Fox Proceeding with Plans to Take FanDuel Stake at $2.2B Discount

Posted on: September 11, 2024, 09:47h. 

Last updated on: September 12, 2024, 10:31h.

Todd Shriber @etfgodfather Read More

Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Fox Corp. (NASDAQ: FOX) could be preparing to take an 18.6% stake in Flutter Entertainment’s (NYSE: FLUT) FanDuel, and the media giant could do so at a significant discount to the sportsbook operator’s market value.

At the Goldman Sachs Communacopia and Technology Conference, Fox CEO Lachlan Murdoch said the media company is proceeding with plans to take an 18.6% interest in FanDuel, the rights to which were acquired in 2020 when Flutter doled out $12.2 billion for The Stars Group (TSG). Fox sold Sky Bet to TSG in 2018 for $4.7 billion, taking an equity stake in the buyer.

Murdoch told attendees at the conference that Fox values FanDuel at $35 billion, meaning 18.6% is worth $6.5 billion. Assuming he’s correct and FanDuel is worth $35 billion, that implies the gaming company is worth $17.22 billion more than DraftKings (NASDAQ: DKNG), its most direct competitor. At the close of US markets on Wednesday, DraftKings sported a market capitalization of $17.78 billion.

Fox Won’t Leave $2 Billion on the Table, Says Murdoch

That $6.5 billion figure is well in excess of the $4.3 billion Fox previously estimated it would need to pay to exercise its rights to acquire 18.6% of FanDuel. To buy that portion of FanDuel, Fox must be a licensed sportsbook operator in the states in which FanDuel does business. Murdoch mentioned at the Goldman Sachs conference that the company is working to address that issue.

We’re not going to leave $2 billion on the table,” he said.

It’s clear FanDuel has appreciated in value. Following a legal spat in 2022 between Flutter and Fox, the latter agreed to buy that 18.6% of FanDuel for $3.72 billion with a 5% annual escalator, meaning that for each year the option wasn’t exercised, the price would go up 5%.

“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,” according to a November 2022 statement issued by the media firm. “FOX has no obligation to commit capital towards this opportunity unless and until it exercises the option.”

Murdoch said Fox has already initiated the process of procuring state gaming permits.

“We’ve begun the process with state regulators,” Murdoch said. “To fully monetize the option, we need to be licensed as a gaming operator, even with only with only 18.6% and so we’ve started that process with state regulators to begin the gaming licensing approvals.”

Where’s Fox Going to Come up with $4.3 Billion?

Murdoch didn’t get into specifics of how Fox would come up with the $4.3 billion needed to activate its FanDuel stake. Coincidentally, the media entity had $4.31 billion in cash and cash equivalents at the end of fiscal 2024.

He didn’t mention the possibility of selling debt to fund acquisitions or the purchase of the FanDuel interest.