Flutter Go All-In On $4.2 Billion FanDuel Acquisition Deal

December 15, 2020

Flutter buyout Fastball's FanDuel Stake

Investors had cause for celebration this past week when FanDuel announced a further investment from Flutter Entertainment when they agreed to purchase more stock to the tune of $4.2 billion. Flutter has increased its investment into the sportsbook market with the purchase of FastBall’s 37.2% stake, thereby making Flutter the majority shareholder.

Flutter, previously known as Paddy Power, who initially partnered with FanDuel in 2018, and has held 57.8% of the company up to now, retained an open-ended option to buy out the rest of the company, which became possible through the financing of the sale via cash and selling of stock.

Martino, an early investor into FanDuel and managing director of Bullpen Capital, was relieved that the stock was purchased for a price that was quite close to market value, and included a discount that resulted in significant savings. The completion of the sale was initially planned to happen in 2023.

Flutter Strategy

Peter Jackson, CEO of Flutter revealed the company’s strategic objectives by saying:

“Our number one position in the crucial US market is built on many of the assets we acquired through that transaction, supported by the broader group’s capabilities.” He went on to reference the competition which many believe refers to DraftKings, the company’s closest peer, “Our intention has always been to increase our stake in the business and I’m delighted to be able to do so earlier than originally planned and at a discount to its closest peer.”

The purchase of FastBall’s 37.2% stake for a mere $4.2 billion is a massive discount when compared to what the same percentage of DraftKings is worth.

Flutter has been strategically partnering with major role players like the Fox Corporation who purchased a 5% stake into The Star Group (TSG), a gaming firm which was then acquired by Flutter in 2019. That particular deal had Fox investing $236 million and was recently valued at upwards of $2.3 billion this past September thanks to some well-placed mergers and partnerships.

Sportsbook State of Play

Matt King, CEO of FanDuel noted that, while sports betting is still relatively young as an industry, they have successfully managed to secure a strong market position by being the first operator to exceed more than $1 billion in gross gambling revenue which was the target they had set for themselves in 2020. The intention of this purchase was, “… really about accelerating Flutter’s investment in the U.S. market,” said King.

Founded in 2009, FanDuel launched with a daily fantasy sports betting offering that led to significant expansion over the last few years. After a failed merger with rival DraftKings, the company has grown to roughly $850 million in expected nett revenue and a 43% market share in US territories where sports betting has been legalized.

King isn’t at all phased by the growth of DraftKings which has seen a 5 times increase in stock prices year-on-year to date and Penn National Gaming who have seen their share prices almost triple since the same time last year.

While legalisation still presents challenges to the market, FanDuel sees it as an opportunity. After stating that he doesn’t consider this to be a “winner take all” market, he said, “The fact that you now have states who have been live for a couple of years just makes it easier for new states to see, in living colour, all the good things that happen when you do this.”

FanDuel’s strategy to systematically strengthen its market position has paid off in a big way as they strategically partner with significant role players. Their commitment to the legalization of the sports betting industry in the US is encouraging and it will be interesting to see what comes next.