Is Flutter ready to finish off Italian job with bet on main lottery licence?

Lachlan Murdoch, who begun a Succession-style showdown with his siblings in a Nevada court this week over control of their nonagenarian father Rupert’s multibillion-dollar media empire, had another legal skirmish on his mind when he appeared at a Goldman Sachs conference days earlier.
The chief executive of Fox Corporation — essentially one half of the Murdoch realm — told the Goldman gathering in San Francisco on September 10th that the group is preparing to exercise its option to buy an 18.6 per cent stake on betting giant FanDuel, the fast-growing US gambling company owned by Flutter Entertainment.
It comes less than two years after a New York arbitrator settled a lengthy legal dispute between Flutter — the world’s largest gambling company and owner of Paddy Power and BetFair — and Fox over the price the Murdoch-owned group would have to pay to activate the option.
Murdoch reckons Fox is more than $2 billion (€1.8 billion) in the money on the option — as it would need to pay about $4.3 billion under the terms of the peace deal, while the stake is worth about $6.5 billion on the open market, based on analysts valuations.
Fox is actively working through the arduous process of becoming a licensed gaming operator, a necessary step before pulling the trigger on the option, he said.
“We’re not going to leave $2 billion on the table,” he told the conference. (Fox also holds a direct 2.5 per cent stake in Flutter, valued at more than $1 billion.)
The valuations of US sports betting companies have soared in recent years as a wave of states have legalised the activity in the wake of an enabling supreme court ruling in 2018. Since then, 38 states have legalised betting, with 30 of those allowing online gambling.
FanDuel, in which Flutter chief executive Peter Jackson moved to take an initial stake immediately after the ruling, has emerged as the market leader, with a 35 per cent share on online wagering — in advance of nearest rival, DraftKings, which has a 32 per cent slice of the action.
The size of the opportunity on the other side of the Atlantic was a key driver behind Flutter moving its main stock market listing to Wall Street earlier this year, cancelling its Iseq quotation in the process.
The US business, which turned profitable last year, is on track to deliver earnings before interest, tax, deprecation and amortisation (Ebitda) of $680 million to $800 million on as much as $6.35 billion of revenues. For Flutter’s business outside the US, the group sees Ebitda of $1.69 billion to $1.85 billion on revenues of up to $8.15 billion.
Still, Jackson has shown this month that he’s still after podium positions elsewhere.
Last week, Flutter agreed to buy an initial 56 per cent stake in Brazilian betting company NSX Group in a deal involving a $350 million cash payment and the rolling of its existing Brazilian unit into the enlarged business.
It comes as Brazil is due to regulate its online sports betting and iGaming market early next year. The unregulated market has grown by a compound annual rate of 38 per cent over the five years, to $3 billion.
It followed up this week by confirming a deal to buy Italy’s third-largest online gambling company Snaitech from Isle of Man-based Playtech for $2.6 billion.
Folding it in with its existing Italian business, mainly made up of the Sisal gaming company acquired two years ago for €1.9 billion, will give Flutter a 30 per cent share of the online betting in Europe’s biggest gambling market.
The Italian opportunity is significant. Just 21 per cent of the €21 billion of money spent on gambling in Italy last year was spent online. The figure is more than 60 per cent in mature markets like the United Kingdom and Australia.
A key obstacle in the way of moving Italians online, however, is that advertising of this activity has been banned in the country since 2018.
Jackson highlighted on a call with analysts earlier this year how Sisal has got around that with its existing local lottery licence.
“Ultimately, we’ve got this enormous funnel, which is the lottery customers who are buying their tickets in 1,000 locations across the country,” he said.
“They can scan the back of their tickets, they can access all of the lottery capabilities and then we can cross-sell them into gaming and sports.”
The doubling down in Italy makes all the more sense against the backdrop of Italy’s upcoming tender process for its main lottery licence, which has been in the hands of International Game Technology (formerly Lottomatica Holdings) for the past three decades and is due to expire in November 2025.
Recent reports on gambling news websites say Flutter is lining Sisal up to bid for the licence. Flutter declined to comment. Minimum tenders are being set at €1 billion.
However, the fear among other potential interested parties must be that Flutter — with its strategy of luring lottery customers on to its more lucrative online offering — has reason to bid well beyond what makes sense when looking in isolation at the financial returns of the licence.