Flutter Entertainment, Fox Could Pull The Plug On Fox Bet

Posted on: November 10, 2022, 07:35.

Last updated: November 10, 2022, 07:35.

The recent arbitration decision from the New York Judicial Arbitration and Mediation Services (JAMS) in Fox. The breakup of Corp. (NASDAQ:FOXA) with FanDuel parent Flutter Entertainment (OTC:PDYPY) could spell the end of Fox Bet.

Fox Bet
An advertisement for Fox Bet’s Super 6 game. The gaming unit could be broken up, according to a research firm. (Image: Fox)

In the latest edition of his biweekly ECG line Research firm Eilers & Krejcik Gaming (EKG) said the JAMS decision, which paves the way for Fox to acquire 18.6% of FanDuel at a valuation of $22.4 billion, or 5% annually, could mean 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 effectively break up the business.”

Fox Bet is controlled by Flutter through that company’s 2020 $12.2 billion acquisition of Stars Group (TSG), in which Fox was a major investor.

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Fox’s gamble backfired

Flutter CEO Peter Jackson previously described Fox Bet as a “struggling” business and the data backs that view up, although the gaming company has allocated capital to bolster the business.

“The arbitrator found that Flutter had provided more than ‘commercially reasonable resources’ to Fox Bet, but his performance was unsustainable regardless,” EKG noted.

Fox Bet is losing about $60 million a year and accounted for about 20% of Flutter’s earnings before interest, taxes, depreciation and amortization (EBITDA) in the first half of the year, suggesting the operator has strong reasons to consider shutting down the unit.

Additionally, Fox Bet has just a paltry 0.2% share of the total US online sports betting market, and its share in Pennsylvania — one of the biggest sports betting states in the country — is slipping, according to EKG.

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“In this context, Fox Bet looks destined to join the growing number of brands to exit the US OSB, including BetAmerica, Fubo Sportsbook and theScore Bet,” EKG said.

What’s next for Fox/FanDuel

Fox has made no secret of its desire to acquire 18.6% of FanDuel, and Flutter has been outspoken in saying it intends to honor that deal. However, the sticking point was the price Fox had to pay. While the JAMS decision may seem favorable, the $22.4 billion valuation for FanDuel is rich considering current market conditions and more than four times the market cap of DraftKings ( NASDAQ:DKNG ) .

Because of that, EKG speculates that Fox could take its time — it has 10 years — to build up its FanDuel stake. Or the media company could try to reduce its roughly $7 billion in debt by selling its interest in the sports betting provider elsewhere, but now may not be the right time to do that because of market volatility.

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Speaking of broader market conditions, these could hinder Flutter’s long-awaited FanDuel spinoff. It was hoped that the transaction would take place this year, but that will not happen. Parent company Betfair has not set a date for when a portion of FanDuel could go to public investors.

“It’s unclear how the option would work in this scenario, but FanDuel has long said it would IPO only a small portion of the business, meaning Fox could still exercise the option on the remaining portion ( theoretically),” EKG concluded.

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