Fox is taking Flutter to legal arbitration over the pricing of FanDuel stock. Rupert Murdoch’s empire is attempting to wrangle a 40% discount on the stock’s current price using an old valuation as its basis.
Flutter and FanDuel merged their U.S. business three years ago. Since then, Flutter has bought a large quantity of FanDuel’s stock. Fox’s legal action is attempting to force Flutter to sell FanDuel stock at last year’s prices.
The crux of the legal dispute is that Fox has an option to purchase an 18.6% of FanDuel. They can exercise this option when July 2021 comes around. Fox’s argument is that the price for the stock should freeze at the time the option was agreed to. Flutter maintains that the option specified that the stock would go at the July 2021 market price, whatever that will be. Backdating the price would represent a 40% discount at current valuations, according to one stockbroker. In absolute terms, that is a saving of around $1 billion on the quantity Fox is looking to buy.
“Fox’s position — that it has a right to acquire an 18.6% interest in FanDuel based on an $11.2 bn valuation — is incorrect,” Flutter said today. “It would represent a windfall to Fox when compared to the fair market value […] to which the parties had previously agreed.”
Flutter is the parent company to The Stars Group, Paddy Power, and Betfair. As a result, it is one of the biggest players in the UK’s gambling markets and in the world’s poker market. Through its joint venture with FanDuel, Flutter sought access to the U.S. sports betting market. They also gained access to the related fields of U.S. horse racing and U.S. daily fantasy sports.
Flutter started working with — and buying up — FanDuel three years ago. Since then, the two companies have grown in absolute terms and in market share. Both firms feel that the company’s growth should be part of any price that Fox pays.
FanDuel currently supplies sports betting in ten states (NJ, PA, WV, IN, CO, IL, TN, IA, VA, and MI). They also provide betting on horse races in twenty-two states. In the vast majority of states — forty-four to be precise — FanDuel provides fantasy sports services. Many of those forty-four states forbid other forms of sports betting. But not necessarily for much longer.
The Wire Act is now de-fanged, and legalization is creeping its way from sea to shining sea. So firms like Fox and Flutter are getting cut-throat about slicing up the apple pie.
For Fox, this is a game with little downside. If it wins, then that’s $1 billion they don’t have to shell out on a sketchy hand. Or more, depending on what the stock market does to FanDuel between now and July. If Fox loses, its stake is legal fees and whatever admin costs the London Stock Exchange charges for their ombudspeople’s time.
It’s the kind of bet that might make Fox a good custodian of 18.6% of a sports book.
Featured image source: Flickr by Jam_90s