What the Latest Deal in Sports Betting Says About DraftKings Stock
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The overall general view of atmosphere at the FanDuel Fantasy Golf Classic in New York City.
Michael Loccisano/Getty Images for FanDuelFlutter Entertainment has a deal to increase its stake in the U.S. daily fantasy sports and online betting firm FanDuel. Analysts at Morgan Stanley think the valuation could be negative news for DraftKings.
Under the deal, which is subject to shareholder approval, Flutter (ticker: FLTR) would acquire Fastball Holdings’ 37.2% stake in FanDuel for about $4.18 billion. Fastball would get about $2.09 billion in cash and about 11.7 million new shares of Flutter.
Flutter plans to raise about £1.1. billion ($1.48 billion), by selling stock. Fox CEO Lachlan Murdoch said in a news release that the company, which owns part of Flutter, will participate in the capital raising. Murdoch is co-chairman of News Corp, which owns Dow Jones, the publisher of Barron’s.
“Maintaining our ownership stake in Flutter signifies our long-term commitment to Flutter, and ongoing confidence in management’s ability to execute against the fast growing US opportunity,” Murdoch said. “FOX’s audiences have proven to be highly engaged with free to play and wagering content, and we are excited to offer them access to products from Flutter’s market leading stable of US brands.”
The deal implies an enterprise value for FanDuel of $11.2 billion, and would increase Flutter’s stake to 95%. That’s a discount to FanDuel’s closest peer, DraftKings (DKNG), which has an enterprise value of about $20 billion. Boyd Gaming (BYD) has the remaining 5% stake in FanDuel.
Morgan Stanley analysts Thomas Allen and Ed Young said they believe the FanDuel valuation “is a negative read” for DraftKings stock, pointing to FanDuel’s current lead in market share in the U.S. sports-betting business.
There are some nuances that may have driven the valuation lower, the analysts noted.
Flutter owns Fox Bet, an online sports-betting app that partners with Fox Sports and was originally owned by the Stars Group, which merged with Flutter earlier this year. As part of that deal, Fastball was provided an economic interest in Fox Bet that would have paid it 11% of the rise in Fox Bet’s valuation from this past May to July 2023. As part of the new deal, that economic interest is terminated.
Investors seemed to cheer on the deal. Flutter’s American Depositary shares popped 7.4% to $95.94 Thursday morning, while DraftKings stock was down 0.4%. The S&P 500 index was up 0.3%.
Write to Connor Smith at connor.smith@barrons.com