Flutter Entertainment has revealed that it will wind down the FOX Bet brand in the US over the next month.
The brand was established via a partnership between Fox Corporation and PokerStars owner The Stars Group (TSG) in 2019.
Ownership of the brand was subsequently passed to Flutter when the operator merged with TSG in 2020.
Despite inheriting the FOX Bet brand as part of the merger, Flutter has repeatedly made clear that its eggs are firmly in the FanDuel basket when it comes to US sports betting.
The brand is live in Colorado, Michigan, New Jersey and Pennsylvania, but has failed to carve out a significant share of any of those markets.
The brand is now expected to cease operations by 31 August.
Fox Corporation will retain the rights to future use of the FOX Bet brand, as well as the FOX Bet Super 6 game brand. It intends to launch an all-new FOX Super 6 game later this year.
Fox’s FanDuel option
Fox also remains a 2.5% shareholder in Flutter, and continues to hold a previously agreed option to acquire an 18.6% stake in FanDuel.
That option has been the cause of significant strain between Flutter and Fox, as the firms had a disagreement over the price Fox would pay to exercise the option.
An arbitration process between the companies began in 2021, and the arbitrator ruled last year that Fox’s options would be based on the fair market value of FanDuel in December 2020, at $20bn.
To exercise the option, Fox will need to be licensed and will have to pay up in full and in cash. If it is not exercised within the determined timeframe (by December 2030), the option will lapse.
An arbitration tribunal has ruled that Fox Corporation’s option to acquire an 18.6% stake in FanDuel is indeed based on a $20bn valuation of the US market leader.
FanDuel owner Flutter Entertainment entered into an arbitration process with Fox in April 2021, with respect to a legal dispute over the terms of Fox’s option to acquire a stake in the business, alongside other related issues.
The tribunal determined that the price payable for the option – which Fox received following Flutter’s acquisition of The Stars Group (TSG) in 2019 – is based on FanDuel’s fair market value as of 3 December 2020, the date on which Flutter announced its acquisition of Fastball’s 37.2% stake in the brand.
It has now been determined that the fair value of the business as of that date amounted to $20bn, compared to the $11.2bn valuation implied by the price that Flutter paid for its stake.
The exercise price of Fox’s option is subject to a 5% annual compounding carrying value adjustment up to the date of any potential exercise, which may take place up until December 2030.
That brings the valuation of the option today – some two years on from the $20bn valuation of FanDuel – to $4.1bn for an 18.6% stake at an overall implied valuation of $22bn. This, it is worth pointing out, represents the vast majority of Flutter’s current market cap of some £21bn.
To exercise the option, Fox will need to be licensed and will have to pay up in full and in cash. If it is not exercised within the determined timeframe, the option will lapse.
Flutter CEO 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.”
One other matter resolved by the tribunal was a claim by Fox that Flutter had failed to provide commercially reasonable resources to the operation of the firms’ joint FOX Bet venture.
The tribunal denied this claim in its entirety and ruled in favour of Flutter, stating that commercially reasonable resources had been provided to the brand.
Provided it becomes licensed, Fox retains the right to acquire up to 50% of TSG US from Flutter.
In the event it does not get licensed and exercise its option in relation to the TSG business, both parties have a right to terminate their agreement in relation to FOX Bet in August 2023.
If either party does so, that would result in the termination of the FOX Bet business. In that event, Flutter would retain ownership of PokerStars US and Super6, while FOX Corporation would be solely responsible for the future use of the FOX Bet brand.
“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,” said Flutter CEO Peter Jackson.
“FanDuel is winning in the US market and the clear #1 operator, a position driven by its exceptional market leading product and efficiency in acquiring customers at scale. The team remain focused on maintaining our leadership position and we look forward to updating the market on our progress at our US capital markets day on 16 November.”
One remaining matter to be considered by the tribunal relates to a possible IPO of FanDuel and whether Fox has the right to participate in it.
Fox Corporation: “This optionality over a meaningful equity stake in the market leading US online sports betting operation confirms the tremendous value Fox has created as a first mover media partner in the US sports betting landscape.”
Flutter has agreed that it will not proceed with any potential IPO, if at all, until that matter is resolved by the tribunal or both parties have reached a mutual decision. A binding decision from the arbitrator is expected in early 2023.
In a separate statement, Fox said it was pleased with the “fair and favourable” outcome of the Flutter arbitration.
“Flutter cannot pursue an IPO for FanDuel without Fox’s consent or approval from the arbitrator. Fox has a 10-year call option that expires in December 2030 to acquire 18.6% of FanDuel for $3.72 billion, with a 5% annual escalator.
“Fox has no obligation to commit capital towards this opportunity unless and until it exercises the option. This optionality over a meaningful equity stake in the market leading US online sports betting operation confirms the tremendous value Fox has created as a first mover media partner in the US sports betting landscape.”
The tribunal’s upcoming binding decision on the matter of the IPO once again brings the discussion around a possible spin-off of the US market-leading brand back to the fore.
According to a statement published in The Telegraph, Flutter responded to Fox’s IPO claim: “We can also confirm on-the-record that Fox does not have a block on any potential IPO of FanDuel, should one occur.”
With unfavourable market conditions prevailing, however, it is not yet clear whether a public offering of the brand is likely to be on the cards at this time.
Universities staying out of gambling? Don’t bet on it
The relatively new phenomenon of legalised sports betting in the US has led to some highly questionable marketing techniques – and none more so than the one pointed out by Bloomberg this week.
The media company put out a story detailing a marketing message that had been sent to students at Louisiana State University (LSU) by the institution’s athletic department, on behalf of Caesars Sportsbook.
Students were encouraged to sign up to place bets with the operator in an email under the subject line “$300 in Free Bets Await”, leading one student, Piper Hutchinson, to express her concerns.
“There needs to be a line between the business aspect of athletics and the academics of a major flagship university,” Hutchinson said – deftly pointing out the obvious fact that, in all likelihood, universities probably shouldn’t be encouraging their young students to get into gambling.
According to Bloomberg, LSU is one of at least seven universities to have reached lucrative advertising agreements with sports betting operators – which have them display and broadcast ads across student radio, the schools’ mobile apps, and inside college sports stadiums and arenas.
While sports betting is certainly a solid way for college teams to pump up their budgets, the industry will need to find very clear ways of preventing universities from aggressively promoting gambling to their young students, before both sides of these deals find themselves in hot water.
NFTs? So 2021
The Financial Times raised its concerns over the future of the NFT market this week, after revealing that the average selling price of the blockchain-tethered artworks had fallen more than 48% since peak in November.
Over the past two weeks, the average price of an NFT has slumped to $2,500 according to data from NonFungible, while daily trading volumes on NFT marketplace OpenSea have plummeted around 80% in March after peaking in February.
Of course, it’s the smaller investors and generally gullible who lose out, with some members of an NFT discussion group on Telegram commenting that they would be “living off rice, porridge and grass this month.”
The virtual world of NFTs is feeling the impact of real-world conflict, as the average price of the popular Bored Ape collection has fallen 44% since the war in Ukraine began, with investors deciding to channel their money elsewhere.
This downturn in trading has also mirrored a broader sell-off in Ether, the most popular cryptocurrency used for trading NFTs, with its value falling over 40% since an all-time high in November.
Meanwhile, Instagram owner Meta showed how its size may now be slowing it down, as it also announced this week that it will be adding the NFTs to the photo-sharing social media app, perhaps just a few months too late.
According to a piece in CoinTelegraph, male humanoid Mark Zuckerberg reportedly said at the SXSW conference that Instagram users will “hopefully” be able to mint NFTs within the platform in coming months.
If this project goes the way of Facebook’s ill-fated Libra cryptocurrency, investors in the social media giant had better keep an eye out for some mega losses in the near future.
Fox Bet saga continues as Murdoch weighs in
Bloomberg published a story on the ongoing trouble between Fox Corp. and Flutter Entertainment as the Fox Bet brand continues to struggle in the US market.
The piece details a long and drawn-out relationship between the media giant and gambling operator, which began when Flutter bought out The Stars Group, which had created Fox Bet together with the Murdoch family back in 2019.
Flutter now owns the operator, but Fox has an option to acquire 50% of the business. However, with Flutter’s flagship US brand, FanDuel, raking in some 40% of US online sports betting market share, and Fox Bet securing less than 1% outside Nevada, Flutter appears reluctant to invest into the struggling brand or engage in a dual-brand strategy.
The poor performance of Fox Bet is considered a real problem by Fox CEO Lachlan Murdoch, who views the burgeoning sports betting industry as a huge opportunity for the media giant.
One way into the business would be for Fox to exercise an option to purchase 18.6% of FanDuel – but the two parties have so far failed to agree on a price, and are set to go to arbitration in June.
Earlier this month, Flutter CEO Peter Jackson said on an earnings call that the company has had talks with Fox to resolve the issue of its option to invest in FanDuel but that no agreement had been reached.
“If we can’t get the deal that’s right for our shareholders, we’re very comfortable going to arbitration,” he said.
The Murdochs may well be accustomed to getting what they want – but it appears they may have met their match in Flutter.