Posted on: December 7, 2020, 04:00h. 

Last updated on: December 6, 2020, 10:34h.

Last week, Flutter Entertainment Plc (OTC:PDYPY) said it’s paying $4.175 billion to buyout Fastball’s 37.2 percent interest in FanDuel. That boosts the Irish gaming company’s stake in the daily fantasy sports giant to 95 percent, a move that’s stoking chatter of a spin-off.

FanDuel spin off
The FanDuel sportsbook at Boyd Valley Forge Casino. Both companies could benefit from a Flutter spin-off. (Image: Business Wire)

In 2018, just months before the US Supreme struck down the Professional and Amateur Sports Protection Act (PASPA), Flutter, then known as Paddy Power Betfair, purchased a controlling stake in FanDuel. Upping its position to 95 percent in the sportsbook operator allows the Dublin-based company to call more shots, including perhaps separating FanDuel to unlock shareholder value.

From a strategic perspective, it’s now increasingly possible that Flutter may look to spin-off all or part of its stake in FanDuel onto a US exchange,” said RoundHill Investments co-founder Will Hershey in a note out Sunday.

Rumors of Flutter mulling monetization of its US business, which also includes FOX Bet, surfaced in September, with some analysts saying an initial public offering (IPO) of FOX Bet gives the parent the opportunity to take advantage of high valuations markets are ascribing to online sports betting firms.

Good Deal for Investors? Probably.

Investors applauded news of Flutter boosting its FanDuel interest in part because the transaction is being financed with cash on hand and capital raised via an equity sale, not with the issuance of new corporate debt.

The other catalyst behind last week’s 10 percent pop by the US-listed shares of the Irish company is that it’s buying out Fastball’s FanDuel interest at a discount to what a comparable percentage of rival DraftKings (NASDAQ:DKNG) is worth.

“The implied FanDuel valuation of $11.2 billion is a significant discount to DraftKings, FanDuel’s closest peer. This represents a significant markup for Flutter’s stake (original investment made around $1 billion value), while allowing the company to grow its position at a favorable relative valuation,” said Hershey.

DraftKings closed last week with a market capitalization of $19.61 billion. But FanDuel holds a larger slice of the US online/mobile sports wagering market. Add in FOX Bet, and that lead increases, indicating Flutter could spin-off its US business at a notable premium to DraftKings.

Boost for Boyd?

Somewhat overlooked in the Flutter/FanDuel speculation is that Boyd Gaming (NYSE:BYD) retains a five percent stake in the sportsbook company. It also remains partners with FanDuel for its retail books and online sports wagering footprint.

Las Vegas-based Boyd hasn’t commented on what its plans are for its FanDuel investment. But it’s clear investors like the regional gaming company’s positioning in this equation, because its stock jumped almost seven percent last week.

A case can also be made that Boyd itself is undervalued relative to its FanDuel interest. Assuming Flutter spins off its US operations at a market value of $20 billion — it could easily be higher — Boyd’s FanDuel stake would be worth $1 billion. That’s a significant chunk of its current market capitalization of $4.48 billion, indicating markets may not be properly valuing Boyd’s stake.



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