Flutter deal with Native Americans in California may get Murdoch off reservation

For Flutter chief executive Peter Jackson, the Californian dream remains just that.

Seven years after the US supreme court struck down a federal law banning sports gambling, 30 states, plus Washington DC and Puerto Rico, have legalised online betting on sports – driving the spectacular growth of FanDuel, in which Flutter moved to buy a controlling stake just days after the 2018 ruling.

But after a series of straight quarters of more than 20 per cent handle growth – covering the total amount wagered by betters – in Flutter’s sportsbook revenue in the US, it had slowed to 8 per cent in the first three months of this year as the pace of states legalising the activity slowed.

Just one state is so far on track to allow online sports betting to go live in 2025: Missouri, which has an adult population of 4.7 million.

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Questions remain about the path of betting reform in the three most populous states, California, Texas and Florida.

California, which recently surpassed Japan to become the world’s fourth-largest economy, with an estimated adult population of about 31 million, is the big one. It is also a state where FanDuel and smaller rival DraftKings made powerful enemies when they backed an initiative to legalise digital sports betting three years ago.

An overwhelming majority of Californian voters rejected the plan in late 2022, after powerful Native American tribes, who have a near-monopoly on casino-style gambling, reportedly spent more than $200 million (€172 million) campaigning against the proposal.

The gambling companies have since adopted a different tack, with FanDuel president Christian Genetski and DraftKings chief executive Jason Robins making an olive-branch appearance at the annual Western Indian Gaming Tradeshow and Convention in San Diego in late March. FanDuel has a 43 per cent share of the US market.

“If I reflect on 2022, It was a well-intentioned but uninformed and misguided attempt,” Genetski said in a panel discussion chaired by the head of the Californian Nations Indian Gaming Association. “It was definitely a spectacular failure on our part. It wasn’t the right plan or the right time. So, we looked in the mirror and said, ‘It was a failure, what will we do?’”

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Subsequent reports suggested that the tribes are looking for the lion’s share of annual revenues from any future sports betting in the golden state. Investment bank Jefferies’ analysts recently estimated the potential Californian gross online sports betting revenues at $4 billion – double that of New York, the current largest market.

“Even under a market structure with as low as 30 per cent revenue share to operators, California would still be a top three state and generate the same [gross revenues] as New Jersey,” it said.

The slowdown in the US growth handle in recent quarters has been partly down to FanDuel and smaller peers spending less on promotional free bets, a dip in National Basketball Association viewership, and broader economic concerns influencing consumer betting habits. But the dearth of state launches is the main factor.

Legislating to open up online sports betting in Texas and Florida – where governor Ron DeSantis struck a deal in 2021 to give the local Seminole tribe a monopoly on this activity – is even further behind California.

To be sure, this hasn’t got in the way of Flutter, which moved its main listing to New York in May 2024, post a 50 per cent share surge over the past year, to give the group a market value of almost $54 billion.

This has been helped by strong growth in FanDuel’s igaming business, which has a 27 per cent US market share with digital casino games including blackjack and roulette. Still, this business accounts for only about 30 per cent of FanDuel’s revenues.

JP Morgan analysts reckon that FanDuel’s net gaming revenue grew 19 per cent in the second quarter to $1.82 billion – driven by 38 per cent growth in igaming as sports betting picked up to 14 per cent. They see the international business – including Paddy Power and Betfair in Ireland and the UK – posting 3.5 per cent organic growth.

The group’s recent purchases of Italy’s third-largest online gambling company Snaitech for $2.6 billion (completed in April) and Brazilian betting company NSX Group for $350 million cash (finalised in June) will have helped.

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While Flutter shares dipped briefly in late May when it narrowly missed out in a race to operate Italy’s main lottery to market incumbent International Game Technology’s (IGT) bid of €2.23 billion for the nine-year gig, analysts have broadly welcomed the development amid a belief that IGT may have overpaid. IGT has since rebranded as Brightstar Lottery.

The stock has also been underpinned by speculation that Flutter will end up joining the S&P 500 stock market index in New York, the world’s most followed market benchmark by equity investors, before CRH, which also moved its main listing to the Big Apple in recent years.

Analysts, too, have welcomed Flutter taking full ownership of FanDuel last week by buying out Boyd Gaming’s 5 per cent stake in a deal that puts a value on the business of about $31 billion.

The focus has now turned to the option that nonagenarian Rupert Murdoch’s Fox Corporation has to buy an almost 19 per cent stake in FanDuel. The option runs to 2030. It would currently cost Fox $4.5 billion to trigger and is almost $1.4 billion in the money, based off the $31 billion valuation.

Fox chief executive Lachlan Murdoch put Flutter on notice last autumn that he wants to trigger the stake purchase sooner rather than later – subject to Fox securing a necessary gaming licence.

It could get awkward. Flutter is no longer in the circle of Fox and friends – after their high-profile battle a few years ago on exercise price of the option. Fox, meanwhile, would end up with an illiquid stake in FanDuel. And no control.

A neater solution for everyone would be for Flutter to buy Fox out. But would the Murdochs settle along the lines of the valuation implied by the Boyd deal? Unlikely. Clarity on California, Texas and Florida will be key. That’s not coming any time soon.