By Samuel Indyk
Investing.com – Shares in Flutter Entertainment PLC (LON:FLTRF) fell 2% in early trade after Fox (NASDAQ:FOXA) filed an arbitration claim against the betting company regarding the value of its stake in sports betting platform FanDuel.
Background
In December, Flutter, which also owns gambling brands SkyBet and Paddy Power , increased its stake in FanDuel to 95%, spending $4.2bln to buy a 37% share owned by Fastball Holdings. The remaining 5% is held by Boyd Gaming, who Flutter needs so that it can operate FanDuel in some US states. That deal valued FanDuel at $11.2bln.
Murdoch-owned Fox has the option to purchase an 18.5% stake in FanDuel and the company has argued that it should be allowed to do so at the same valuation as Flutter in December, however, Flutter is pushing for a higher price.
The option to buy for Fox was part of the 2019 merger agreement between Flutter and Stars Group, which had previously partnered with Fox on a sports betting platform.
Valuations
The lawsuit comes amid lofty valuations for the sector. DraftKings has seen its shares increase three-fold since it listed via a SPAC merger in April last year.
Flutter aims to unlock the value of FanDuel by spinning off all or some of the unit, which they confirmed last month.
If the spin-off is complete by July, when Fox’s option kicks in, Flutter argues that Fox should have to pay the market value. If the company has not listed FanDuel by then, Flutter argues that banks will determine the fair value of FanDuel at the time Fox can purchase its stake.
With more and more states now legalising sports betting in the US, the market looks set to flourish over the coming years with Flutter expecting the total addressable market in the US to be worth more than $20bln by 2025. Furthermore, 19 states are set to be voting on legislation this year to decide whether to legalise mobile sports betting.
FanDuel is currently the largest online sports betting business in the US with around 40% of the market, according to Sky News.
In a statement to the exchange, Flutter Entertainment said they would vigorously defend their position.
"Fox's position that it has a right to acquire an 18.6% interest in FanDuel based on an $11.2 billion valuation is incorrect," the company said. "It would represent a windfall to Fox compared to the fair market valuation as of July 2021, to which the parties had previously agreed. Flutter will not allow Fox's filing, which is without merit, to distract from its business and will vigorously defend its position in the arbitration."