FanDuel Stock: Are Recent Moves Indicating An IPO?


Flutter Entertainment appears to be betting a bit in the US betting market if the latest reports are accurate.

According to «people familiar with the matter,» the UK-based owner of FanDuel is seriously considering outsourcing FanDuel and listing the company on a US stock exchange after seeing the tremendous success of competitor DraftKings, whose valuation has risen nearly 900% since then is his SPAC deal from April 2019.

As DraftKings has shown, the demand for online betting companies is only fervently outperformed by the demand for their product. Does it make sense for investors to bet on FanDuel shares?

What is FanDuel?

FanDuel was originally founded as a daily fantasy sports website and wisely expanded into online sports betting to take advantage of the Supreme Court decision lifting the federal ban on online betting. Flutter Entertainment, then Paddy Power Betfair, acquired a majority stake in FanDuel in 2018 and currently owns 95% of the company.

Expected IPO date:

Possibly in 2021

Bull Case

  • Increased Legalization: In the three years since the federal gambling ban was lifted, 16 states have approved mobile betting. Watch out for this number to grow as cash-strapped states look for revenue from a variety of new sources.
  • First Mover Advantage: FanDuel was one of the first to enter this space as traditional casinos battled online betting for years.
  • Top dog status: FanDuel is the market leader and benefits from the network advantage.

Bear suitcase

  • Anti-ESG: FanDuel’s business model does not conform to ESG standards. This emphasis on ESG friendly investing is growing. According to reports, up to a third of all US assets are professionally managed and sustainably invested.
  • Confidence Deficit: FanDuel and DraftKings have faced a number of class action lawsuits ranging from misleading advertisements to the ability for employees to use inside information to bet against customers on each other’s websites.
  • Competition: FanDuel was able to quickly pair up with states and gain shares while traditional casinos tried to convince states not to allow online sports betting. Most see that the die has been cast and spend a lot of money online.

Bull Case: Why should you buy FanDuel Stock?

Investors know a great opportunity when they see it. The mobile betting market is currently set to grow for at least a decade. In 2018, SCOTUS ruled against the NCAA and struck down the Law to Protect Professional and Amateur Sports, which allowed states to expand sports betting online. Since then, 16 states have approved online betting. It is estimated that this number could double in the next two years.

According to the Legal Sports Report, the total will go towards all sports as this decision is $ 44.3 billion, with most of it coming from the growth of online apps. SCOTUS winner New Jersey saw the stake amount increase by 30% year-over-year in 2020, with 84% coming from mobile apps.

The pioneers in online sports betting are FanDuel and DraftKings, who, following the decision by SCOTUS, saw the opportunity to expand beyond their original business with daily fantasy sports betting. Sports betting was a natural extension for these companies due to their mobile-first business models, and both companies had significant notoriety as daily fantasy sports companies due to aggressive advertising campaigns.

Additionally, FanDuel and DraftKings took advantage of a poor strategy by traditional casinos which, instead of investing in building mobile apps, rallied Sheldon Adelson’s Coalition to End Internet Gambling to reach out to federal and state legislators. When that approach failed, they caught up while the states were quick to approve online betting.

FanDuel continues to be the clear market leader in this space, with sales of $ 967 million in 2020 compared to $ 644 million for DraftKings. Being the front runner has advantages as it will continue to help them attract customers through network effects and it will allow FanDuel to do more to promote the online sportsbook of choice for future states looking to legalize betting and need a reliable partner.

Bear suitcase: why should you avoid FanDuel Stock?

Source: Getty Images

Trust is important in online sports betting, perhaps more so than in any other industry, as the product is purely an agreement. Unfortunately, FanDuel hasn’t always done the best job acting ethically.

Most notably, the company has been heavily criticized for an insider trading scandal in which FanDuel and DraftKings employees allegedly used real-time data on current lineups and ownership shares to bet on each other’s websites and take advantage of normal gamblers. Other concerns related to the lack of information on “free cash deposits” that could not be withdrawn.

Most of these topics revolve around FanDuel’s promotions as a daily fantasy site, but the stakes are higher as more is invested in online betting. Contrary to the fantasy, gambling is much more regulated and any issues related to trust or insider trading result in fines and penalties from the state, not civil lawsuits between two parties. In addition, high profile bugs cause players to switch to competing apps because switching costs are low.

Even if the processes at FanDuel are flawless, there are many who do not affect the inventory. Increasingly, investors think about more than the bottom line, and ESG-friendly (environmental, social and governance) investments are increasing.

While there’s a gray area in defining an ESG stock, it’s likely that gambling stocks are a firm no-go. This is becoming increasingly important as ESG investing now accounts for 33% of all professionally managed US wealth, according to the US Sustainable Investment Foundation.

FanDuel and DraftKings are finally facing stiff competition from traditional casinos. MGM acquired BetMGM and Penn National Gaming Barstool Sports and added the Barstool Sportsbook late last year.

Brick-and-mortar casinos have the advantage of combining personal discounts and specials with in-app betting, and they could steal stocks.

To date, FanDuel has done a great job fighting the threat of competition. FanDuel is currently available in over half of the states where online wagering is legal and has wisely partnered with casinos that didn’t have sports betting to help increase the name’s popularity for those who prefer a hybrid gambling option .

When can I buy FanDuel Stock?

Well somehow. FanDuel is a subsidiary of Flutter Entertainment Plc, a UK based mobile betting company. Stocks are available in the over-the-counter markets with a market capitalization of $ 40.2 billion.

Flutter does not separately list FanDuel’s earnings and only reports total US sales through sports and gambling. According to reports, the company had sales of $ 937 million in 2020, which is roughly 15% of the company’s total sales.

Flutter is considering spinning off FanDuel as the company appears to be undervalued compared to DraftKings. If FanDuel can get the same revenue multiplier as DraftKings, it would trade nearly $ 34 billion, or nearly 85% of Flutter’s current market cap.

It makes sense to spin off FanDuel shares for Flutter Entertainment as soon as possible. Running a spin-off to develop value is a classic MBA / private equity action. Due to a change in government regulations, investors in US markets are hungry for an all-US sports betting stock.

Bringing the market leader without the slower growing European companies should find a receptive audience in the US, but the devil is in the details and investors should understand capital structure and asset ownership before investing capital.

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