Everyone knows FanDuel is the biggest online sports betting operator in the US.
But if and when Flutter Entertainment ($PDYPY) decides to spin off its online gambling arm, some analysts estimate the operator could command a bigger valuation than rival DraftKings.
What analysts are saying
Earlier this month, CBRE analyst John DeCree said there are “compelling” reasons for a FanDuel spin-off.
“Assuming a 4x multiple of FY23 revenue, we estimate FanDuel is worth roughly £54/share. This valuation implies the rest of the business is trading at 7.2x F23 EBITDA. An even more conservative valuation of FanDuel based on 2.5x FY23 revenue would imply the core business is trading at 9.5x FY23 EBITDA, which is still undemanding.”
DeCree’s estimates translate to roughly $70.40 per share, more than quadruple where DraftKings trades.
At the time of writing, shares of $DKNG were trading at $19.06 per share.
Benchmark for the sports betting market
The analyst said that although $DKNG has been the valuation benchmark, FanDuel should trade at a premium.
“While DKNG has been the valuation benchmark for the sector as the only large cap pure-play on US sports betting, we believe FanDuel should trade at a premium given its leading market share, clearer path to profitability, and ability to self-fund growth.”
In 2019, Diamond Eagle Acquisition Corp. acquired DraftKings for $2.7 billion in cash and stock. Since then, some companies, including Golden Nugget Online Gaming ($GNOG) and Penn National Gaming ($PENN), have been trying to replicate DraftKings’ success.
Since the legalization across US sports betting, the market has expanded. According to findings from Zion Market Research, the industry is slated to earn revenue of $179.3 billion by 2028.
Potential roadblock for the new industry standard
Fox Corp. and Flutter remain in a legal battle regarding the price at which Fox can acquire 18.6% interest in FanDuel.
Flutter wants fair market value, while Fox remains firm on a $4.175 billion price established in December 2020.
Both companies remain in an arbitration court. However, experts anticipate the issue will be resolved later this year.