Investor analysis: Flutter comes out on top in arbitration ruling versus Fox
Fox may not purchase any stake in FanDuel now, while Flutter can consolidate control over PokerStars and Super 6.
Flutter shareholders will be pleased by a recent arbitration that maintained FanDuel’s $20bn valuation, according to analysts. This resolution represents a big win over Fox, which sought to undermine this valuation to purchase an 18.6% stake in the sports betting company.
In a research note, Davy, Peel Hunt, Morgan Stanley and Barclays all strongly suggested the outcome was favorable for the industry giant.
The arbitration resolution sets a precedent for Flutter’s other subsidiaries as it looks to create pathways to optimize their shape and ownership structure. These subsidiaries include PokerStars, Super 6 and Fox Bet.
In another temporary win for Flutter, the arbitrator is yet to rule on whether Fox Corporation can participate in any FanDuel intellectual property (IPO). This decision will take place in early 2023, and as of now, Fox does not have a consent right to an IPO for FanDuel.
Fox must pay the December 2020 fair market value if it wants to exercise its 18.6% option in FanDuel. When a 5% annual carrying value adjustment is considered, Fox now would have to pay $4.1bn if it wants to buy into the business.
Now, there is a big question mark over whether Fox will choose to exercise its option. In an addition to arduous licensing requirements, it would be acquiring a stake in a private company below FanDuel parent company level.
The arbitration also addressed Fox’s grievances over Flutter’s handling of Fox Bet, who said it had “failed to commit commercially reasonable resources to the operation of Fox Bet to date.” Once again, the tribunal sided with Flutter saying that these resources have been provided.
The two companies have a The Stars Group (TSG) US termination clause, meaning that if Fox fails to get licensed and doesn’t purchase TSG US by August 2023, either party can terminate this agreement. This would effectively terminate the Fox Bet business.
If this did occur, a likely result would be Fox retaining the use of the Fox Bet brand name, allowing Flutter to concentrate resources on PokerStars and Super 6. It could likely end up with full retail ownership of these two companies, with the addition of direct-to-casino brands being useful for its strategic US ambitions.
Overall, the arbitration between Fox and Flutter has resulted in a big win for Flutter and its shareholders.
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