An arbitrator has issued a mixed-bag ruling siding with FanDuel’s parent company on the price Fox Corp. would have to pay to exercise its option to purchase an 18.6 percent stake in the sports betting company, but agreed with Fox that it has 10 years to exercise the option.
The ruling means Fox has until December 2030 to acquire the 18.6 stake in FanDuel for a price of $3.72 billion, with an annual escalator of 5 percent. That would make the price of purchase today $4.1 billion.
Fox initiated arbitration proceedings with Flutter Entertainment in April 2021, when a dispute arose between the parties about the terms of Fox’s option to acquire the FanDuel stake. Flutter, an Irish company, owns a majority interest in FanDuel.
Fox had argued the cost to purchase its stake should be based on an implied $11.2 billion valuation of FanDuel when Flutter acquired minority partner Fastball’s 37.2 percent stake in the sports betting site in December 2020.
Fox said the stake should cost it $2.08 billion — about half of what Flutter paid to buy Fastball out.
But Flutter argued Fox should have to pay the fair market value of the 18.6 percent stake as of July 10, 2021. Flutter’s experts testified the value of the company was as much as $22 billion at that time.
The arbitrator, Kathleen Roberts of Judicial Arbitration and Mediation Services, didn’t adopt wholesale either side’s argument, and held that the cost for Fox to exercise its option should be based on the fair market value of FanDuel as of the December 2020 deal — $20 billion.
“At the time of the accelerated buyout [of Fastball], both parties independently estimated internally and stated publicly that Flutter obtained 37.2 percent of FanDuel at a ‘discount’ of approximately 40 percent, implying a full (undiscounted) FanDuel value of $18.7 billion,” Roberts wrote, noting that the parties had additionally supplemented the record with independent valuations of FanDuel as of Dec. 3, 2020, specifically for this litigation “using a variety of methodologies.”
Roberts, a former U.S. magistrate judge for the Southern District of New York, said that based on all the evidence the fair market value of FanDuel as of the December deal is $20 billion, meaning the exercise price is $3.72 billion.
Vineet Bhatia of Susman Godfrey, who represents Flutter, told The Texas Lawbook that the key to achieving this result for his client was overcoming what he characterized as the Fox legal team’s attempt to “inundate us with document production and constant demands for additional documents.”
“The real turning point in this case was getting the arbitration started so then we could focus on the issues that mattered, which we thought should be decided based on the contract itself,” he said. “In the end … both sides had produced hundreds of thousands of pages of documents, but the dispute was really decided based on the contract itself and a handful of documents.”
He also credited the testimony of Flutter’s senior-most executives, who had firsthand knowledge of the issues, with helping to achieve the favorable result.
Fox issued a statement calling the outcome of the arbitration “fair and favorable.”
“Fox has no obligation to commit capital towards this opportunity unless and until it exercises the option,” the statement reads. “This optionality over a meaningful equity stake in the market leading U.S. online sports betting operation confirms the tremendous value FOX has created as a first mover media partner in the U.S. sports betting landscape.”
A full hearing took place over about 15 days in June and July before Roberts, who called the parties back in September for oral arguments on the issue of FanDuel’s valuation.
Another proceeding before the arbitrator is likely to come in January or February 2023, because a dispute remains as to what happens should Flutter decide to sell equity from FanDuel via an initial public offering and what participation rights Fox would have in that process should it choose to exercise its option.
The legal team for Fox declined to comment.
Flutter is also represented by Amanda Bonn, Stephen E. Morrissey, Floyd G. Short, Emily A. Parsons, Jennifer Dayrit and Mark Musico of Susman Godfrey.
Fox is represented by Ian Gershengorn, Brian J. Fisher, Michael W. Ross, Terri L. Mascherin, Andrew Cherry and Brandon D. Fox of Jenner & Block and Gregory P. Joseph, Mara Leventhal and Christopher J. Stanley of Joseph Hage Aaronson.