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NEWS 2 October 2019

Analysis: The US is where Flutter – Stars Group merger really pays off

By Tim Poole

Maybe the news Flutter Entertainment agreed to acquire Stars Group wasn’t a shock to some investors. But a merged gaming company (predominantly online) with an £11bn ($13.46bn) market capital, and combined pro forma revenue of £3.8bn for 2018, is a massive story for everyone in the market – no matter who you are.

Both Flutter and Stars Group did a good job keeping this one under wraps, as the precise nature of the deal – which will join Paddy Power, Betfair, Sky Betting & Gaming (SBG), PokerStars, FanDuel, Fox Bet and more under one umbrella – was not exactly widely circulated before its confirmation on an unwitting Wednesday morning.

Paddy Power Betfair’s name change to Flutter earlier this year now makes more sense; the timing is hardly coincidental. Perhaps this is also something Stars Group had a long-term view towards when originally acquiring SBG in July 2018.

The deal will likely be heavily scrutinised by regulators, especially in the UK – as Paddy Power, Betfair and SBG already take up a considerable amount of market share. For analysts, there is already keen interest in whether both Flutter and Stars Group have over-played their hand when projecting eventual yearly synergies of £140m.

But where there will be undeniable benefits for the new company, which will retain the name of Flutter, is in the US.

As part of the merger, Fox Bet (part of Stars Group) will have the right to acquire 18.5% of FanDuel. It is this powerful branding combination the market should take note of most.

Through its partnership with Fox Bet, FanDuel will essentially have free access to an incredible advertising channel, as Fox Sports gradually rolls out odds and gaming coverage as part of its broadcasts. Flutter’s investor presentation on the merger suggests Fox Sports offers over 100 million viewers for FanDuel to advertise to.

Meanwhile, any market share Fox Bet seizes after its US launch could end up subject to less pressure and viewed as an add-on to FanDuel’s existing player base. Through FanDuel, Fox Bet can now access eight million customers across 41 states, 200,000 of which are sports bettors (an admittedly low figure at this stage but one likely to grow if fantasy players increasingly take to sports wagering).

The merger also potentially leaves FanDuel rival DraftKings in a tougher position within the market. A day after DraftKings announced a partnership with Pepsi – a sound marketing deal in its own right – it was cast well into the shadows by FanDuel’s involvement in this £11bn merger. The timing is a little unfortunate for the operator and the implications are not to be dismissed by CEO Jason Robins and his team.

Certainly, no business should aim to play catch-up or make a move of its own just to reflect a competitor. But with FanDuel already leading the New Jersey sports betting market, as a concrete example, the strategic advantages it stands to gain working with Fox Bet threaten to extend any existing gaps.

It's equally unclear right now if DraftKings' indirect links with Stars Group will be affected by the Flutter merger. The operator is partnered with Caesars Entertainment, which was acquired by Eldorado Resorts for $17.3bn in June. Eldorado had a partnership in place with Stars Group before acquiring Caesars, thereby leaving DraftKings and Stars Group as part of the same cluster.

To be clear, DraftKings still finds itself in a strong position within US gaming; it just doesn’t look as strong while Flutter continues to add so many strings to FanDuel’s bow. FanDuel and Fox Bet could well work together very closely indeed and that opens up a number of doors, especially from a digital standpoint.

Should this merger pass all regulatory approvals then, it will be sure to resonate on a truly global scale. But the US is where the new Flutter could really take off.

RELATED TAGS: Online | Industry | Sports Betting | Mergers & Acquisitions
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