Fox Eyes Pulling Trigger on FanDuel Stake

Lachlan Murdoch, fresh from solidifying his control over Fox with a new $3.3 billion family trust, effectively putting an end to a succession fight, has now turned his eye to even bigger things.

He has once again reiterated that the company intends to exercise its option to acquire 18.6% of FanDuel, muscling in on the booming betting market despite recent threats from the prediction market makers like Kalshi.

This option came about through some rather murky mergers and acquisitions back in 2019. Flutter, which was eyeing the burgeoning US market, decided it wanted to buy The Stars Group (TSG), and that was specifically because it owned PokerStars.

But TSG had already partnered with Fox to launch Fox Bet, a sports betting app, that would have Fox branding but with PokerStars backend tech stack. The network would use its personalities to promote various odds, picks, and lines.

Flutter isn’t deterred, and makes a $12 billion dollar bid for TSG. And to sweeten an already probably overly generous offer, Flutter offered to keep the deal in place with Fox and offered Fox the right but not the obligation to buy 18.6% of FanDuel with an option that didn’t expire until 2030.

The problem was of course, while the Fox Bet app was a total flop, FanDuel would grow to become the market share leader in US sports betting. But when the option was priced, no one really saw how quickly the market would grow.

And that price was based on the market value right before the biggest blowup in gambling in American history, as dozens of new states allowed legalized sports betting as well as online gaming in another half dozen or so. And instead of being based on a current market value it would escalate in value based on a predetermined formula of 5% a year.

When your company is now worth $35 billion, but your option for 18.6% of your company only values you at $23 billion, there is money left on the table, so to speak.

Lachlan didn’t climb to the top of his family's media empire because he is the kind of man to leave $2 or $3 billion lying around. And he has been clear now, that he intends to move forward with calling this option.

But to be clear, he's not exactly on the clock because the option does not expire for 5 more years, and with the price only rising 5% per year, and the value of the company handily beating that, he actually gains value by waiting.

Patience is an enormous luxury, but not entirely without risk. The option may price predictably year after year, but the sports betting market does not. Yes it’s been red hot, but markets can change, and while it would seem to be a bad bet wagering against FanDuel not being able to grow faster than that option pricing suggests there are potential threats looming.

First and foremost is the licensing issue. If Fox wants to get into bed with FanDuel they would need to be licensed in over 20 states. Everything from stability, to compliance, and even corporate governance goes under the microscope. That would be even doubly true in states like Michigan, New Jersey, Pennsylvania and Connecticut where the state also operates online casinos in very strictly regulated environments.

And while there are no publicly known reasons that might trip Fox up, the cost and time involved would not be insubstantial; you can’t simply wait until 2029 to put these licensing issues to bed.

Besides the nuts and bolts of licensing, we have a sense of tightening regulations around sports betting in this country. From increased taxes to bans on college betting to prohibiting parlay, every state seems to be tightening laws and regulation in this sector. Additionally, many are considering much stricter advertising rules, all of which could seriously impact FanDuel's future. 

Along with regulatory risk comes economic dangers as well. A deep recession or even a couple of years of stagflation aren’t out of the realm of possibility. A broad hit to gamblers’ discretionary income might see an outsized pullback in dollars wagered. This has to play a role in Fox’s math for when best to pull the trigger on this purchase.

And lastly, there is a new player in town. Prediction markets like Kalshi continue to thumb their nose at the CFTC, while inviting players to gamble on sports bets. While styled prediction markets, these operators have leaned heavily into the gambling side of it in recent ads and press releases, all to a shrug from the federal government.

State regulators continue to run headfirst into Federal courts, which say their hands are tied by Federal Preemption and the Supremacy clause. It’s still early days in many of these court fights, but if prediction markets are allowed a back door into sports betting in all 50 states, it could seriously impact FanDuel's valuation, perhaps even putting Fox’s option underwater.

Though it should be noted that FanDuel has made contingency plans, partnering with the CME Group to launch a platform that trades “event-based contracts”. This will give them ample opportunity to compete with Kalshi and the rest if they have no other choice.

Murdoch may have until 2030 to make his move, but he has been clear about signaling his play. The question won’t be whether Fox will sit down at the table, but when. With billions in theoretical value on the line, the stakes couldn’t be higher.

But with the US gambling market evolving quickly from one month to the next, the timing of when he pushes all in will determine whether Fox walks away the big winner on this bet, or wondering what might have been.