An arbitrator has reached a ruling in the long-running legal battle between Fox Corp. and Flutter, a decision that could have significant ramifications for the future of U.S. sportsbooks FanDuel and Fox Bet.
The disagreement centered around complexities that arose after Flutter (LSE: FLTR) purchased The Stars Group in early 2020. The move expanded Flutter’s portfolio to include Fox Bet, a competitor to Flutter-owned FanDuel, raising questions about how the gaming giant would allocate U.S. resources to both brands. Fox also held a ten-year option to purchase a large chunk of The Stars Group’s U.S. business, a right that the media company (Nasdaq: FOX) believed translated to an option to buy 18.6% of FanDuel at a later date.
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A New York arbitrator issued a decision Friday, according to a Fox statement. The ruling affirms Fox’s ten-year right to buy into FanDuel, starting at a $20 billion valuation, the statement said, a number higher than Fox’s original proposal and lower than Flutter’s. The arbitrator also ruled that FanDuel cannot IPO without an agreement with Fox, and that Flutter does not have to dedicate equal resources to the two brands, which it currently isn’t doing.
“Fox is pleased with the fair and favorable outcome of the Flutter arbitration,” the statement said. “This optionality over a meaningful equity stake in the market leading U.S. online sports betting operation confirms the tremendous value Fox has created as a first mover media partner in the U.S. sports betting landscape.”
FanDuel declined to comment. Flutter said in a statement that it was also happy with the arbitrator’s ruling. It cited Fox’s strike price, higher than the media company initially wanted. It also pushed back on Fox’s interpretation of the IPO portion of the ruling, saying I will not attempt a FanDuel IPO until either an agreement is made with Fox, or a more definitive ruling comes from the arbitrator. It says it expects that in “early 2023.”
“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,” Flutter CEO Peter Jackson said in the statement.
The decision should pave the way for both companies to assess the future of both FanDuel and Fox Bet. FanDuel has emerged at the early leader in online sports betting in the U.S., and Flutter has been mulling a FanDuel IPO for years. That could certainly still happen following this ruling, though it would need to include input from Fox.
Fox Bet, on the other hand, has struggled to gain traction—FanDuel had 36% of the U.S. market in 2021, according to numbers from Eilers & Krejcik, followed by DraftKings (24%) and BetMGM (15%). Fox Bet, by contrast, is at most in the low single digits. Fox Bet could eventually be folded, a decision that might suit both Fox and Flutter.
When Fox Bet launched in 2019 within The Stars Group, Fox was given a ten-year option to buy 50% of The Stars Group’s U.S. business. When Flutter bought The Stars Group, Fox believed the option would translate to a ten-year option to buy 18.6% of FanDuel. Not only were the two sides in disagreement about the option, they also disagreed on the price. Fox believed it should be able to buy in at an $11.2 billion valuation, which was the valuation on the company when Flutter bought a large chunk in late 2020. Flutter believed Fox should have to pay fair market value as of July 2021, as determined by outside banks. It’s unclear how big Flutter wanted the valuation to be; the arbitrator’s ruling said Fox’s option is currently worth $3.72 billion, which translates to a valuation of about $20 billion. That option increases by 5% each year, regardless of how FanDuel’s actual valuation changes.
That’s particularly noteworthy, given that FanDuel’s success in the U.S. has come alongside a global market shift for many sports betting companies. Flutter was trading at an all-time high of $234 (£168.9) in March 2021, around the time the petition was originally filed. It closed Friday at roughly $131 (£115.1), meaning the market value for the company has shifted dramatically over the course of the legal fight.
Another way to view that metric: DraftKings, one of FanDuel’s primary competitors, had a market cap of $28 billion in March 2021, and is currently worth $5.07 billion.
Flutter’s statement also provided some clarity on the future of Fox Bet. It said that Fox could still exercise its options with The Stars Group’s U.S. business, and if it does not do so by August 2023, both parties have the right to terminate the Fox Bet business. Should that happen, the Fox Bet branding would return to Fox.
Fox petitioned New York’s Judicial Arbitration and Mediation Services (JAMS) last year, a process that allowed both parties to debate the matter in a confidential forum and avoid litigation, where filings would be made in public and allegations or revelations could potentially impact the reputations of these publicly traded companies. The arbitration began earlier this year after settlement talks failed to produce an agreement.
While the ruling is binding, either side could technically challenge the ruling by asking a judge to vacate the ruling. That’s a high bar, however, under federal law, judges are required to review arbitration decisions with high deference. The appealing company would have to show the decision was far outside the boundary of basic legal principles, which would be hard to establish.
(This story has been updated in the headline and with statements from Fox and Flutter throughout.)
With reporting from Michael McCann.
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