Days after Tom Brady made his NFL broadcast debut on FOX Sports, the network’s top brass reiterated that FOX is continually honing its strategy on sports betting.
Last week, FOX Corporation CEO Lachlan Murdoch indicated that the company will exercise an 18.6% stake in FanDuel Group, an option whose value has caused some consternation between the parties in recent years. Murdoch made the comments nearly two years after FOX Corp. retained the right to purchase the stake under a ruling from a New York arbitration tribunal.
"We are believers in sports betting; we think it’s growing into a great business," said Murdoch during an appearance at Goldman Sachs’ Communacopia + Technology Conference. "We think it drives engagement with sports, whether it is football or Major League Baseball or any of the sports that we proudly broadcast. We like it from a television point of view and that it gives us an opportunity to further engage with our viewers."
Optionality for FOX
In November 2022, New York’s Judicial Arbitration and Mediation Services (JAMS) ruled that FOX retained the right to purchase the option for $3.72 billion, with a 5% annual escalator. When the escalator is factored, the value of the option is slightly north of $4.2 billion. During his appearance, Murdoch noted that Goldman Sachs valued FanDuel at $35 billion as a standalone asset, imputing a value of about $6.5 billion.
For each year that FOX does not exercise the option, the strike price will increase by 5% until the option expires in 2030. At the valuation set by Goldman Sachs, FOX will essentially receive a $2 billion discount on the option.
"We’re not going to leave $2 billion on the table," Murdoch emphasized. "We think that the option will grow with value over the next six years."
Fox has an option to buy an 18.6% stake in FanDuel for $4.3 billion.
It currently believes the stake is worth $6.5 billion on the open market.
Fox CEO Lachlan Murdoch is pleased with the situation: https://t.co/cgSKUEbpAZpic.twitter.com/wLXshURuDQ
— Dan Bernstein (@dan_bernstein_) September 12, 2024
Approximately one year after the Supreme Court’s PASPA decision, FOX received an option to purchase up to 50% of The Stars Group’s (TSG) U.S. assets in a 2019 transaction. Flutter’s subsequent purchase of TSG months later contained an option for FOX to acquire an 18.6% stake in FanDuel. During the second quarter, FanDuel generated approximately $1.53 billion in revenue to retain its top position in the U.S. sports betting market.
Once exercised, FOX could sell its stake in FanDuel to reap a considerable windfall. Prior to Murdoch’s comments, Citi set a new price target for FOX at $47 a share, up nearly 18% from its previous target at $40.
The upgrade reflects upward revisions to Citi’s forecasts for FOX in each of the next two years. As a result, the FanDuel option is baked into the valuation, according to Citi.
Comparisons With ESPN BET
Alternatively, FOX and FanDuel could negotiate a comprehensive marketing partnership comparable to one executed by ESPN last year. Last summer, PENN Entertainment signed a transformative deal with Disney that led to the formation of ESPN BET.
Speaking with Action Network at last month’s FanaticsFest in Midtown Manhattan, Michael Strahan asserted that he does not make real-money wagers on sports. However, expert picks have become a staple of the FOX NFL Sunday pregame broadcast. Minutes before the Week 1 kickoff this month, Jimmy Johnson, Howie Long and Terry Bradshaw gave recommendations on a multi-leg parlay for the Sunday slate. The parlay, which featured several props from FanDuel, lost when Kirk Cousins failed to hit the Over on 1.5 touchdown passes.
Additionally, Tom Brady provides a preview of the upcoming week with his rankings of the NFL’s Top 5 teams. The segment, which typically airs each Thursday, could be utilized by bettors looking for value on the futures market. FOX also augmented its team with the hiring of Chris “The Bear” Fallica, a betting analyst known for his expertise on college football lines at ESPN.
Murdoch noted that for the network to fully monetize the option, FOX still needs to be licensed by gaming regulators. Discussions have begun with regulators on the state level, he added.
Last August, FOX Bet closed its doors, joining a long list of smaller sportsbooks that shuttered within a few years of the PASPA decision. At the time of its closure, FOX Bet lagged top competitors, struggling to attain 1% national market share.
Despite the closure, FOX launched a new free-to-play contest last year and retained the FOX Bet brand for future use.
