‘Where there’s a hit, there’s a writ’ runs the old saying and it has never been more true than with the legal spat between FOX Corp. and Flutter Entertainment over the stake in FanDuel.
To briefly recall, the dispute centers on the right to buy an 18.6% stake in FanDuel that FOX Corp. was granted when Flutter bought up the Stars Group.
FOX believes it should be able to buy this stake at the price set in December 2020 when Flutter bought out a further 37.2% slug of the business, raising its ownership to 95%. The remaining 5% is owned by Boyd Gaming and was granted as part of the pair’s market access agreement.
Naturally, Flutter has baulked at this idea and believes FOX should pair “fair market value” with that valuation coming either through a float of FanDuel in the U.S. or via a determination of its value by independent banks.
FOX Bet takes a back seat
Collateral damage in all this appears to be FOX Bet itself. In the 12 months since the legal dispute became public, it is fair to say that FOX Bet has been parked in neutral.
As FOX Corp. CEO Lachlan Murdoch himself complained in his company’s fourth-quarter earnings call, the app has only been launched in four states and even in the states in which it is now live, it is an also-ran. Though clearly not an official go-slow, it is hard not to think that while Flutter has put its full weight behind FanDuel, and has got its due rewards with the No. 1 sports betting brand in the U.S. by many leading metrics, the same cannot be said for FOX Bet.
At a consumer level, reports would suggest the app is less than well regarded. If product is destined to be the battleground in the future – as all the major players profess it to be even while they continue with their somewhat kamikaze marketing tactics – then FOX Bet is palpably failing the test.
Failing to ignite the betting public
At the same time, the FOX Bet proposition – that it could capture and convert the huge FOX Sports audience, particularly for its NFL broadcasts – also appears to have misfired. Certainly, the performance in those four states – Colorado, Pennsylvania, New Jersey and Michigan – suggests FOX Bet has failed to ignite in the way envisioned.
According to Eilers & Krejcik, nationally FOX Bet has a miniscule 0.4% market share. In Pennsylvania EKG estimates it hovers around 2%; in Colorado it is among the also-rans in a market of more than two-dozen operators dominated by the top three; likewise in New Jersey where it is well below 1% and Michigan where it managed 0.4% in February.
Against this evidence, Murdoch’s insistence that FOX Corp. still sees a future in sports betting appears somewhat contradictory.
When asked about whether his company would increase its investment in sports-betting, he said FOX was thinking “what’s the future monetization of that engagement with our viewers and sports fans.”
One reason why FOX might feel confident about continuing with its experiment in sports betting comes from two distinct factors that are likely influencing its thinking. The first comes from its ad sales unit; sports betting has moved to being the biggest growth area. In the first quarter of this year, the company has already done more business with sports betting operators than in the whole of 2021.
The second comes from the success of the FOX Bet Super Six app which, Murdoch told the analysts, the company was “incredibly pleased” with the apps ability to drive engagement.
“It has been sort of proven as we continue to execute on that strategy,” he added.
The choices for FOX going forward
Sources suggest the Super Six app has sign-ups that are in the millions. That is the kind of signal that Murdoch companies won’t ignore.
They will know instinctively there is money in sports betting, potentially a lot. The evidence is there is the presumed rising valuation of FanDuel as well as in their own business.
So, the question then turns to how best FOX thinks it can exploit the opportunity from here. There are broadly three scenarios:
- Settle with Flutter and convert its FanDuel stake into a yet-to-be-specified slice of a FanDuel listed vehicle and close FOX Bet.
- Settle with Flutter and continue to work with it on FOX Bet.
- Settle with Flutter and take the FOX Bet brand elsewhere.
Of the three here, the first and third options here feel like the most likely. In the first scenario, FOX and Flutter could agree as part of the settlement to cede the Super Six to FanDuel. In the third scenario, it could use it as the base from which to relaunch its betting business.
Whether we hear about any of this as and when the legal dispute is resolved is doubtful. According to Murdoch, the earliest that will come is late summer which in reality means that any relaunch – particularly if it involves switching partners – will miss the next NFL season.
This might cause a rethink at FOX Corp.
For all the talk on the earnings call, FOX Corp.’s choices seem limited. Either limit its ambitions to hanging on to a chunk of a listed FanDuel vehicle while raking in money from the rest of the sector via ad sales; or make one of the biggest gambles the Murdoch family has ever made on attempting to crack the top four in a hugely competitive market where others have huge structural advantages.
It doesn’t seem like a tough choice.
