Flutter Entertainment and Fox Corporation have announced that their Fox Bet sports betting joint venture will close next month.
A phased closure of the Fox Bet operations will take place from today (31 July) until 31 August.
Flutter has been operating the brand as part of The Stars Group US, along with the US-facing operations of the PokerStars business.
It was confirmed that Flutter will retain ownership of both PokerStars and FanDuel Group. However, Fox will retain future use of the Fox and Fox Bet brands. These include the Fox Bet Super 6 prediction game, with a revamped version of this still due to go live this summer.
In addition, Fox, which holds a 2.5% stake in Flutter, will retain its option to acquire 18.6% of FanDuel.
Fox Bet’s short history
Fox Bet was born in May 2019 when Fox linked up with The Stars Group to launch a new sports betting service in the US. This was prior to Flutter acquiring The Stars Group in May of the following year.
At the time, it was planned for Fox Bet to launch as two separate products. One product was to run as a nationwide free-to-play game, while the other focused on states where betting was legal.
It was also agreed Fox Sports, a subsidiary of Fox, would acquire a minority holding in The Stars Group. A price of $236m was set for a 4.99% stake.
An accompanying 25-year commercial agreement have The Stars Group an exclusive licence to use certain Fox Sports trademarks for games and online sports wagering. It also gained exclusive advertising and editorial integration rights on select Fox Sports broadcast media and digital assets.
Fox Bet debuted just a few months later, going live in New Jersey in September 2019. The product replaced the existing BetStars brand that had been active in the state.
Since the initial launch, Fox Bet went on to go live in Colorado, Michigan and Pennsylvania.
Fox files arbitration suit
However, the partnership was far from plain sailing. In April 2021, Fox filed an arbitration suit against Flutter, now owner of The Stars Group, in relation to a dispute over the purchase price of Fox’s option to acquire an 18.6% stake in FanDuel.
Flutter in December 2020 conditionally agreed to purchase a further 37.2% stake in FanDuel from Fastball for $4.18bn. This took Flutter’s holding in FanDuel to 95%, though the business also said it intended to offer Fox Sports the option to purchase 18.6% of the brand for fair market value in July 2021.
However, Fox said in the lawsuit that its agreement with Flutter was to purchase the stake for the price it would have cost in December of 2020. Under that price, the whole FanDuel business would have been valued at $11.80bn, and the 18.6% share would cost $2.09bn.
Tribunal sides with Flutter
The case ran until November 2022 when a New York arbitrator ruled Fox could acquire the stake from a $22.0bn valuation.
The tribunal ruled the price payable for the option was based on FanDuel’s fair market value as of December 3, 2020. This was the date on which Flutter announced the acquisition of Fastball’s 37.2% stake in FanDuel.
However, the tribunal said fair market value of FanDuel as of December 2020 amounted not to $11.20bn but to $20.0bn. This was based on the valuation submissions of both Flutter and Fox, and other factors including comparisons to rival DraftKings.
The tribunal said that “all parties understood that the purchase price of $4.18bn reflected a substantial discount” from the market value of FanDuel, due to certain terms in the agreement that incentives Fastball to sell, and so the higher figure was more appropriate.
Fox has a 10-year period from December 2020 to exercise the option to buy the stake. This is subject to an annual compounding carrying value adjustment of 5%. Should Fox not exercise within the timeframe, the option would lapse.
Fox’s supplementary items
Aside from the arbitration process, Fox filed two supplementary items for consideration. The first claimed Flutter failed to provide commercially reasonable resources to the operation of Fox Bet.
However, the tribunal denied the claim, holding that commercially reasonable resources were provided to Fox Bet. As such, Fox retained the right to acquire up to 50% of The Stars Group, but only if it is licensed.
If Fox were not to secure relevant licensing and exercise its option, both parties had the right to terminate their agreement in relation to Fox Bet in August 2023. This would result in a termination of the Fox Bet business.
It is not clear whether this was the reason behind the decision to close Fox Bet next month.