Flutter and FanDuel U.S. Listing Should Fire Up Value
Shareholders of betting giant Flutter Entertainment vote Thursday on a proposal to pursue a U.S. stock listing for the Irish sports betting company, which owns FanDuel, the well-known European brand Paddy Power, and a clutch of other gambling marques.
Flutter is already publicly traded on the London Stock Exchange, and the potential dual listing is a sign both of how important FanDuel has become to Flutter—and how important American sports betting is becoming to the gambling sector.
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“There are probably two factors driving the decision. One is U.S. stocks typically command a higher valuation than UK-listed stocks do, and there’s a feeling out there that the current valuation doesn’t correctly reflect the value of the overall business, and particularly the U.S. business, which is a very valuable asset,” said David Brohan, an equity analyst at Irish brokerage Goodbody, on a phone call. “The other part of it is: This is an increasingly U.S. business. Last year U.S. revenue was around 33%, and that’s going to [increase by] 2025 to, we think, 42% revenue.”
Indeed, the U.S. is already the largest market for Flutter. Of the $9.6 billion (£7.7 billion pounds) Flutter produced last year, $3.3 billion (£2.6 billion) came from the U.S., with FanDuel generating the lion’s share compared to Flutter’s other U.S. brands—FoxBet, PokerStars and TVG. FanDuel’s performance surpassed Flutter’s historical strongholds in Ireland and the UK in both total revenue (28% of sales) and revenue-per-player and is nearly double the total in betting-mad Australia. According to data presented by Flutter to analysts in November, FanDuel is the largest sportsbook in the U.S., with a 42% share, ahead of DraftKings, which is second at a 27% share.
The move for a U.S. listing isn’t about having an IPO to raise capital, however. Its London shares have been the best performers in the sports betting universe. Over the past year Flutter has gained 95% in value, more than double the performance of DraftKings. Other competitors, including Betway parent Super Group, Rush Street Interactive and Barstool Sports parent Penn National Gaming, have all suffered steep losses over the same period.
Driving much of Flutter’s strength against the market tide is that FanDuel is the first U.S. sportsbook to record a quarterly profit, which it did early last year. Taken in total, Flutter’s U.S. operations are on track to be profitable for 2023, according to the company. Flutter is expected to earn $415 million (£332 million) in net profits this year on sales of $11.5 billion (£9.2 billion), according to data compiled by S&P Global Market Intelligence.
“Operators need to show they can be profitable in this market, not just burning cash,” Brohan said. “Where Flutter and FanDuel have distinguished themselves is they’re going to hit profitability first, they’re going to be meaningfully profitable. Even if you compare them to DraftKings, they’re well ahead of DraftKings on that journey. What FanDuel has been able to do is increase its market share but also maintain its profitability guidance. That kind of balance between market share and profitability guidance is a very fine line to walk, and I think that’s why you see Flutter shares actually have traded better than others in the sector.”
The move for a U.S. listing would likely help Flutter in one area it trails DraftKings: trading volume and retail investor interest. According to Adam Seessel, the principal of Gravity Capital Management, a hedge fund that owns Flutter stock, while Flutter’s $34.9 billion (£27.9 billion) market cap is three times that of DraftKings, Flutter sees daily trading volume only about one-sixth of its U.S.-traded rival. “One of the things that we consider when we look at the benefits DraftKings have from their listing is that they’ve got a lot of their customers able to trade their stock,” Flutter CEO Peter Jackson told investors in November. (Flutter didn’t respond to a recent request for comment.)
It’s something many heads of non-U.S. listed companies consider, Catapult Sports CEO Will Lopes said in a phone call. “As a CEO, you’re thinking, ‘How can I amplify my message?’ and ‘Can I increase liquidity with that amplification of message?’” said Lopes.
Catapult is Australia-based and traded, but like Flutter, generates most of its business from the U.S. and has much of its operations, including Lopes, based stateside. “In general, almost everyone will invest [through] a U.S. exchange, but not necessarily the other way around.”
Investment statistics support Lopes’ reasoning: Of the $21 trillion in stock U.S. mutual funds and ETFs hold, less than a quarter is invested in non-U.S. traded stocks, according to data from the Investment Company Institute. Separate data indicates foreign investors are much likelier to invest in U.S. traded stocks. Brohan, the analyst, expects the required 75% of shareholders to approve Flutter’s dual-listing proposal at the annual meeting in Dublin, soon after which the U.S. ticker will likely become the primary way investors buy into Flutter.
So why don’t more companies go Flutter’s route?
“On the negative side, it’s very easy to get lost in a U.S. listing,” said Lopes, who added that Catapult, which has a $125 million market cap, previously explored a U.S. listing and opted not to pursue it. “It’s very easy for you to be a mid- or small-market cap and, while you’re in a big exchange, the funds aren’t paying attention to you, the analysts aren’t paying attention to you, the press aren’t paying attention to you … there’s quite a bit negative that comes out of it.”
For Flutter, its size likely won’t allow it to be overlooked. But the decision to list the whole business and not just FanDuel, as some stockholders have agitated for, could remain a sticking point in management’s desire to satisfy shareholders, according to Brohan. But there seems to be little other downside, presuming more states open up to betting and American sports fans keep placing their wagers.
“The U.S. is really the very exciting part of this journey,” Brohan said.
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