Nearly 12 months after Fox Corp. filed a lawsuit against Flutter over the fair market value of its minority stake in FanDuel Group, Flutter executives revealed that a new timeline has been set for entering arbitration with the broadcast conglomerate.
Addressing financial analysts at Tuesday’s Fiscal Year 2021 earnings presentation, Flutter CEO Peter Jackson explained that there has been a delay in a potential resolution in the arbitration with Fox as the sides have engaged in negotiations on a possible settlement. Last April, Fox Corp. filed a lawsuit against Flutter in New York’s Judicial Arbitration and Mediation Services (JAMS) over an 18.6% equity option in FanDuel that the corporation is set to receive as part of Flutter’s May 2020 merger with The Stars Group.
While defending Flutter’s position on Tuesday, Jackson indicated that Flutter will enter arbitration in June if the sides are unable to reach a settlement prior to the deadline.
“We’re very comfortable going to arbitration,” Jackson said, adding that he believes the company took the proper stance in delaying the process to hold talks with Fox.
The arbitration is proceeding in parallel with a hearing date now set for June 20, Flutter wrote in the annual report. Should the parties not reach agreement in the interim period, the hearing will proceed according to Flutter.
A FanDuel spokesman did not respond to a request for comment from Sports Handle.
A dramatically altered landscape
When Fox Corp. filed the suit in New York arbitration court last April, Flutter traded around £15,500 on the London Stock Exchange, its highest level in five years. Despite FanDuel‘s market-leading position in the U.S., the stock has plunged about 40% over the last 11 months, amid profitability concerns across the sports betting industry. The wide valuation gulf has considerable ramifications for the timing of the case.
As part of a May 2019 transaction with The Stars Group (TSG), Fox Corp. received an option to purchase up to 50% of TSG’s U.S. assets. Then, with Flutter’s subsequent acquisition of TSG, the option gave Fox Corp. the right to acquire an 18.6% equity interest in FanDuel, at its 2021 market value. The option, Fox contends, is the value set when Flutter acquired a 37.2% stake in FanDuel from Fastball in December 2020 at a valuation of $11.2 billion. Fox’s position is incorrect, Flutter countered, while arguing that the Fastball valuation represents a “windfall” to Fox in comparison with the July 2021 fair market value in FanDuel Group.
“We recognize the value of the FanDuel asset,” Flutter CFO Jonathan Hill said at Tuesday’s presentation. “Therefore, any deal that might be done with Fox will have to recognize that. If we can’t get the deal that’s right for our shareholders, we’re very comfortable going to arbitration.”
Flutter Entertainment to defend its position against Fox in FanDuel arbitration https://t.co/P1kwrYVBAu
— Reuters Legal (@ReutersLegal) April 7, 2021
If negotiations were limited to the valuation alone, there is a possibility that a settlement might have already been reached, sources told Sports Handle. But there are larger issues at play. If the two parties settle amicably on the option, an accord could lead to further discussions. Fox Corp. may look to designate a sports betting operator as an official marketing partner for broadcasts on FS1 and FS2. Fox, which retained the rights for the lucrative NFC package last spring, could also explore the integration of live, in-game odds for game broadcasts. Over the last two years, NBC has gradually increased the integration of pre-game odds for its Football Night in America pregame show under a multi-year partnership with PointsBet.
Robert Fishman, an analyst with MoffettNathanson, calculates a $14 billion valuation for FanDuel as a standalone asset, which implies a value of around $2.5 billion for Fox Corp.’s 18.6% stake. Flutter’s declining stock price over the last 12 months may render Fox Corporation’s interpretation of the Fastball valuation moot. If a consensus is reached on the value of the option, though, Fishman envisions a scenario where Flutter and Fox could reach a broader agreement similar to the aforementioned deal outlined above.
Alternatively, if Fox Corp. unwinds its commercial relationship with Flutter, a partnership with another major sportsbook could generate an intense bidding war. Any developments there could provide a wrinkle in ESPN’s plans to expand its presence in the U.S. sports betting ecosystem. Last month, Disney CEO Bob Chapek reiterated that sports betting expansion is one of his top priorities, marking the second time he has expressed bullishness about the business over the last six months. Last August, a report surfaced from the Wall Street Journal that ESPN may look to license its sportsbook brand for a price tag starting at $3 billion.
Will FOX Bet be shuttered in coming months?
When Flutter released a 44-page financial results presentation on Tuesday, the company only made a passing reference to FOX Bet, an online sportsbook launched under the 2019 partnership. Across the nation, FOX Bet’s market share represented only a sliver of the overall market, according to Eilers & Krejcik’s estimates of online sports betting gross gaming revenues in 2021. While FanDuel maintained a nationwide share of around 36%, according to the gaming firm, the share for FOX Bet remained in the low single digits.
The subpar performance has led to speculation that Flutter has considered shuttering FOX Bet, while shifting some of its promotional offers to the FanDuel platform, a source told Sports Handle. At the same time, Fox Corp. is also amenable to shutting down FOX Bet, according to multiple sources. Before doing so, however, the arbitration matter concerning the option must be settled.
FanDuel topped the U.S. OSB market in CY21 with 36% GGR share, per @EilersKrejcik ests. 3rd year in a row FD has led, and in CY21, FD widened GGR share gap with $DKNG to ~1200bps from ~700bps in CY20. U.S. OSB market remains in winners take-most-mode—top 3 brands have 75% share. pic.twitter.com/Y9krB60ROL
— Chris Krafcik (@CKrafcik) February 11, 2022
Typically, when an arbitration case is presented before JAMS it can take anywhere between two to three months to resolve the matter, a source indicated. Based on Jackson’s comments on Tuesday, a decision may be reached as early as August, if the sides formally enter arbitration. The timeline comports with previous comments from Fox Corp. CEO Lachlan Murdoch last month that the matter could be resolved by late summer.
A JAMS spokesperson declined a request from Sports Handle for comment, citing the ongoing nature of the case.
Flutter also announced Tuesday that its U.S. segment contributed about £1.39 billion in revenue in Fiscal Year 2021, mostly from FanDuel, an increase of 113% from the prior year. Over the fiscal year, Flutter’s U.S. sportsbooks maintained a 40%-plus market share in nine of the 12 states the company operated in. Flutter identified positive contributions from four states in particular: New Jersey, Pennsylvania, Illinois, and Indiana, all states in which it maintained a high market share relative to its top competitors.
Flutter closed on Wednesday at £9,132, down 3.4% on the session. After opening the year around £11,500, Flutter has fallen about 22% year-to-date.