- US Online Poker
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FanDuel is a leading online gambling app in a growing US market of legal online casino and sports betting sites. As such, its upcoming IPO is expected to imply a valuation of more than $35 billion. Here’s a look at FanDuel’s present situation as it prepares to spin off into the future.
The IPO is expected sometime before July 2021, but there’s plenty of drama unfolding in the meantime. FanDuel’s primary owner, Dublin-based Flutter Entertainment, is being sued by its media partner, Fox.
Fox wants a discount on the 18.6% equity in FanDuel that it has the option to buy, come July. Flutter wants Fox to pay full market value. The two companies are in supposedly secret meetings about the disagreement, yet both have released public statements about the tiff.
Meanwhile, Flutter is expected in court on Apr. 19 in Kentucky. The state is trying to collect the first $100 million of a $1.3 billion judgment its Supreme Court restored against the company.
However, none of this is dampening investors’ excitement about the probable IPO.
A major reason investors are keen to see a FanDuel IPO is the company’s dominance of the US online gambling space, especially sports betting. Flutter estimates that FanDuel is the primary reason its US brands hold 31% of the online sportsbook and gaming market.
FanDuel‘s helped Flutter surpass the combined revenue of its two closest competitors. This fact comes directly from Flutter CEO Peter Jackson in the company’s annual report, released Mar. 1.
Although Jackson doesn’t name these competitors, he is surely referring to DraftKings and BetMGM. In valuing FanDuel at $35 billion, Barron’s cited the rival’s value and added 35%. Similarly, CNBC noted DraftKings’ market capitalization of $28 billion and added 40% to come up with an estimate of $39 billion.
In effect, the analysts are saying FanDuel is undervalued in light of its market share.
[ Editor’s note: It’s worth pointing out that some other analysts consider DraftKings itself to be overvalued at the moment. Thus, estimates of FanDuel’s value based on DraftKings’ share price may likewise end up being overestimates. ]
FanDuel Sportsbook is available in 10 of the 14 states that allow legal online sports betting:
However, FanDuel Sportsbook is not in Nevada, New Hampshire, Oregon and Rhode Island. It’s excluded from the latter three because they are monopolies, run by the state lottery in partnership with a single operator.
It likewise offers its online casino product in three of the four states it legally could, with West Virginia the lone exception.
Flutter has revealed the secret to FanDuel’s success in rolling out in so many states so quickly. Most of these markets have only opened within the last two years, at a pace which has been difficult for some companies to keep up with. However, FanDuel’s history as a daily fantasy sports powerhouse means the company has data on more than 6 million customers across the country.
That means before an app related to a newly legalized betting option in a state goes live, FanDuel can register sportsbook and gaming customers it’s acquired “efficiently, at-scale” using the data. FanDuel did so in January 2021 in Michigan and Virginia, for instance.
Jackson said that Flutter’s strategy is to keep growing its leadership position in the US. The company has predicted that by 2025, almost two-thirds of the US population will have access to online sports betting. Online casino and poker will continue to grow as well, but more slowly, reaching 16% of the popualtion by that time.
Jackson said of Flutter’s US plans:
“Ultimately, we believe that the online gaming sector is similar to other large digital markets; whereby, the largest player achieves superior economics through operational leverage, creating a virtuous circle for future investment in product, marketing and generosity, which in turn drives further growth.”
Could FanDuel grow so big it becomes synonymous with legal US online gambling? Perhaps. The ultimate dream for any brand is to become first a household name, then a generic verb: “Excuse me a moment. I’ve got to FanDuel this game.”
Before FanDuel can hope to become a verb, it needs to come to terms with a couple of legal matters.
First, its media partner wants to pay what it considers a reasonable rate for the 18.6% stake it has the option to buy in July. Fox wants to pay $11.2 billion, on the basis that it’s “the same price that Flutter paid for that interest in December 2020.”
Flutter says Fox is incorrect in believing it’s entitled to that price. A representative for the company provided Online Poker Report with the following statement on Apr. 7:
“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.”
The two companies seem keen on arguing their points in public, yet the main advantage in choosing arbtration is privacy, which courts can’t offer.
Meanwhile, this sentence appears in Flutter’s annual report:
“Discussions are currently ongoing with the relevant parties in respect of the future operating model for the FOX Bet business.”
This highlights a further complexity in the relationship. Fox Bet is something of a competitor to FanDuel, yet it’s also a joint venture between The Stars Group – now a part of Flutter – and Fox Sports. There’s been speculation that Fox Bet’s future may come up as part of the arbitration. One potential outcome is that the app may be absorbed into FanDuel.
Meanwhile in Kentucky, the state is trying to collect $1.3 billion from Flutter. This legal matter isn’t connected to FanDuel specifically, but rather The Stars Group. However, anything affecting a parent company also affects its subsidiaries, if only indirectly.
The judgment against TSG relates to activities by its flagship brand PokerStars. In its earlier history, as a private company, PokerStars had illegally served US customers, including in Kentucky. The lawsuit against the company predates Flutter’s acquisiton of it, but that doesn’t get the new owner off the hook. Flutter has set aside $100 million for the lawsuit according to its annual report, and hopes to get the final amount reduced to a fraction of that $1.3 billion.
On Apr. 19, a Kentucky court will hold a hearing on exactly that $100 million. That sum is already in the state’s posssession, in the form of bonds that PokerStars posted five years ago in order to appeal the initial judgment.
The lawsuit has been in appeals ever since. Flutter is now running out of options, but is hoping to find a way to make it a federal matter and bring it to the US Supreme Court.
The company’s prospects look bleak on that front. Even so, it’s testament to the power of Flutter and the FanDuel brand that there’s so much excitement and momentum behind the upcoming IPO, despite these costly legal battles.