been one and one as they tried to merge back in the day. So it really is a wild story. It kind of reminds me of Indiana Jones having to spell out Jehovah to make his way to the Holy Grail. There were fraught steps along the way here, and apparently both companies knew that in the old Latin, it begins with an I and were able to make their way across safely to where they are today.

Gov. Newsom opposes Prop 27 for online CA sports betting


In California, nothing is safe here at the moment. And we talk a lot about the business side of things, and we’re talking a little bit more about the political side here as Prop 27 will be finally decided on November 8th, although according to most polling, it’s pretty well decided already. And this today is a discussion about political courage. I want to stand up here and say, Gavin Newsom, you are a politician who clearly wants to take a stand with the people. You waited until multiple polls came out that said everybody is against Prop 27 and Prop 26, but came out against Prop 27 yesterday and said, this is not what the people want. And if you look at the language of his statement, Dustin, it looks like it was pretty well written by the no on 27 people.

Dustin Gouker (07:48):

Pretty much. This is hilarious. Just coming out two weeks before Election Day and saying that you’re against this great, fantastic, good work. We’ll read the statement, I guess. “Proposition 27 is bad for California. It would hurt California’s Indian tribes, increase the risk of underage gambling and push billions of dollars out of California and into the pockets of out-of-state corporations.” That sounds like the lobbying side of things. That’s almost exactly word for word what they would say of why you shouldn’t vote for Prop 27. The most recent poll, polling at 26%. You and I know and have talked about, polling is not great on state level propositions or anything state level, but man, that’s pretty hard to overcome, especially given we have several polls putting support of the online sports betting proposition in the twenties, maybe thirties, high watermark in recent …


I don’t see how as we sit here that they could possibly overcome that. So, basically, this is just the culmination of everything. The parties don’t want it because the tribes don’t want it. This has been a mess from the beginning, and coming out the very end and saying, “Oh, yes, I’m against Prop 27.” Who cares? Great. If you had a stance on this, you could have moved the needle earlier and maybe saved everybody some time and money, I guess. But that’s also not his job. But it is not exactly an act of political courage to come out now and say that you’re against the online sports betting prop.

Adam Candee (09:17):

In the NFL, what Gavin Newsom did would get him a 15-yard penalty for a late hit. This was so far after the play, jumping on top of the pile and going, “Me too, me too. I don’t like it either.” It’s hard to fathom why you would even bother to put the statement out at this point, unless you’re trying to curry some favor with tribes down the line. And Dustin, we’ve kind of moved on to the point where everyone from the CEO side, from the tribal side, the question to everyone has been, “Well, what comes next? How are we going to address this moving forward?”


And I think people are kind of forgetting that we tried to do this through the Legislature just about a year-plus ago, and it was shot down in similarly spectacular fashion. A couple of legislators tried to go around the tribes, and it got through essentially one committee vote and then died. And if the lesson hasn’t been made clear to anyone yet that you’re going to have a very difficult time getting around the tribes in California, it would seem that both a legislative defeat and a looming ballot defeat should make that pretty obvious.

Dustin Gouker (10:22):

I don’t know what the path is as we sit here. I mean, there’s plenty of people, including the CEOs of the aforementioned FanDuel and DraftKings, who are saying, “Wait till next year, wait till 2024. We’ll get something through.” I just don’t know that that’s the case. I don’t see that path. A legislative fix is not going to happen. This is political … Who wants to touch this? Nobody in the Legislature wants to touch this because of the aforementioned tribes don’t want it. Now, if you address this as retail sports betting and they get the other things they want, which are other table games, some taking care of card rooms and regulating them better, then maybe you have a chance. But full online sports betting, it’s a political hand grenade that nobody wants to deal with.


So this was the easier way. This is the way that if you’re going to do it, you were going to get it. And you now see, we somehow, again, in a country where online sports betting is wildly popular, generally polls as a positive, we have a proposition that’s polling at 25%, 26%. That’s not a very good starting point. You come back in 2024, I don’t know. The tribes, we’ve heard a lot from the tribes. They don’t want to play ball with the sports betting operators. They don’t really want full online sports betting. It’s not something they want. So what are we giving them or what is the industry going to give them that is attractive the next two years and mend those fences? I don’t know as I sit here. I feel like this lobbying effort this year has pushed California to the point where I don’t know what the next step is, and I don’t see a better avenue in the next year or two, honestly.

Adam Candee (12:03):

If you’re new to the podcast, welcome. First of all, please rate us, like us, subscribe, do all those things and get the podcast some more reach. But if you’re new, then you don’t know what Dustin and I and Matt have talked about many times. For the tribes, in a lot of ways, this isn’t about sports betting. This is about opening the door to iCasino, and they’re not going to do anything that opens the door to these companies being able to offer online casino. I mean, you can make a case both ways in terms of sports betting and saying, “Well, sports betting online really wouldn’t cannibalize what the typical customer is for a tribal casino.” I think you can probably make reasonable cases on both sides, but if you’re going to talk about iCasino, you have every reason for the tribes to be concerned about who might or might not continue to come to their properties and what value they would continue to get out of the tribal investment that they’ve made over the years in their casinos.

New DC sports betting bill seeks to end ‘Embarrassing Episode’


So it’s something that we’re going to cover going forward. We’re going to talk about it, but I think it’s as clear as mud in terms of where we’re going to go with this in the next couple of years. Dustin, hope has been hard to come by in Washington, DC, when it comes to sports betting. And you and I and our old friend Eric Ramsey spent a lot of time watching the machinations of the DC Council in the early days of sports betting. And we looked at what happened in terms of them giving a no bid contract to Intralot, their lottery provider. And universally, we said, “This is a terrible idea,” not necessarily just about Intralot, but about awarding a no bid contract that didn’t allow any other online operators into the space. Councilwoman Elissa Silverman spoke up at the time and said she had reservations, and now a few years later, Intralot has failed miserably. GambetDC has failed miserably, and Councilwoman Silverman would like to fix this.

Dustin Gouker (13:59):

First off, I mean, some great quotes from her, need to turn the page on this embarrassing episode. That’s almost being kind, and we’re wrong as much as we’re right, I believe on analysis sometimes, but we all had this pegged. We knew DC was going to be a debacle. It actually has probably been worse than we thought, but you’ve opened up a monopoly online sports betting app, and you routinely are worse than places where people have to go to actually place a bet. That’s ridiculous given the inherent advantage of that. So the good news is that council member Silverman is introducing a new bill that would open it up, certainly allow for more mobile operators, get rid of potentially this monopoly that the lottery and Intralot are running.


It would be the best thing for DC. It would certainly create more revenue for the district. It would create a much better series of products than the single offering there. I lived a long time in DC, went to college there, and I know people to this day who are there who still laugh at the app and how bad it is. So there is hope that they’re introducing this soon. There’s a possibility even that this gets passed before the end of the year. If not, it gets punted into a new two-year timeline. They will reintroduce it then if that is the case. But we have at least a path to possibly fixing the debacle that is DC sports betting. And I want to know, for one, who put a picture of Carson Wentz on a story about an embarrassing episode in DC.

Adam Candee (15:38):

Wouldn’t you like the answer to that, Dustin? Wouldn’t you like to know exactly which fan of a 6 and 0 football team went in and put a picture of a failed quarterback onto the Washington football commandos? We’ll just never be able to figure that one out. If you don’t know the history of DC, look, we have it all at legalsportsreport.com. You can link out to some stories from the one that Matthew Waters wrote about this, but understand a few things just to get the overview. This is an app that failed during the Super Bowl last year. This was a process that was pushed by former Councilman Jack Evans, who subsequently ended up under FBI investigation for other non-related subjects. It involved council chair Phil Mendelson having to go in as a member of a finance committee that didn’t always vote in that committee.


He could just go in and sit on whatever committee he wanted to and vote on any given day. He had to drop in on this committee to cast a vote to get this bill out of the committee, because the council had such reservations in finance about getting it out onto the floor. Everyone knew that giving a no bid contract to Intralot was going to be a problem. And part of Silverman’s bill this time would require a competitive bidding process. You wouldn’t be able to at the DC council level to award a no bid contract again. And so, hopefully for the sake of everybody in the DMV area, this would be resolved within time for offering a new option. I don’t want to necessarily say by Super Bowl, it’s not going to happen by then, but by the time you’re talking about betting significantly in 2023, maybe this can be an option.

Top Exec: ‘No Hesitation’ on ESPN betting, but where is it?


We will keep an eye out as to what’s going on there. Dustin, we promised the people that we would talk about ESPN, they’re clamoring for us to talk about ESPN. ESPN’s director of programming, Burke Magnus, talked at a conference this week that our Mike Mazzeo attended and spoke to him after at this conference and said, “Hey, so what are you guys doing when it comes to the old sports betting?” And at the conference, he said, “There’s no hesitation. They’re moving forward. This is something that Disney wants to do.” And then when you say, “OK, that’s step one. Step three is profit. What’s step two?” Everybody gives you a shrug.

Dustin Gouker (17:57):

I mean, it’s not even borderline, it’s discordant to say we have no hesitation, but we’re sitting here, it’s the year 2022. We’re almost into 2023 and ESPN, the most valuable sports property, arguably on the planet, doesn’t know what it is doing with sports betting. It obviously has deals with DraftKings and Caesars, it takes commercial money, but it has continued to tease that it wants more than this. But the fact that you say in one breath say, “No hesitation.” But we don’t know what that is. What have you been doing for the last four years is my question. You could have been speccing this out for forever, and maybe they have been, and they just keep saying this outwardly to, I don’t know, but I don’t know why at this point, they don’t. It’s not like is new, that sports betting is a thing in the US and you’ve already missed some of the wave of this.


And again, some of the M&A activity, some of the aggressive spending, some of this is going to draw down. We’re seeing operators dial back on marketing. We’re seeing operators shutter their doors in some states. You’ve missed some of this opportunity. So if you are still here today telling me you don’t know what you’re doing, which is basically what they’re doing, no hesitation, but we don’t know what it is. Then what are we doing? The DraftKings deal that was reported by Bloomberg, is that actually transformative or new or interesting? I don’t know, but there’s been bupkis about that as Mike followed up. Nobody has any comment on that. So is that even the thing that ESPN is doing? We don’t know. So, I mean, we’re going to keep talking about ESPN until they do or don’t do something, because it remains a big opportunity. But the longer they sit on the sidelines, the harder it is to see that they’re going to really be transformative in this space.

Adam Candee (19:42):

I thought everyone missed what was the most interesting comment that came out of this. And that was Magnus saying, “We are not going to be a sportsbook.” Kind of echoing what Disney’s CEO had said, because I think the question all of us had for a long time is how much of a toe, an ankle, a leg, a whole body was ESPN going to dip into the sports betting pool? And I think we now see that it’s not going to be that deep. We’re talking about what’s going to essentially be a marketing agreement with an existing sportsbook. And ESPN has now made clear we’re not going to be a book. And that’s largely because it doesn’t fit within the Disney ecosystem.


And so I think Dustin, it brings up a question for me to say, yes, it’s going to be impactful. We all know about the ubiquity of ESPN in the space, but if they’re not going to be their own book, then it would seem to me that the terms of whatever this agreement are with DraftKings or whoever the case might be, are going to determine a lot about how impactful, not only ESPN is, but how impactful the player who decides to get involved with ESPN is because, as you said, we’re already five years in, a lot of market share has been established by a company, FanDuel, that no one is talking about getting involved with ESPN. So I’m really curious what that ultimately looks like in terms of structure.

Dustin Gouker (20:58):

Who knows? We’re just throwing darts and guessing, like everyone else at this point. But I mean, clearly nobody wanted … The number had been floated earlier, this $3 billion to license ESPN. Who’s doing that? Anybody who has any money is pouring tons of money into their own brand. Why would they pay billions of dollars to license ESPN? Nobody really has that money. I’m not even sure DraftKings and FanDuel, even if they thought that was a good idea, have that kind of money to just do that. And you look back, I mean, we know the problems with possibly Disney running a sportsbook at this point, ESPN should have bought a sportsbook and run a sportsbook. That would’ve been brilliant. And even if did it now, that would still be better than just whatever the marketing arrangement.


Now again, we don’t know what if it is DraftKings or whatever they’re cooking up. Maybe there’s more to it than we know, and maybe it can and will be a big deal. But I don’t know. They’ve missed the two best paths, and I think they’ve limited their revenue in the short term. Are they limiting their revenue in the long term? Proof is in the pudding there, but I’m not convinced that ESPN has or will get nearly as much as they could have out of sports betting now. Obviously, that’s not their only goal is to get every last dime out of sports betting, but it is an opportunity that has been there in front of them, and the more time goes on, the more of that money goes away.

Adam Candee (22:27):

I’m just going to spitball something. It has no basis behind it other than when I look at this and I say to myself, “All right, who has not invested in brand equity in the US that needs brand equity in the US? Who has the money to get involved in a 10-figure arrangement with ESPN?” And the only company that comes to mind for me is 365. Because, they don’t have that brand equity in the US. They’ve never been in the US in any significant way.


And so, they could try to go it on their own. I’m just curious as to what they think about the opportunity of doing it on their own when they look around and see how much money is being burned in the US right now for customers that we have no idea if they’re profitable or not. Fanatics is spending a lot of money right now, but they already have the brand built from the retail side. I don’t know. It’s the only one that makes any sense for me in terms of who checks the boxes. But that doesn’t come with any sort of inside information in terms of whether they really, really want to do that.

Dustin Gouker (23:26):

If they decided to throw a pile of cash at something, they are the ones that have that pile of cash.

Adam Candee (23:33): Yes, ScroogeMcDuckDivinginCoins.gif. So for all that and a lot more, including we’re covering what’s going on at the Massachusetts and Maryland regulatory meetings today as they get closer and closer to launching sports betting, check out legalsportsreport.com or on Twitter @LSPReport. I will put out a plug quickly for the fact that we are hiring at Legal Sports Report right now. We are looking for some additions to our writing staff. If you’ve ever looked at Dustin and me and thought, “I can easily do the job better than those guys do.” Well, this is your opportunity. The door is wide open. Find that on LinkedIn for the job opportunity with LSR. Always looking for people to grow our team. For Dustin, for Matt, I’m Adam. See you next week.

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