Flutter/DraftKings: good form dictates a FanDuel float

Picking winners is inadvisable for policymakers, but essential for successful gamblers. Flutter is a shrewd judge of form. Buying FanDuel and The Stars Group has put the Ireland-based company ahead in US sports betting. Now it is planning a variety of the multiplier bet: listing a small stake in FanDuel in the bullish US in the hope of lifting its own valuation.

Flutter moved quickly when the US overturned a federal ban on sports betting in 2018, snapping up FanDuel, now the largest US online gambling site by revenues. Rival DraftKings is behind in customer revenues, but ahead with its stock market listing, made through a special purpose vehicle last year. The rival group’s stonking $29bn valuation is making Flutter shareholders feel like losers.

Even with the lockdown surge in business last year, neither of the sports betting sites is profitable. As with many emerging industries, participants focus on grabbing market share. Free bets lure in new customers that should generate profits later on. Flutter will have to keep investing to maintain its lead. FanDuel is expected to generate positive ebitda around 2023. Selling a small stake in the business is a way to take some early returns.

Flutter shares have risen almost 80 per cent since the start of last year. Expect further gains if a FanDuel listing goes ahead. It looks underpriced compared with DraftKings within Flutter’s current valuation.

The rump of Flutter’s business might represent half its current enterprise value of $42bn if valued as a mature gambling business at 11 times ebitda. That leaves a current valuation of more than $20bn for Flutter’s 95 per cent holding of FanDuel, or about 13 times forward sales. A standalone listing for FanDuel would aim to match DraftKings, currently trading at twice that. Listing a tenth of FanDuel would theoretically pop Flutter’s valuation by about $18bn and bring in $2.1bn.

DraftKings is a pandemic winner. But its shares are in bubble territory. Flutter should hurry to make the most of its opportunity.

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