Arbitrator rules Fox holds 10-year option to buy FanDuel stake in longstanding battle with Flutter

An arbitrator has reached a ruling in the legal battle between Fox Corp. and Flutter. The decision Friday reaffirmed Fox has 10 years to exercise its option to acquire a nearly one-fifth stake in Flutter’s FanDuel brand, thus settling a longstanding dispute between both parties.

The ruling, issued by the Judicial Arbitration and Mediation Services, tackled the disagreement between the two firms around Flutter’s purchase in 2019 of The Stars Group, and could have a significant impact on the future of US-facing sportsbooks FanDuel and Fox Bet.

Flutter’s purchase of The Stars Group expanded the gaming giant’s portfolio to include Fox Bet, a competitor of FanDuel, already part of the Flutter Group. The move raised questions about how the company would allocate resources in the US to both brands.

Additionally, as part of the agreement, Fox also held a ten-year option to purchase a large chunk of The Stars Group’s US business, which the media giant believed translated to an option to buy 18.6% of FanDuel at a later day.

The New York-based JAMS tribunal ruled Friday that Fox would pay $3.7 billion for its right to acquire the aforementioned stake of FanDuel, a sum that could rise to $4 billion when factoring in a 5% annual escalator, reports Reuters. The figure is roughly twice the amount Fox sought to pay, according to a copy of the ruling.

The decision affirms Fox’s ten-year right to buy into FanDuel starting at a $20 billion valuation – a number higher than Fox’s original proposal, but lower than Flutter’s. Moreover, the arbitrator also ruled that FanDuel cannot IPO without an agreement with Fox; and that Flutter does not have to dedicate equal resources to the two brands, something it currently isn’t doing.

The dispute comes to an end

Arbitration for the dispute between Fox and Flutter first began in the spring of 2021, about two years after the Irish group acquired Canadian gaming company The Stars Group, which licensed Fox’s brand to launch a sports betting app in the US.

Fox sought to pay $2.1 billion to exercise its options in FanDuel, based on the price Flutter paid in December 2020 to acquire 37% of FanDuel Group from early investors. But Flutter argued that Fox was not entitled to the 40% discount it received for accelerating the timetable for the buyout, reports Reuters, and maintained Fox should pay the full market value for its stake as of July 2021. One Wall Street analyst pegged the FanDuel valuation at the time at $35.1 billion.

The arbitrator ruled Fox's options would be based on the fair market value of FanDuel in December 2020, or $20 billion. Flutter heralded this decision as a win for the group, and responded to Fox’s interpretation of the IPO portion of the ruling. 

The company said it will not attempt a FanDuel IPO until either an agreement is made with Fox, or a more definitive ruling comes from the arbitrator. A binding decision from the arbitrator on this point is expected “in early 2023,” said the firm.

Flutter's Peter Jackson

“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 late Friday.

However, Fox has also issued its own statement applauding the ruling. The media company highlights that the decision gives it the option to acquire “a meaningful equity stake in the market-leading US online sports betting operation.”

“Fox is pleased with the fair and favorable outcome of the Flutter arbitration,” the statement said. The company also said the ruling confirms the “tremendous” value Fox has created “as a first mover media partner” in the US sports betting landscape.

Ramifications of the ruling

The ruling is expected to pave the way for the firms to assess the future of both FanDuel and Fox Bet. FanDuel has positioned itself as a leading online sports betting brand in the booming US landscape, and Flutter has been mulling an IPO for years, which could still happen – but including input from Fox.

In comparison, Fox Bet’s rollout has been slow-going, struggling to gain traction in the market. The app is available in four states, with just a 0.2% share of the US market, according to researcher Vixio – only a fraction when paired against FanDuel’s 36% share. The brand could eventually be folded, a decision that might suit both Flutter and Fox.

Fox Bet argues its growth has stagnated since Flutter acquired The Stars Group. Fox claimed that Flutter failed to provide reasonable resources behind its betting brand, a claim Flutter said the arbitrator rejected, finding that the Irish firm had agreed to commit “commercially reasonable" resources behind the offering.

However, Fox retains the right to acquire up to 50% of the Stars Group's U.S. operations, which includes Fox Bet, though it would need to obtain necessary sports betting licenses. Fox could still exercise its options, and if it does not do so by August 2023, both parties have the right to terminate the Fox Bet business. Should that happen, the Fox Bet branding would return to Fox.

As for the arbitrator’s decision, which is binding, either side could still challenge it by asking a judge to vacate the ruling. However, this is an unlikely scenario, as the appealing company would have to prove the ruling was far outside the boundary of basic legal principles.