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An arbitrator has ruled that Fox Corporation can buy more than 18 percent of FanDuel in an option that values the U.S. sports betting and fantasy sports brand at more than $20bn.
In statements to investors on Friday (November 4), both companies said an arbitrator had ruled in the dispute between Fox and FanDuel’s parent company, Flutter Entertainment, that centered over Fox's option to buy a significant share of the FanDuel brand as part of Flutter’s 2020 acquisition of The Stars Group.
The result is Fox receiving a ten-year call option that began in December 2020 to acquire 18.6 percent of FanDuel for $3.72bn, with the price escalating by 5 percent each year, bringing the current day option price to $4.1bn, with another 5 percent increase coming next month.
In addition, Fox claimed in its statement that Flutter cannot pursue an initial public offering (IPO) for FanDuel without Fox's consent or approval from the arbitrator, and Fox has no obligation to commit capital unless it exercises the option.
In its own statement, Flutter pushed back that the IPO question is settled.
“The remaining matter before the tribunal is whether and, if so, under what conditions Fox is entitled to participate in an IPO of a parent company of FanDuel, should one occur,” Flutter said in its statement.
“Flutter has agreed that it will not proceed with any potential IPO, if at all, until the tribunal has resolved this remaining matter or both parties have reached an agreement on the matter,” the company said. “A binding decision from the arbitrator on this point is expected in early 2023.”
Despite the ambiguity, both sides claimed victory of some kind following the decision.
“Fox is pleased with the fair and favorable outcome of the Flutter arbitration,” Fox said in its statement. “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.”
“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,” said Flutter CEO Peter Jackson in a statement following the announcement.
The valuations of sports-betting brands have significantly fluctuated since the suit was privately filed in April 2021.
The $20bn valuation for FanDuel may be a high one in the current market landscape considering the market cap of the entire Flutter business, which also includes the Paddy Power and Betfair brands among others, was about $23bn as of the close of business Friday.
In addition, the market cap for DraftKings, one of FanDuel’s closest competitors and the only major standalone sports-betting brand to be publicly traded in the U.S., closed Friday at just over $5bn, down from as high as $28bn at times in 2021.
The process began in 2019 when Fox announced a partnership with The Stars Group to launch the Fox Bet sports-betting brand that included a ten-year option for Fox to purchase 50 percent of the company’s U.S. business.
When Flutter purchased The Stars Group the following year, the deal included the right for Fox to acquire an 18.5 percent interest in FanDuel, but the two sides disagreed on the valuation of that option, with Fox claiming that it was an $11.2bn valuation set by Flutter’s acquisition of a 37 percent share in the brand from Fastball in December 2020, and Flutter claiming that Fox would have to pay fair market value.
The two sides agreed to binding arbitration to settle the dispute.
Flutter said at the time it planned to utilize both the FanDuel and Fox Bet brands, but the Fox Bet brand is only launched in four states, with a fractional market share in each.
Despite that, Flutter said the arbitrator ruled against a Fox claim that the company had failed to provide commercially reasonable resources to Fox Bet and added that Fox still retains the right to acquire up to 50 percent of the Fox Bet and PokerStars U.S. brands but would need to obtain licensure in order to do so.
If the company does not exercise the option, Flutter said, both parties have a right to terminate their agreement regarding Fox Bet in August 2023.
If either party terminates the agreement, the Fox Bet brand would be shuttered, with Flutter retaining ownership of PokerStars U.S. and the Super 6 free-play brand, while Fox would retain the use of the Fox Bet brand name.
