Both sides claim victory in Flutter versus Fox dispute over FanDuel valuation
New York arbitrator rules in favor of parent company over 18.6% stake sale valuation as both sides clash on potential 2023 IPO
Flutter has ostensibly claimed victory in its dispute with FOX over the price of an 18.6% stake in FanDuel after the Judicial Arbitration and Mediation Services (JAMS) ruled in favor of the international operator.
In a 37-page ruling, the New York-based JAMS service asserted the exercise price of the 18.6% stake was set at $20bn and was based on a December 2020 valuation.
This valuation date corresponds to the date in which Flutter acquired a 37.2% stake in FanDuel from Fastball Holdings LLC, for an implied valuation of $11.2bn.
The 2020 deal brought Flutter’s stake in the US sportsbook market leader up to 95%.
Based on an agreement between the two businesses, FOX had the right to purchase the 18.6% stake in FanDuel based on a valuation of the business as of July 2021.
However, FOX filed for arbitration proceedings in April 2021 over this contractual right, arguing that any valuation should be based on December 2020 prices – claims which Flutter have “vigorously” defended since the suit was filed.
The $20bn valuation calculation used by JAMS in its ruling is subject to a 5% annual compounding carrying value adjustment up to the date of any potential exercise by FOX prior to December 2030.
Based on a valuation as of today, this would value FanDuel at $22bn, with the 18.6% stake costing FOX $4.1bn.
Cash payment is required at the time of exercise and the option can only be exercised in full. This requires FOX to be licensed and should FOX not exercise within this timeframe, the option will lapse.
Flutter CEO Peter Jackson welcomed the arbitrator’s findings, highlighting FanDuel’s number one position in the US sportbook market, asserting the brand was “winning” in the US.
“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,” Jackson said.
“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,” he added.
In addition to the main contested valuation, FOX later included two additional items in its arbitration docket against Flutter.
The first claim was that Flutter had failed to provide “commercially reasonable” resources to operate FOX Bet, claims strongly asserted by FOX CEO Lachlan Murdoch in March 2021, when he said he was “disappointed” by the slow rollout of the FOX Bet brand in the US.
JAMS rejected FOX’s claim in this area, asserting that Flutter had delivered on its obligations.
Additional elements relate to the purchase of a 50% stake in Flutter’s The Stars Group (TSG) US business, an obligation which JAMS has ruled can only take place if the business becomes a licensed gambling operator.
The TSG US business contains the operations of FOX Bet, Super6, and PokerStars US.
In the event FOX does not get licensed and exercise its option in relation to TSG US, both parties have a right to terminate their agreement in relation to FOX Bet in August 2023.
Should either party do so, this would result in a termination of the FOX Bet business.
If this occurred Flutter would retain ownership of PokerStars US and Super6, while the use of the FOX Bet brand name would reside with FOX.
The remaining element, which has still to be settled by JAMS, is whether and under what conditions FOX can participate in a potential IPO of the FanDuel business should it decide to do so.
Flutter has previously stated its ambitions to spin the FanDuel brand from its main business via an IPO, after facing rising competition from other US sportsbooks and consternation from shareholders, who believe the business is undervalued in comparison to other firms like DraftKings.
Flutter has agreed that it will not proceed with any potential IPO, if at all, until JAMS has ruled on FOX’s rights in this area, with a ruling expected from the arbitrator in early 2023.
Responding to the ruling, a spokesperson for FOX drew on the conclusions relating to its purchase obligations and the role of the firm in the determination of the potential FanDuel IPO.
“FOX is pleased with the fair and favorable outcome of the Flutter arbitration. Flutter cannot pursue an IPO for FanDuel without FOX’s consent or approval from the arbitrator,” a spokesperson for the global media operator said.
“FOX has a 10-year call option that expires in December 2030 to acquire 18.6% of FanDuel for $3.72bn, with a 5% annual escalator. 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 US online sports betting operation confirms the tremendous value FOX has created as a first-mover media partner in the US sports betting landscape,” FOX concluded.