Flutter Could Use FanDuel Cash for More Deals, Fox Still in Way

Posted on: December 27, 2021, 09:25h. 

Last updated on: December 27, 2021, 10:03h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Fresh off the $2.2 billion purchase of Italy’s Sisal announced last week, Flutter Entertainment (OTC:PDYPY) could be on the prowl for more acquisitions.

Flutter FanDuel
Flutter could use capital from a FanDuel spinoff for more acquisitions. First, it needs to reach an agreement with Fox. (Image: The Independent)

Capital is needed for deals, and an effective avenue for generating that cash is via the much-ballyhooed spin-off, which is being delayed until next year. The Sisal acquisition pushes Flutter’s debt to earnings before interest, taxes, depreciation, and amortization (EBITDA) to a still tolerable 3.5x. But that also implies more capital is needed if the company wants to pursue other takeovers.

The added debt burden may limit its scope for other international deals,” reports The Sunday Times. “Separate listing for FanDuel in New York, as planned, would help. Yet it first needs to settle its differences with Fox.”

Flutter and Fox Corp. (NASDAQ:FOXA) are engaged in a now months-long legal spat over the price the latter will pay to buy an 18.6 percent slice of FanDuel. Flutter wants what it believes is fair market value, while Fox wants the price the parent company paid — $4.175 billion in December 2020 — when it bought out investment firm Fastball’s 37.2 percent interest in FanDuel.

Flutter owns 95 percent of FanDuel. Boyd Gaming (NYSE:BYD) owns the other five percent.

Wide Chasm Between Flutter, Fox

Buyers and sellers typically want different prices for an asset. But the gap between what Flutter is willing to sell 18.6 percent of FanDuel to Fox at and what the media company is willing to pay is wide.

As The Sunday Times reports, Flutter wants to sell that portion of FanDuel to Fox at what investment bankers estimated it to be worth in Jul,y when sports wagering equities were performing significantly better than they are today.

Potentially further muddying the waters for Fox is that Flutter investors are clamoring for FanDuel to be valued in excess of rival DraftKings (NASDAQ:DKNG). Those two companies are often joined at the hip for investment valuation purposes. But the reality is FanDuel is the largest online sportsbook operator in the US, and holds significantly more market share than its competitor. Even with DraftKings shares shedding nearly 37 percent year-to-date, its market capitalization is $23.64 billion.

The gap between what Flutter will sell the interest at and what Fox will pay is reportedly as large as $10 billion, and it’s the source of the aforementioned legal tussle between the two companies.

In April, Fox confidentially filed a suit against Flutter last week in New York’s Judicial Arbitration and Mediation Services (JAMS). JAMS isn’t a traditional court of law, but its decisions are binding and gives parties a more efficient avenue for settling disputes.

Aiming for Amicable

It’s not clear when a JAMS decision will be reached, nor is it clear when Flutter could commence the FanDuel spin-off. But both sides should be motivated to reach an amicable resolution.

For its part, Fox is also a Flutter investor. It owns 2.5 percent of the gaming company. That relationship stems from Fox selling Sky Bet to The Stars Group (TSG) in 2018 for $4.7 billion. Last year, Flutter shelled out $12.2 billion for TSG,, which, at the time, owned Fox’s FOX Bet unit.

Flutter should want to resolve the matter, too. Because with a FanDuel spinoff, it can unlock shareholder value. That’s while generating capital to firm its balance sheet and pursue other acquisitions to bolster market-leading positions outside the US.