Flutter Increases Stake in FanDuel to 95% with $4.2B Deal

Flutter Increases Stake in FanDuel to 95% with $4.2B Deal
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Flutter Entertainment substantially increased its control of sports wagering and daily fantasy company FanDuel, announcing Thursday that it has entered into a conditional agreement to acquire the entire 37.2% interest in FanDuel which has been held by Fastball for $4.175 billion. Buying out Fastball’s minority investors in FanDuel takes Flutter’s stake in FanDuel from 57.8% to 95%.

Flutter is expected to pay for Fastball’s interest in FanDuel through a combination of $2.088 billion in cash and the issue of approximately 11.7 million new Flutter ordinary shares directly to Fastball. The cash portion will be funded through cash on balance sheet and an equity placing to raise approximately $1.48 billion.

The deal gives Flutter even more exposure in the U.S. sports gambling market. In May 2018, Flutter (then Paddy Power Betfair plc) announced the acquisition of an initial controlling stake in FanDuel for a cash investment of $158 million and other considerations.

During the same month, the U.S. Supreme Court struck down the Professional and Amateur Sports Protection Act, setting off a string of developments that include numerous U.S. states and the District of Columbia legalizing sports wagering and various wagering-associated companies, private and public, domestic and foreign, rushing to serve the U.S. market.

“Flutter’s initial acquisition of a controlling stake in FanDuel in 2018 has been transformational for the shape of the Group,” Peter Jackson, Flutter chief executive officer, said in a statement. “Our number one position in the crucial U.S. market is built on many of the assets we acquired through that transaction, supported by the broader Group’s capabilities.

”Our intention has always been to increase our stake in the business and I’m delighted to be able to do so earlier than originally planned and at a discount to its closest peer.”

Regarding the latter part of Jackson’s comment, the Flutter announcement included a note that the transaction price implies a FanDuel enterprise value of $11.2 billion, which equates to a discount of over 40% to $20.3 billion enterprise value of DraftKings Inc. (as of Nov. 27, 2020).

DFS Beginnings for FanDuel

In describing FanDuel’s strengths in the growing U.S. sports wagering market, the announcement noted how the company has leveraged its beginnings as a daily fantasy sports company. FanDuel has more than 9.5 million customers nationally, the announcement said, “providing the business with an enthusiastic sports betting customer base.” And approximately 40% of all sportsbook customers acquired in the first two years have come from the DFS database.

In a separate announcement, Flutter described its intention to conduct the equity raise of the approximately $1.48 billion through a non-pre-emptive placing of new ordinary shares of .109 each in the capital of the company to institutional investors. As part of this placing, Fox Corp. has committed to invest further in Flutter. Fox Corp.’s FOX Sports will reportedly have an option to buy 18.5% of FanDuel in July next year.

Strong 3rd Quarter Revenue for Flutter

Business and investment optimism for sports wagering in the U.S. remains high despite recent bottom-line performance. In its third-quarter earnings report, Flutter reported an increase to its EBITDA (earnings before interest, tax, depreciation and amortization) loss of to between $212 million and $239 million from its previous expectation of a loss in the $186 million to $212 million range, in part due to player acquisition.

Overall, though, Flutter saw third-quarter revenue increase by 30%.

In that Flutter earnings announcement back in November, U.S. gaming revenue was up 82% to $213 million and sportsbook stakes grew 155% to $1.66 billion with locations more than doubling.

FanDuel Reach Increases

After launching in Illinois prior to the start of the NFL season and Tennessee on Nov. 1, FanDuel is looking at the addition of Michigan by the end of the year as that state hopes to launch this month.

In addition, Virginia could launch its market in early 2021, giving FanDuel online sportsbooks in 10 states. Referendums also passed in Louisiana and Maryland on Nov. 3 and those states will look to be up and running in 2021.

In early November, FanDuel and Evolution announced a deal that will allow FanDuel to expand its Live Casino offering in the U.S. market. Evolution Live Casino games will be added to FanDuel’s existing casino product line.

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