FanDuel Continues Its Bumpy Journey To An IPO

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Early this year, investors were getting excited at the prospect of Flutter spinning off FanDuel Group in an IPO. Several factors derailed those plans, but now just about everything is in place for next year.

Two major hurdles remain. One is that Flutter needs to resolve its dispute with its media partner, Fox Sports. There’s also an ongoing legal battle with FanDuel co-founder Nigel Eccles.

Dublin-based Flutter had originally been rumored to be considering a July 2021 public offering of its US powerhouse brand. However, a quadruple threat got in the way. As a result, Flutter delayed the move by a year.

Now, at least, two of the other problems are resolved:

FanDuel IPO needs Flutter/Fox resolution

The main reason for a public offering is to generate cash for the offering entity. If Flutter fails to reach a favorable resolution in its dispute with Fox, those difficulties could cost the company a fair bit.

Fox wants a better deal for itself out of the IPO, which by necessity means a worse one for Flutter and its shareholders. It had a pre-existing relationship with Stars Group when Flutter bought out that company in May last year. Part of that deal was a guarantee to Fox that it would have the right to buy a piece of FanDuel Group after the merger.

Fox explained its view of things in an April 2021 press release:

Fox Corporation has filed suit against Flutter to enforce its rights to acquire an 18.6% ownership interest in FanDuel Group—an American sports betting brand—for the same price that Flutter paid for that interest in December 2020.

Flutter’s understanding was that Fox could exercise its option at a fair market value, not this historical price. The way the US online gambling market has been surging, this makes a big difference.

The dispute has been happening behind closed doors since April. Both parties are respecting the privacy of their negotiations happening in JAMS, formerly known as Judicial Arbitration and Mediation Services.

What is FanDuel actually worth?

FanDuel’s current valuation is in dispute for various reasons, but Bloomberg pegged it at $25 billion in April, and some have it as high as $39 billion. Back in December, Flutter acquired the remaining 37% of FanDuel for $4.2 billion, implying a total valuation of over $11 billion at the time. Depending on whose estimate you trust for the current value, the fight is over a difference in purchase price that could be anywhere from $2.6 billion and $7.2 billion.

By the time of the IPO, the difference may be larger still. Within the coming weeks, FanDuel will be adding its fifth full-service state: Connecticut. There, FanDuel’s casino and sportsbook platform will be powering the Mohegan Sun Online Casino.

Meanwhile, FanDuel is creating new media partnerships with the Associated Press and Minute Media – publishers of Mental Floss and more. Plus, Flutter is seeing rumors of its own about the world leader in iGaming and online sports betting being acquired, according to the Times and other publications.

Co-founder Eccles remains a thorn in FanDuel’s side

The other remaining issue goes back further, to 2018, when Flutter (then Paddy Power Betfair) first took ownership of FanDuel. That was the year that the US Supreme Court struck down the federal prohibition on sports betting. That same month, Paddy Power Betfair announced it acquired a controlling interest in FanDuel.

That miffed FanDuel’s creator and co-founder, Nigel Eccles. FanDuel’s low valuation at the time, combined with its financial structure meant he “didn’t make a dime on the deal,” according to Recode. He felt that the deal intentionally undervalued the company, so he sued.

If at first you don’t succeed…

That first lawsuit in Scotland failed. However, Eccles and other former FanDuel employees filed a similar case in February 2020 in New York Supreme Court. The most recent action in the case was last month.

The US case asks the New York court to make Eccles and other plaintiffs whole, but doesn’t name a dollar amount. The implication is that the plaintiffs are due sums for Flutter’s alleged breaches of its “fiduciary duties.”

The New York lawsuit states:

“Defendants include two late-stage investors in FanDuel – the private equity firms Shamrock Capital Advisors, LLC, and KKR & Co., Inc. – and members of FanDuel’s board of directors at the time of the Paddy Power Betfair merger – Mike LaSalle, Ted Oberwager, Andrew Cleland, Matt King, Carl Vogel and David Nathanses. As described in more detail below, each Defendmt director had substantial personal and/or financial ties to private equity firms with investments in FanDuel. More than two-thirds of the directors had ties with KKR and Shamrock.”

Matt King recently left FanDuel as noted below. He had been with KKR for nearly 11 years, before joining FanDuel for the first time in 2014. He became CEO in 2017.

While he’s now with Fanatics, an e-commerce company mainly known for sports apparel that is shopping for an online sportsbook to acquire, he still lists his occupation on LinkedIn as “Founder; Building something new in sports.”

King’s departure came at an inopportune moment

FanDuel was never a rudderless ship, but King left the company in July, just as the IPO was originally slated to happen.

Flutter had said King had given notice that he was leaving in an announcement two months earlier:

“During his 4 years as CEO, Matt has overseen the transformation of the business from online daily fantasy sports operator to the market leader in US online sports betting and gaming.”

On July 12, Flutter announced Amy Howe, former COO of Ticketmaster, as the interim CEO for FanDuel. Just this week, it made that arrangement permanent.

That former leadership role at Ticketmaster was what excited Flutter about Howe, who’s only been with FanDuel since February. In announcing her permanent CEO role, Flutter touted her transformation of Ticketmaster’s mobile platform, “doubling its growth in gross ticketing value and growing its mobile app customer base by 400%.”

Flutter CEO Peter Jackson said:

“The expansion of the US market represents the single most exciting opportunity for Flutter today. Amy’s track record of leadership and experience in scaling a digital business will be invaluable as we look to grow our leadership position there.”

One heavy piece of legal baggage dealt with

The other major issue hanging over the IPO was a massive $1.3 billion judgment against another subsidiary, Stars Group, by the Commonwealth of Kentucky.

Kentucky’s Supreme Court had reinstated that fine against PokerStars for its illegal activity in the state prior to 2011 and the events known in the poker world as Black Friday. After Flutter petitioned the federal Supreme Court to hear the case, the Commonwealth agreed to settle for $300 million. Flutter had promised investors that it would never end up paying more than a fraction of the $1.3 billion. Having confirmation of that bodes far better for a FanDuel IPO.

So far, Flutter is using its deep pockets to continue its other legal battles and hope its other opponents likewise fold. The fate of a 2022 FanDuel IPO may therefore depend on what hands Fox and Eccles are holding.