New York governor Andrew Cuomo signed a bill last week that would allow the first bets to be taken at next year’s Super Bowl on February 13.
This fired the starting gun on a race between American sports operators, which are competing for just two lucrative New York deals.
Cuomo’s decision was part of a much wider liberalisation of sports betting in America. As UK regulators tighten their grip on the industry, the US is going the other way.
Flutter Entertainment, the FTSE 100 owner of Paddy Power and Betfair, is in pole position to benefit, thanks to its FanDuel brand. It claims to be the market leader in American online sports betting, with a 40 per cent share and $1.1 billion in annual gross gambling revenues — a key industry metric that puts it slightly ahead of its nearest US rival. In its latest results, Flutter, led by chief executive Peter Jackson, said it expected the market to be worth more than $20 billion by 2025.
There are still reasons to be cautious, however.
Flutter is in a legal dispute with Fox Corporation over a shared interest in FanDuel.
Fox, owned by the Murdoch family, ultimate owners of The Sunday Times, was the media partner of the Stars Group, which merged with Flutter last year. As part of the merger, Fox has the option to buy an 18.6 per cent stake in FanDuel. Here’s where it becomes tricky.
Fox says it should be able to buy the FanDuel shares at the same price Flutter paid for an extra 37.2 per cent in the company in December. Flutter wants a higher price, claiming that Fox should pay “fair value” at the agreed date in July. Analysts at Redburn say December’s price would value the 18.6 per cent stake at £1.5 billion, a 40 per cent discount on the £2.5 billion Flutter thinks it’s worth.
The company, which made £4.4 billion last year, will hope the dispute does not hamper its plans to list part of FanDuel in the US (which would also establish a market value). However, analysts at RBC say it has the potential to knock £8.90 off the share price, which closed on Friday at £152.95, valuing Flutter at £26.8 billion.
Flutter believes its valuation does not properly reflect the value of FanDuel. Shares in DraftKings, a rival to FanDuel, have tripled since it listed via a “blank-cheque” company last April. Flutter is trading at a forward price to earnings ratio of 44.2 times, a premium to its closest competitor, Entain.
However, applying a DraftKings valuation to FanDuel implies it could be worth as much as about
£25 billion.
Despite its American dispute, Flutter is in a good position to win. Buy.
