Fox (NASDAQ:FOX)(NASDAQ:FOXA) is arguably best known for its news business, but its sports network has a big following, too. It's seen by many as an equal to Disney's ESPN, if not the leader, particularly as it keeps poaching talent from its rival.
Yet Fox could also become a powerhouse in sports betting soon as it is positioned to acquire a near-20% interest in global sportsbook giant FanDuel, which is owned by Flutter Entertainment (OTC:PDYPF).
A roundabout journey
Fox's recent sports history is a bit messy and convoluted, but it's important to understand what's at stake.
Following Fox's media assets sale to Disney in 2019, as a condition of the acquisition, Disney sold the Fox regional sports networks (RSNs) it acquired to Sinclair Broadcast Group. In partnership with casino operator Bally's, Sinclair renamed the RSNs Bally Sports earlier this year.
But the RSNs shouldn't be confused with Fox's own sports channels, Fox Sports 1 and 2, Fox Sports Radio, and several other channels that are part of Fox Sports Media Group. Fox had also created a betting platform called FOX Bet in a joint venture with Canadian gaming and online gambling company The Stars Group (TSG), with Fox owning a 5% share and having the right to acquire 50% of TSG's U.S. business over the next decade.
However, Flutter acquired TSG last year, giving it ownership of FOX Bet, but also giving Fox a 2.6% equity stake in Flutter.
The transaction also gave Fox an option to increase that ownership interest in Flutter to 18.6% in July, and that is now a point of contention between the two after Flutter floated the idea of spinning out a portion of the FanDuel sportsbook as a separately traded public company. The two are now in arbitration over just how much Fox has to pay to acquire that bigger stake.
Valuing the leading sportsbook
Flutter says Fox needs to pay market rates; Fox believes it should pay a lot less. The discrepancy, though, has put the two at loggerheads as Fox threatened to pull FanDuel advertising from its platform while Flutter says a FanDuel IPO might not include FOX Bet (or its own PokerStars asset).
Although Fox maintains "we highly value our various partnerships with the Flutter Group," the latter has done a bit of trash-talking about just how little value FOX Bet adds.
During its first-quarter earnings conference call, CEO Peter Jackson described the "struggles" Flutter is having "with the quality of the product for FOX Bet, which is something which is definitely hampering the ability for that business to get the traction it needs."
It also broke out the contribution of each of its assets for the first time, highlighting FanDuel accounts for 91.6% of its revenue, with a combined FOX Bet and PokerStars representing just 8.4%.
Together, Flutter's sportsbooks added 900,000 new players in the first quarter with total average monthly players growing 132% to 1.6 million. That's good enough for a market-leading 36% share, compared to about 25% for DraftKings (NASDAQ:DKNG) and 16% for MGM Resorts International's BetMGM.
Assuming Flutter and Fox amicably settle their differences, a FanDuel IPO could offer Fox significant upside.
It's all about the media assets
First, Fox would gain a sizable ownership stake in a global sportsbook, since beyond FanDuel, Flutter also owns Paddy Power, BetFair, and PokerStars. But at least one analyst believes there's also the potential for Flutter and Fox to create a new company, one that melds the sportsbook with Fox's non-news assets.
Despite the current acrimony between the two, it's not so far-fetched. Blending sportsbooks and media assets is highly fashionable. Here are a few transactions that took place in this space recently:
- There's the aforementioned Bally's tie-up with Sinclair.
- Sports live-streaming platform fuboTV plans to expand into sports betting later this year.
- DraftKings recently partnered with Sling TV to launch a sports odds channel.
- Penn National Gaming acquired a large stake in Barstool Sports.
- BetMGM partnered with Yahoo! Sports.
A good argument can be made that Fox needs FanDuel more than the latter needs the broadcaster, but it is still in the interest of both to come to terms.
Better for both
Sports betting is increasingly becoming tied to media outlets, and both Flutter and Fox can become a sports betting powerhouse by linking Fox Sports' pre-eminent platform with the sportsbook.
FanDuel is already the national leader in the space, but this partnership could have it running away from the competition.