Flutter Spends $5.6 Billion to Increase FanDuel Stake

fanduel

Flutter Entertainment, formerly Paddy Power Betfair, has spent $5.6 billion increasing its stake in FanDuel. Flutter already owned 57.88% of the company but now owns 95% following this latest purchase. Regional casino operator Boyd Gaming holds the remaining 5%.

The deal requires shareholder approval but it should sail through without any issues. A statement to the London Stock Exchange (LSE) explains the highlights of the FanDuel deal.

  • Accelerates buy-out of minority investors in US market leader, taking Flutter’s stake in FanDuel from 57.8% to 95%
  • Materially increases exposure to US market, the most attractive sector opportunity today
  • Takes opportunity to secure a stake in FanDuel at a discount to the intrinsic fair value
  • Removes considerable uncertainty with respect to buyout obligations of Fastball’s stake

Flutter is funding the deal with a mixture of cash and the issuing of new shares. $2.804 billion in cash plus 11.7 million new shares in Flutter is the total cost for almost 58% of FanDuel.

Peter Jackson Thanks Former FanDuel Partner

Peter Jackson is the CEO of Flutter Entertainment, his statement to the LSE thanked his former partners in FanDuel.

“Flutter’s initial acquisition of a controlling stake in FanDuel in 2018 has been transformational for the shape of the Group. Our number one position in the crucial US market is built on many of the assets we acquired through that transaction, supported by the broader Group’s capabilities. Our intention has always been to increase our stake in the business and I’m delighted to be able to do so earlier than originally planned and at a discount to its closest peer.”

“I would like to take this opportunity to thank our partners in Fastball for their tremendous support over the last 2.5 years and for their ongoing commitment to Flutter as soon-to-bet shareholders in the wider group. We look forward to continuing to grow our US business, alongside our key media partner FOX, as further states move to regulate sports betting and gaming.”

Buyout Deal Accelerated By Two Years

The initial deal gave Flutter the option to buyout Fastball in two further transactions. Further payments in 2021 and 2023 allow Flutter to buyout Fastball. The deal put constraints on the price Flutter had to pay.

Flutter’s media partner FOX benefits from this early buyout deal. It holds a 2.6% stake in Flutter currently but can buy 18.5% of Flutter at fair market value in July.

Shares in Flutter increased 5.54% upon arrival of the news, taking the price to 14105 pence per share. Flutter is now valued at £21.86 billion ($39.54 billion) making it the biggest gambling company in the world by far.

Investors in major FanDuel rival DraftKings reacted negatively to the news. They fear the buying power FanDuel now enjoys being owned by such a huge company. Shares fell from their US$51.10 closing price to US49.84 but closed at US50.21.

Why Push The Deal Through Now?

Online gambling companies are one of the rare groups to profit from the COVID-19 pandemic. Sports betting revenue fell through the floor, but online gaming products became supremely popular. Flutter’s online poker and casino products enjoyed a surge in new customers during various lockdowns.

The US market is one every gambling company wants a piece of. Legislation passed allowing individual states to allow legalised sports betting. Flutter had a minor presence in the US but it’s huge now it controls FanDuel.

FanDuel is a major brand in the United States despite only forming in 2009. It is best known for its daily fantasy sports service, although it allows sports betting and online casino play.

The potential for serious profit is driving this deal. Companies want a big presence in the US and be the first on the ground in each state. History suggests the early bird catches the worm in these scenarios. Flutter is a big bird and FanDuel a juicy worm.