Flutter Entertainment in play with FanDuel as the main prize


While US companies taking over UK defence companies is causing some national security concerns, no such qualms are necessary over British bookies falling into foreign hands.

Flutter Entertainment PLC (LSE:FLTR) – strictly speaking, it’s an Irish bookie, albeit one listed in London – is the latest company in the frame as a potential takeover target.

Investors might know it better under its former name, Paddy Power. Young investors might know it as the company that took over Betfair, the bet-matching platform operator.

Both of those are good businesses but it is Flutter’s stake in FanDuel, a US fantasy sports company valued at around GBP13bn, that is causing the excitement in the City and on the fee-hungry mergers & acquisitions (M&A) teams of investment banks.

That GBP13bn valuation forms more than half of the GBP24.5bn stock market valuation of Flutter.

No wonder there was speculation in the press in March that Flutter would hive off FanDuel and list it in the US, where the legalisation of gambling has started to take place some 60 years or so after it was legalised in the UK.

That press speculation forced Flutter to concede it was considering the listing in the US of “a small shareholding in FanDuel”.

Since then, it has been reported that any initial public offering (IPO) of FanDuel has been postponed until next year following the decision of FanDuel chief executive Matt King to quit the role.

A long-standing dispute with Rupert Murdoch’s Fox Corporation is also muddying the waters on any flotation. Fox has a 2.5% stake in Flutter and has an option to acquire an 18.6% equity interest in FanDuel at a price that the two parties are still arguing over (an arbitrator will decide, probably in 2022).

The delay opens up the possibility of another US company swooping in to buy Flutter and with it FanDuel. The latter accounts for around nine-tenths of Flutter’s stateside revenue and with the US gambling market growing apace, it is an enticing morsel for any predator, particularly the Las Vegas-based titans that are, perhaps, a bit lacking in knowledge when it comes to operating a gambling business in the digital age.

After all, Caesars Entertainment Inc was prepared to pay GBP2.9bn for William Hill, once the biggest bookmaker in Britain, and it wasn’t because it wanted to get its hands on the shabby betting parlours in the Balls Pond Road and other similarly downmarket areas.

Meanwhile, rumours continue to circulate that MGM Resorts, a joint venture partner of Corals and Ladbrokes owner Entain, will revive its bid interest in Entain.

Flutter paid US$158mln for a 58% stake in 2018 and folded the rest of its US assets into the company. It is an indication of how much interest there is in betting on sport (or “sports” as they call it across the pond) in the US that lifting that stake to 95% cost it a further GBP3bn, although that is still looking like a bargain.

Flutter’s share of the online sportsbook market in the US is a dominating 45%, twice the share of its nearest competitor, DraftKings, which has a US$21.6bn stock market valuation.

Not that the business is making any money yet but according to the Facebook/Amazon/Tax Dodge Inc model of modern corporate America that probably just makes it more enticing; we are in the land-grab phase and there will be plenty of time to gouge money from the punters once all of the competition has been effectively killed off, although obviously, a large chunk of this money will need to be diverted to <ahem> political lobbying.

Flutter says its US operation is expected to be profitable at the underlying earnings (EBITDA) level in 2023, based on its expectations of future relaxation of gambling laws in US states.

Whether Flutter will still be an independent entity by then is open to doubt.


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