However, the status of a potential FanDuel IPO is still up in the air.
The decision from the Judicial Arbitration and Mediation Services will allow Fox to acquire an 18.6% stake in FanDuel, an option granted to Fox by Flutter when it agreed to purchase a further 37.2% stake in the business from Fastball Holdings in December 2020.
At the time, this took Flutter’s total ownership of FanDuel to 95% and implied a valuation of $11.2bn in the FanDuel business.
In announcing that deal, Flutter said it “intends to offer to Fox Sports the option to purchase 18.5% of FanDuel at fair market value in July 2021”, though it has since referred to the stake being 18.6%.
However, in April 2021, Fox initiated an arbitration process with respect to a legal dispute over the potential acquisition of a stake in FanDuel. Fox argued its agreement with Flutter was to purchase the stake for the price it would have cost in December 2020.
Under the December 2020 price, FanDuel as a whole would have been valued at $11.20bn, and the 18.6% share would cost approximately $2.09bn.
The tribunal ruled the price payable for the option was based on FanDuel’s fair market value as of December 3, 2020, the date on which Flutter announced the acquisition of Fastball’s 37.2% stake in FanDuel.
However, the tribunal said that the fair market value of FanDuel as of December 2020 amounted not to $11.20bn but to $20.0bn. This was based on the valuation submissions of both Flutter and Fox, and was based on a number of factors, including comparisons to rival DraftKings.
The tribunal said that “all parties understood that the purchase price of $4.18bn reflected a substantial discount” from the market value of FanDuel, due to certain terms in the agreement that incentivised Fastball to sell, and so the higher figure was more appropriate.
It said that both parties had independently determined at the time that Flutter had purchased the Fastball stake at a 40% discount, valuing the business at more than $18bn, while a number of other assessments provided a median value of $21.75bn.
Fox will now have a 10-year period from December 2020 to exercise the option to buy the stake, subject to an annual compounding carrying value adjustment of 5%. This can only be settled in cash and in full, while should Fox not exercise within the timeframe, the option would lapse.
As of 4 November, the option price is set at $4.1bn. This is made up of the $3.7bn exercise price for 18.6% of FanDuel plus the 5% annual carrying value adjustment, increasing the overall value of FanDuel to $22.0bn.
“The 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. FanDuel is winning in the US market and the clear #1 operator, a position driven by its exceptional market leading product and efficiency in acquiring customers at scale,” Flutter chief executive Peter Jackson said.
“The team remain focused on maintaining our leadership position and we look forward to updating the market on our progress at our US capital markets day on 16 November.”
Following the launch of the arbitration process in April 2021, Fox filed two supplementary items for consideration. The first of these claimed Flutter had failed to provide commercially reasonable resources to the operation of Fox Bet, the brand jointly operated by Fox and The Stars Group, which Flutter acquired in 2019.
However, the tribunal denied Fox’s claim in its entirety and ruled in favour of Flutter, holding that commercially reasonable resources have been provided to Fox Bet. This will mean that Fox retains the right to acquire up to 50% of The Stars Group, but only if it is licensed.
Should Fox not secure the relevant licensing and exercise its option, both parties will have a right to terminate their agreement in relation to Fox Bet in August 2023. This would result in a termination of the Fox Bet business, in the event of which Flutter would retain ownership of PokerStars US and Super6, while the use of the Fox Bet brand would reside with Fox.
A second matter put to the tribunal was over whether and, if so, under what conditions Fox is entitled to participate in an IPO of of FanDuel, should one occur.
Flutter agreed that it would not proceed with any potential IPO, if at all, until the tribunal resolved this remaining matter or both parties reach an agreement on the issue. A binding decision from the arbitrator is expected in early 2023.
Fox also accepted the ruling, saying in a statement it was a “fair and favourable outcome”.
“Flutter cannot pursue an IPO for FanDuel without Fox’s consent or approval from the arbitrator,” Fox said. “Fox has a 10-year call option that expires in December 2030 to acquire 18.6% of FanDuel for $3.72bn, with a 5% annual escalator.
“Fox has no obligation to commit capital towards this opportunity unless and until it exercises the option. This optionality over a meaningful equity stake in the market-leading US online sports betting operation confirms the tremendous value Fox has created as a first-mover media partner in the US sports betting landscape.”