Gambling Companies Merge, Eye Emerging U.S. Market

In the latest example of a changing United States gaming landscape that is gradually allowing sports betting and increased online wagering, the boards of Flutter Entertainment and The Stars Group Inc. announced Oct. 2 that they have reached agreement on a merger that would create the world's largest online betting company.

The merger is to be implemented through an acquisition of TSG by Flutter pursuant to a plan of arrangement under Ontario's Business Corporations Act. According to a release from both companies, the merger would bring together two complementary businesses to create the world's largest online betting firm.

On a proforma basis, the annual revenue of the combined companies would have been £3.8bn ($4.84 billion) in 2018. And while the company will have operations throughout the world, it's clear the U.S. market is a significant target. The Wall Street Journal reported Wednesday's deal creates "an online gambling giant as internet and app-based betting is taking hold in the U.S."

This year, Flutter CEO Peter Jackson said his company sees significant growth opportunity in the U.S.

"The opening of the U.S. online sports betting market has the potential to be the most significant development to occur within the sector since the advent of online betting," Jackson said in a release of the company's 2018 financials. "Rather than announcing our plans, we have moved quickly to give ourselves the best chance to win in that market."

Flutter Entertainment took its name this year, following the merger of Paddy Power and Betfair. In the U.S., Flutter owns advance deposit wagering and racing channel TVG and the daily fantasy site FanDuel, which has added sports wagering to its platforms in states where it's allowed, such as Pennsylvania and New Jersey.

The Stars Group is best known for its ownership of the popular online poker site PokerStars, Sky Betting & Gaming, and BetEasy. Also, Fox Corp. has a minority stake in The Stars Group and in September launched a betting app, Fox Bet, available in New Jersey and Pennsylvania, as well as a free-to-play Fox Sports Super 6, which offers a jackpot contest based on picking sports results.

The company will feature offerings in sports betting, poker, casino betting, fantasy sports, pari-mutuel wagering, and free-to-play games it says will give it an ideal position to pursue opportunity in the U.S. through a combination of brands, media reach, and product offering.

"This is an exciting and transformational combination that will bring together two strong, complementary businesses to create a global leader in the fast-growing online sports betting and gaming industry," said Flutter chairman Gary McGann. "Under Peter Jackson's leadership, we will bring together a management team with the experience required to ensure a successful integration of the businesses, with minimal disruption, during a time of unprecedented change in the sector. The combined group will be a strong voice in the promotion of responsible gaming worldwide and will lead industry standards on the protection of customers, whilst building sustainable relationships with them."

The combined companies will be incorporated—headquartered in Dublin, Ireland—with a premium listing on the London Stock Exchange and a secondary listing on Euronext Dublin. 

"The combination represents a great opportunity to deliver a step change in our presence in international markets and ensure we are ideally positioned to take advantage of the exciting opportunity in the U.S. through a media relationship with Fox Sports as well as our development of U.S. sports betting through Flutter's FanDuel and TSG's Fox Bet brands," Jackson said. "We are committed to these two high-quality brands to drive the growth of the combined group in the U.S."

Under terms of the merger, TSG shareholders will be entitled to receive 0.2253 new Flutter shares in exchange for each TSG share. Immediately following completion of the merger, Flutter shareholders would own approximately 54.64% of the new company, and TSG shareholders would own approximately 45.36% of the share capital.

In order to achieve economic alignment of Flutter's and TSG's strategic third-party relationships across their respective U.S. businesses, Flutter has entered into arrangements, conditional on completion of the combination of the companies, with Fox Sports, Fastball Holdings, and Boyd Interactive Gaming, together with Flutter's co-shareholders in FanDuel Group.

The merger is conditional upon approval by Flutter shareholders as a Class 1 transaction under the United Kingdom's listing rules at a general meeting, and the London Stock Exchange and Euronext Dublin agreeing to admit Flutter's enlarged ordinary share capital to listing. The approval of Flutter and TSG shareholders is expected to be sought in the second quarter of 2020. Completion is expected to occur during the second or third quarter of 2020.