Fox Sues Flutter Over Price to Buy FanDuel Ownership Stake
A surge in the valuation of sports betting franchises has led to a legal battle between Fox and Flutter, which is the majority owner of FanDuel.
Fox has filed a lawsuit to buy into FanDuel at the same price Flutter paid in December — and not what Flutter believes the price will be in July when a long-awaited deal between the two entities is expected to wrap up.
At issue is what determines “fair market value.”
Fox is set to buy an 18.6% stake in FanDuel for $11.2 billion — which is the valuation set when Flutter bought its 37.2% stake in FanDuel five months ago. Flutter is considering an IPO to determine FanDuel’s market value or will let financial intuitions determine the number. In either case, it will almost be certainly higher than it was when Flutter bought its piece of FanDuel in December.
Fox filed the suit last week to New York’s Judicial Arbitration and Mediation Services. It was first reported by CNBC. In a statement on Wednesday, Flutter said it would “vigorously defend its position.”
Billions At Stake In Legal Case
That potential valuation could be higher than the $25 billion enjoyed by DraftKings, CNBC reported, due to FanDuel’s higher penetration in certain important key betting markets such as New Jersey, Pennsylvania and Illinois.
A monthly record of about $4.37 billion was legally wagered at U.S. sportsbooks in January. And even though the total slid in February post-Super Bowl (pending numbers from Illinois), legal sportsbooks in the U.S. generated $196.1 million in revenue, an increase of 127.7% over the same month in 2020.
Sports betting is now live and legal in 21 states plus the District of Columbia. It is legal but not yet operational in five others. Fourteen other states have legislation proposed or pending. Sports betting has yet to be legalized in the three most populous American states — Florida, Texas and California.
During a March earnings call, Flutter Chief Executive Peter Jackson made it clear he believes Fox will have to pay “fair market value” for that 18.6% stake when the time comes to buy. Flutter previously made the “fair market value” claim last December and in its March 2020 prospectus.
“We will honor our commitment to give Fox an option to acquire 18.6% of FanDuel at fair market value in July 2021,” Jackson said on the March 2 call. “To be clear on the valuation, Fox will have to pay the fair market value, which is different from the negotiated price agreed between Flutter and Fastball, which reflected the specific circumstances that Fastball found itself in.”
Complications With FOX Bet
Fox claims Flutter is inventing the “fair market value” clause after the fact, arguing that no such wording existed at the signing of its initial contract, Bloomberg reported.
Fox Chief Executive Officer Lachlan Murdoch said the valuation should be based on what Flutter paid the minority shareholders of FanDuel for their stake last year because there was no “fair market value” wording.
“That’s our reading of it,” Murdoch said, according to Bloomberg. “There is a spread between what Flutter paid and market.”
There is another wrinkle in any potential deal. Flutter owns Stars Group, whose U.S. businesses include FOX Bet, a direct competitor to FanDuel. With consolidation inevitable in the legal gaming space after its current growth surge, it’s unlikely FanDuel and FOX Bet could co-exist in the long term with the same ownership.
Then known as Paddy Power Betfair, Flutter merged with FanDuel in the U.S. in 2018 in a deal that valued FanDuel at less than $1 billion.
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