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Fox has filed a confidential lawsuit against Flutter, the UK-based majority owner of FanDuel, to secure the option to get into FanDuel Group for the same price Flutter paid in December – a much lower price than, who thinks Flutter is FanDuel today.
Fox plans to acquire an 18.6% stake in FanDuel for a value of $ 11.2 billion – the value set when Flutter acquired a 37.2% stake in FanDuel from Fastball in December. But Flutter has argued that Fox would have to pay “fair market value” to exercise the option in July. That price could be determined by an IPO of FanDuel, which Flutter is considering. If FanDuel is not spun off by July, Flutter has announced that the banks will determine the fair value of FanDuel. That figure is likely to be higher than DraftKings’ market cap of $ 25 billion, given FanDuel’s higher market share in key markets.
Fox filed the lawsuit with New York’s Judicial Arbitration and Mediation Services (JAMS) last week, a company spokesperson confirmed.
“Fox Corporation has filed a lawsuit against Flutter to enforce its rights to acquire an 18.6% stake in FanDuel Group – an American sports betting brand – at the same price that Flutter paid for that stake in December 2020,” said one Fox spokesman in a statement given to CNBC. “The lawsuit was filed as arbitration with JAMS in New York, NY with the consent of the parties.”
Flutter is considering bringing FanDuel to the public – as CNBC first reported last month – as the sports betting market is about to explode and 19 states will vote to legalize mobile devices this year. According to The Action Network, a sports games news and analytics company, US sports betting resulted in gross sales of $ 30 billion in 2020.
It is unclear whether Fox’s lawsuit will disrupt planning related to FanDuel’s IPO. If an IPO continues, pending litigation could affect how investors evaluate a publicly traded company.
A Flutter spokesperson did not immediately respond to the request for comment.
FanDuel has consistently led DraftKings for market shares in Illinois, New Jersey and Pennsylvania – three of the largest legalized sports betting markets. This has given Flutter and FanDuel executives the confidence that FanDuel will be rewarded for DraftKings, according to two people familiar with the discussions who have asked not to be named because the discussions are private.
Peter Jackson, chief executive of Flutter, said during his company’s earnings conference call in March that Fox would pay a fair market value for its 18.6% stake in July 2021.
“We will honor our commitment to give Fox the option to acquire 18.6% of FanDuel at fair market value in July 2021,” said Jackson. “To make the valuation clear, FOX must pay the fair market value, which is different from the negotiated price agreed between Flutter and Fastball, which reflects the particular circumstances that Fastball was in. The valuation is made in the same way, as it would have happened, fastball would still have owned the stake. “
In December, when Flutter announced its intention to acquire a 37.2% interest, Jackson reiterated the claim.
“We intend to offer our media partner FOX the option to buy 18.5% of FanDuel in July 2021 at fair market value, with essentially the same terms and valuation mechanisms as the previously agreed parties for the Fastball Put / Call options would have applied. “
And in Flutter’s prospectus of March 27, the “market value” clause is repeated again. “FSG [Fox Sports] has the right to acquire an approx. 18.5% stake in FanDuel Parent Group LLC from the Flutter Group at market value in 2021. “
Fox claims Flutter was inventing the 2021 fair market value clause after the fact, arguing that there was no such wording when his original contract was signed, according to those familiar with the matter who asked not to be named because the lawsuit was private is. Fox executives believe a fair market value clause essentially nullifies the option’s existence – especially if an IPO occurs before July 2021, when the fair market value was the company’s trading price in the open market.
There is one other factor that complicates the situation.
Flutter also owns the Stars Group, whose US operations include PokerStars and Fox Bet. The company acquired the company in October 2019 as part of a $ 6 billion all-stock deal.
Fox Bet competes directly against FanDuel. While Flutter has made a public commitment to support a dual branding strategy in the US, promoting Fox Bet comes at the expense of FanDuel’s growth.
Fox currently has a 10-year option to buy half of Stars Group’s US business. For months, Fox has been pushing Flutter to include The Stars Group in a FanDuel IPO by formally merging the Flutter units, according to people familiar with the matter. Fox believes that option is alongside Fox’s 18.6% stake in FanDuel, according to those familiar with the company’s thinking.
The companies have discussed the merger and potential elimination of Fox Bet, according to people familiar with the matter. But Fox says it would have to be compensated for its option when The Stars Group merges with FanDuel. Instead of cash, according to the population, Fox has pushed for more equity in the event that FanDuel is going public.
Disclosure: CNBC’s parent company Comcast and NBC Sports are investors in FanDuel.
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