Flutter Mulls FanDuel Spin-Off as Investors Push for DraftKings Valuation

Posted on: March 13, 2021, 01:01h. 

Last updated on: June 30, 2021, 10:12h.

Flutter Entertainment (OTC:PDYPY) is considering spinning out its FanDuel business and listing a portion of that unit on a US exchange.

FanDuel spin off
Flutter CEO Peter Jackson. His company is considering a FanDuel spin-off. (Image: The Irish Times)

The Irish gaming giant made remarks to that effect today after a report surfaced Friday. Some investors are pressing the company to unlock the value of a business that’s the largest online sportsbook operator in the fast-growing US market.

Options including the listing in the US of a small shareholding in FanDuel are being considered. But no decision has been made at this time,” said Flutter in a statement.

As sports betting in the US takes off, rumors of a FanDuel separation are persistent and date back to last year. That speculation intensified last December when Flutter doled out $4.175 billion to buy 37.2 percent of the daily fantasy sports (DFS) and sportsbook business from Fastball Holdings LLC, boosting its stake to 95 percent. Boyd Gaming (NYSE:BYD) owns the other five percent.

Fastball, a group comprised of private equity companies KKR and Shamrock Capital, Comcast, Google’s venture capital unit, NBC Sports, and Verizon Ventures, still owns seven percent of Flutter.

FanDuel Spin-Off Could Top DraftKings Valuation

Investors’ desire to see Flutter separate a portion of FanDuel in a US listing is understandable. The operator holds the largest share in the burgeoning US online sports wagering and shareholders are seeing the valuation assigned to rival DraftKings.

Up 54.10 percent year-to-date, DraftKings’ market capitalization is approaching $30 billion. On that basis, the company is larger than 220 of the S&P 500 member firms. That’s not lost on Flutter investors, who well know FanDuel is larger than it’s most direct competitor.

“Flutter management is undoubtedly watching the meteoric rise in Draftkings’ valuation — now a $27 billion enterprise value — and strongly considering a spin-off of FanDuel to unlock shareholder value. While FanDuel generated a reported $967 million in 2020 revenues (versus Draftkings’ $644 million) Flutter recently increased its FanDuel stake (to 95%) at a $11.2 billion value,” said RoundHill Investments co-founder Will Hershey in an interview.

As Hershey notes, a FanDuel separation from Flutter would unlock “billions of dollars in shareholder value” for the parent company’s investors.

However, some market observers see Flutter as bogged down by slower-growing units, such as Betfair, FOX Bet, PokerStars, and Paddy Power, meaning CEO Peter Jackson could be reluctant to part with his company’s plum asset.

Fox Involvement

It remains to be seen, but the involvement of Rupert Murdoch’s Fox Corp. (NASDAQ:FOXA) could complicate matters regarding a FanDuel spin off.

“Following the Flutter stake increase, the Fanduel cap table is cleaned up a bit, and potentially sets the stage for such a transaction to come to fruition,” said Hershey. “The complicating factor, however, remains Fox Sports’ option to purchase 18.5 percent of FanDuel later this year. It’s unclear if any spin-off transaction could be effectively completed prior to certainty around the likelihood of the Fox option exercise.”

Fox recently said it plans to increase its FanDuel stake by as much as 20 percent this year. The media group is also one of Flutter’s biggest investors, with a 2.6 percent interest in the gaming company.

Still, it may be in Fox’s interest to join the chorus pushing for Flutter to let go of its US jewel. That’s because, by some analyst estimates, FanDuel in its current form is almost $7 billion undervalued relative to DraftKings.