Flutter Buys Larger FanDuel Stake, Takes DraftKings Head On In US

Flutter Entertainment PDYPY is making a big bet on the growth of the U.S. sports betting market.

What Happened: On Thursday, Flutter announced it's increasing its ownership in FanDuel from 57.8% to 95%. The purchase by Flutter comes from Fastball Holdings, which will now own 7% of Flutter Entertainment.

Flutter is paying $4.2 billion for the stake, with $2.1 billion coming from cash and the rest in the form of newly issued Flutter Entertainment shares.

Boyd Gaming BYD will retain its 5% stake in FanDuel.

Fox Corporation FOX is a key to the deal as they will own a stake in Flutter and will help Flutter with funding for the deal. Fox will also have the option to purchase an 18.5% stake in FanDuel at fair market value in July 2021.

Why It’s Important: The press release from Flutter calls the U.S. sports betting market “the most attractive sector opportunity today.”

Roundhill Investments CEO and Co-Founder Will Hershey told Benzinga the news itself wasn’t a surprise.

“What is a surprise, and a positive one at that, is the valuation. The implied FanDuel valuation of $11.2 billion is a significant discount to DraftKings,” Hershey said.

Boyd Gaming, DraftKings Inc DKNG and Flutter Entertainment are all held in the Roundhill Sports Betting & IGaming ETF BETZ.

Hershey said Flutter initially invested in FanDuel in 2018 at a valuation of $1 billion.

“From a strategic perspective, it’s now increasingly possible that Flutter may look to spin-off all or part of its stake in FanDuel onto a U.S. exchange, unlocking shareholder value," he said.

Hershey said it will be interesting to see if Fox makes the investment next year, as it would surpass the threshold for qualifying as a regulated gaming operator similar to an option Comcast Corporation CMCSA has to acquire a stake in PointsBet.

“If either of those options are exercised," said Hershey, "the media’s commitment to the growth of sports betting will be further validated.”

Related Link: Sports Betting ETF Co-Founder Talks SPACs, Undervalued Foreign Exchange Plays

DraftKings Competition: Hershey said FanDuel expects 2020 net revenues of around $850 million compared to estimates of $540 to $560 million from DraftKings.

Fox Business said FanDuel has 9.5 million customers betting and a 43% market share in legalized sports betting states for the third quarter. FanDuel expects to have online sports betting in 14 states and iGaming in four states by the end of 2021.

Benzinga’s Take: The valuation used in the deal could put pressure on DraftKings stock as the company has a market cap of over $20 billion.

The ownership of FanDuel stakes by Boyd and possibly Fox could be catalysts going forward if Flutter Entertainment decides to list FanDuel as a spin-off company on a major U.S. exchange.

Price Action: Shares of Flutter Entertainment closed Thursday's session up 8.56% to $97. The stock is up 50% in 2020.