Fox Confirms Plan To Purchase 18.6% FanDuel Stake Amid Valuation Dispute

Fox Corporation CEO Lachlan Murdoch recently confirmed that the company intends to exercise its option to purchase an 18.6% stake in Flutter-owned FanDuel. The decision may put to rest a dispute that has raged for years, although Fox hasn’t set an exact timeline for the purchase.

The announcement was made during the Goldman Sachs Communacopia & Technology Conference, where Murdoch discussed Fox’s future strategy and its plans regarding the burgeoning sports betting industry. However, while Murdoch made it clear that Fox plans to follow through on the option, he didn’t say when this would happen. The company has until 2030 to finalize the purchase.

Fox Corporation’s option to buy the stake in FanDuel, which holds a substantial share of the U.S. online sports betting market, has benefited from the wave of sports betting legalizations across the country. Part of a long-standing agreement between Fox and Flutter, the option has been a significant strategic tool for Fox, positioning the company to potentially strengthen its presence in the U.S. sports betting market. FanDuel has emerged as a dominant player in the industry, overpowering rivals such as DraftKings, BetMGM, Caesars Sportsbook, and of course another Fox effort, FOX Bet, which at one time was live in four states before shuttering in 2023.

Meanwhile, the cost to Fox of exercising the option increases over time due to a 5% escalator clause, making the transaction more expensive the longer Fox waits to act. This escalator means that the price for the 18.6% stake becomes steeper with each passing year, incentivizing Fox to make a decision sooner rather than later. Murdoch acknowledged this during his remarks, suggesting that while the option is an attractive strategic asset, the timing of its exercise will be key in managing its cost.

Putting a value on success

In addition to the escalating price of the option, there is a more than $2 billion discrepancy in the valuation of FanDuel according to different estimates (sound familiar?), particularly those from Goldman Sachs, which values the company at $35 billion. Murdoch pointed out that this significant difference in valuation would need to be resolved before the transaction could move forward.

Goldman Sachs’ estimates have contributed to the ongoing discussions regarding the value of FanDuel, which reportedly controlled 51% of the U.S. sports betting market in terms of net revenue at the end of 2023. This disparity has sparked debate over the company’s current market worth and future potential, especially in the context of the booming sports betting market.

The controversy surrounding Fox’s attempt to acquire a stake in FanDuel traces back to previous negotiations with Flutter. Fox bought into The Stars Group before the latter was acquired by Flutter in 2019, and this purchase gave Fox the right to acquire a larger stake in Flutter.

Fox had attempted to buy a portion of FanDuel in 2021 as part of a legal dispute over the valuation of the company. This was less than a year after Fastball Holdings sold a 37.2% stake in FanDuel to Flutter for $4.1 billion.

At the time that Fox wanted to buy the FanDuel stake, Fox and Flutter were locked in arbitration over the price that Fox would need to pay for that stake. Fox argued that it should be allowed to purchase the 18.6% stake at the same price that Flutter had paid when it acquired Fastball Holdings’ 37.2% stake in FanDuel in 2020. That transaction had valued FanDuel at approximately $11.2 billion.

However, Flutter countered that FanDuel’s value had increased significantly since the 2020 transaction, driven by the explosive growth of the sports betting market in the U.S. As a result, Flutter maintained that Fox should pay a higher price for its 18.6% stake.

Referee calls the play

The legal dispute eventually went to arbitration, and in late 2022, a ruling was issued that largely sided with Flutter. The arbitrator determined that Fox would need to pay the fair market value for the 18.6% stake, which was higher than the price at which Flutter had acquired Fastball’s stake.

According to the ruling, Fox would need to pay a price that reflected FanDuel’s current valuation, not its valuation in 2020. The result was a $3.7 billion price tag based on a valuation of $20 billion valuation, with the price increasing by 5% each year.

This ruling was a setback for Fox, as it meant the company would have to pay significantly more than it had initially anticipated to secure its stake in FanDuel.

The valuation dispute also raised broader questions about how companies in the sports betting industry are being valued. With FanDuel’s rapid expansion and the overall growth of the U.S. sports betting market, valuations have soared, leading to differences in opinion about what constitutes fair market value.

This discrepancy is further complicated by varying estimates from financial institutions, such as Goldman Sachs, which have contributed to the ongoing debate over FanDuel’s valuation.