Arbitrator affirms Fox holds 10-year option to buy stake in FanDuel, but must pay full price

(Reuters) - An arbitrator on Friday reaffirmed Fox Corp has 10 years to exercise its option to acquire a nearly one-fifth stake in FanDuel, settling a longstanding dispute with the betting app's owner, Flutter Entertainment Plc.

The New York-based Judicial Arbitration and Mediation Services tribunal ruled that Fox would pay $3.7 billion for its right to acquire an 18.6% stake of FanDuel, a sum that could rise to $4 billion when factoring in a 5% annual escalator.

That's roughly twice the amount Fox sought to pay, according to a copy of the ruling seen by Reuters on Sunday.

Fox received the FanDuel options in 2019 when the Irish gaming company acquired The Stars Group, a Canadian gaming company that licensed Fox's brand to launch a sports betting app in the United States.

A dispute arose over the price Fox would pay for a stake in the market-leading FanDuel app, leading to arbitration that began in the spring of 2021.

Fox sought to pay $2.1 billion to exercise its options in FanDuel, based on the price Flutter paid in December 2020 to acquire 37% of FanDuel Group from early investors, according to the documents.

Flutter argued that Fox was not entitled to the 40% discount it received for accelerating the timetable for the buyout, and maintained Fox should pay the full market value for its stake in FanDuel as of July 2021 -- a valuation that one Wall Street analyst pegged at $35.1 billion.

The arbitrator ruled Fox's options would be based on the fair market value of FanDuel in December 2020, or $20 billion, a decision Flutter heralded as a win.

“Today’s ruling vindicates the confidence we had in our position on this matter and provides certainty

on what it would cost Fox to buy into this business, should they wish to do so," Flutter Chief Executive Peter Jackson said in a statement late Friday.

Fox also issued a statement applauding the ruling, saying it gives the media company the option to acquire a "meaningful equity stake in the market leading U.S. online sports betting operation."

As recently as August, Fox Chief Executive Lachlan Murdoch described sports betting as "a huge opportunity" for Fox Sports, telling Wall Street it would fuel viewer engagement. Sports betting is one factor in Rupert Murdoch's proposal to recombine Fox with News Corp, according to people familiar with the deal's logic.

Independent directors within both media companies are evaluating the proposal, which would be subject to approval by a majority of non-family shareholders.

The Murdochs' early foray into sports betting has been slow-going. The sports betting app Fox Bet is available in four states, with just 0.2% share of the U.S. market, according to researcher Vixio. A free version called Fox Bet Super 6 has attracted some 6 million users whom Fox hopes to eventually convert to betters.

The growth of Fox Bet has stagnated since Flutter acquired Stars Group, the company that helped launch Fox Bet and owns and operates the app.

Fox claimed that Flutter failed to provide reasonable resources behind Fox Bet, a claim Flutter said the arbitrator rejected, finding that Flutter had agreed to commit "commercially reasonable" resources behind the offering.

However, Fox retains the right to acquire up to 50% of the Stars Group's U.S. operations, which includes Fox Bet, though it would need to obtain necessary sports betting licenses.

(Reporting by Dawn Chmielewski; Editing by Leslie Adler, David Gregorio, Muralikumar Anantharaman and Diane Craft)