A New York arbitrator has settled a longstanding dispute between Fox Corporation and Flutter Entertainment over the price that Fox is to pay for a one-fifth stake in the market-leading sports betting company.
The dispute arose last year, after Fox sought to exercise its 10-year option to buy an 18.6 percent stake in FanDuel Group, owned by Flutter Entertainment. Fox had received the option in 2019 when it acquired the Stars Group, which licenses the Fox sports betting app.
Fox had sought a 40 percent discount on the share price for accelerating the timetable of the acquisition, and asserted the purchase price should be based on what Flutter paid to acquire 37 percent of FanDuel in 2020, which would have amounted to $2.1 billion for the purchase.
Flutter argued that the price should reflect the fact that two years had passed since the option was received, negating the 40 percent discount, and that the price should be based on the July 2021 valuation of FanDuel’s full market value, which one analyst pegged at $35.1 billion.
The arbitrator, New York-based Judicial Arbitration and Media Services (JAMS), held that Fox’s option should be based on the December 2020 value of FanDuel, which was $20 billion. It held that Fox should pay $3.7 billion for its one-fifth stake, with a 5 percent annual escalator that could raise the price to $4 billion.
Both sides claimed victory in the dispute—Flutter on the higher price, Fox interpreting the decision as granting an option to purchase another stake in the company at a later date. The ruling held that Flutter cannot attempt a FanDuel public offering until an agreement is made with Fox, or a more detailed ruling from the arbitrator, expected early next year.
“Fox is pleased with the fair and favorable outcome of the Flutter arbitration,” said a statement from the company, according to Sportico. “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.”
“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 Chief Executive Peter Jackson said in a statement published by Reuters.
Under the rules set by the purchase option, FanDuel is now valued at $22 billion when the escalator is factored, according to the JAMS ruling. The price is roughly double the $11.2 billion valuation for FanDuel estimated by Fox when the conglomerate filed a lawsuit against Flutter over the fair market value of the option.
Had the tribunal determined that the valuation is nearer the level sought by Fox, the price of the equity option would have been closer to $2 billion.
Although the ruling settles the immediate dispute, there are still many unknowns stemming from the decision, according to comments made by MoffettNathanson analyst Robert Fishman to Sportshandle.com.
On the positive side, Fishman cited numerous natural opportunities for Flutter and Fox to work together to leverage each company’s strategic assets and strengths. “To date, Fox has used its top of the funnel linear TV assets driven by marquee sports rights to increase Super 6 participation to a base of more than 6 million users,” SportsHandle reported.
Fishman said that for now the market is ignoring Fox’s growth prospects, by failing to assign fair value to its assets. If a media or digital company is unable to make a play for its assets, he told SportsHandle he believes there should be interest on the private equity side.
