The recent arbitration ruling by New York’s Judicial Arbitration and Mediation Services (JAMS) in Fox. Corp.’s (NASDAQ:FOXA) rift with FanDuel parent Flutter Entertainment (OTC:PDYPY) could mean the end of Fox Bet.
In the most recent edition of its bi-weekly EKG Line report, research firm Eilers & Krejcik Gaming (EKG) said the JAMS ruling, which paves the way for Fox to acquire 18.6% of FanDuel at a valuation of $22.4 billion, compounding 5% annually, could spell the end of Fox Bet.
Fox Bet is on borrowed time,” according to the research firm. “Both Fox and Flutter can terminate the Fox Bet agreement in August 2023 and essentially dissolve the business.”
Fox Bet is controlled by Flutter by way of that company’s 2020 $12.2 billion acquisition of the Stars Group (TSG), in which Fox was a major investor.
Fox Bet Badly Lagged
Flutter CEO Peter Jackson previously described Fox Bet as a “struggling” business and data confirm that view, though the gaming company did allocate capital to bolstering the business.
“The arbitrator ruled Flutter had provided more than ‘commercially reasonable resources’ to Fox Bet, but its performance has been underwhelming regardless,” noted EKG.
Fox Bet loses about $60 million per year and represented about 20% of Flutter’s earnings before interest, taxes, depreciation and amortization (EBITDA) loss in the first half of the year, indicating the operator has good reason to consider shuttering the unit.
Additionally, Fox Bet has just a scant 0.2% share of the overall US online sports betting market and its share in Pennsylvania — one of the largest sports wagering states in the country — is slipping, according to EKG.
“In this context, Fox Bet looks destined to join the growing number of brands to exit U.S. OSB, including BetAmerica, Fubo Sportsbook, and theScore Bet,” said EKG.
What’s Next for Fox/FanDuel
Fox made no secret that it wanted to acquire 18.6% of FanDuel and Flutter was overt in saying it intended to honor that agreement. However, the sticking point was the price tag Fox was obligated to pay. While the JAMS ruling may appear favorable, the $22.4 billion valuation on FanDuel is rich considering current market conditions and is more than quadruple DraftKings’ (NASDAQ:DKNG) market capitalization.
Due to that, EKG speculates Fox could take its time — it has 10 years — to build the FanDuel stake. Or the media company could look to reduce its own debt burden of about $7 billion by selling its interest in the sportsbook operator to another party, but now may not be the time to do that due to market volatility.
Speaking of broader market conditions, those could be hampering Flutter’s widely anticipated spinoff of FanDuel. It was hoped that transaction would occur this year, but that won’t be the case. The Betfair parent hasn’t set a date for when it could a portion of FanDuel to public investors.
“It is unclear how the option would work in that scenario, but FanDuel has long said it would only IPO a small portion of the business, meaning Fox could still exercise its option on the remaining part (in theory),” concluded EKG.
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