Focus: Murdoch's News Corp-Fox reunion gambit comes as sports betting valuations tank

News

02/11/2022 17:05

By Dawn Chmielewski and Byron Kaye
       Nov 2 (Reuters) - Rupert Murdoch’s proposal to recombine
News Corp  NWSA.O  and Fox Corp  FOXA.O  and capitalize on
sports betting has yet to convince Wall Street as the valuations
in the once red-hot gambling market crumble, according to former
employees, financial analysts and sports media experts.
    While some former employees see the move as driven by the
91-year-old Murdoch's succession planning to consolidate power
behind his son Lachlan Murdoch, CEO of Fox Corp, people familiar
with the Murdochs' thinking say they are serious about the
sports betting opportunity.
    "The proposal is 100% based on business rationale," a
spokesman for Rupert Murdoch told Reuters. "Any commentary that
implies it has to do with succession planning is absurd and
comes from sources with no knowledge of the strategy."
    There are other factors motivating the merger including a
bid to achieve greater scale in news, live sports and
information, sources said. Lachlan Murdoch did not discuss the
potential deal on Tuesday's earnings call, but talked up the
value of scale, "particularly (in) the next couple of years,
when opportunities in the marketplace will emerge."
    As recently as August, Lachlan Murdoch described sports
betting as "a huge opportunity" for Fox Sports, telling Wall
Street it would fuel viewer engagement. Combining live game
broadcasts with News Corp's sports coverage would create a more
compelling sports package, and strengthen the company's hand
when it comes to sports betting, according to people familiar
with the deal's logic.
    But Wall Street's enthusiasm for sports betting has cooled
since early 2021, as investors prioritize profitability over
spending aggressively to acquire new customers. Thirty-six U.S. 
states and the District of Columbia have legalized sports
betting, though the pace has slowed.
    "The thing about the sports betting opportunity is it
started off like a house on fire, with all the states approving
it," said Huber Research Inc analyst Douglas Arthur. "But I'm
not hearing as much excitement about it right now as I did nine
months ago. If that's the rationale (for the merger), it's a
pretty weak one.”
    Since the start of 2022, the stock prices of 11 major
publicly traded sports betting companies, including DraftKings
Inc  DKNG.O  and Barstool Sportsbook's Penn Entertainment Inc
 PENN.O , have tumbled by an average of 35%, according to
Refinitiv data.
    That does not necessarily mean the pace of legalized sports
betting is slowing. Total wagers are expected to reach $390
billion globally this year, according to researcher H2 Gambling
Capital. Kantar Sports analyst Ryan McConnell said the market is
flooded with new entrants and consolidation appears likely.
    Casualties are starting to build up. Streaming service
FuboTV shuttered its sports betting service in October, and
Churchill Downs announced in February that it would abandon
online sports.
    "It's a highly competitive market," said gaming industry
analyst Steve Ruddock. "It's difficult for companies that aren't
fully invested in that as their primary business to compete."
    SLOW START
    Since selling their movie assets to the Walt Disney Co
 DIS.N  in 2019, the Murdochs laid a new course for a
slimmed-down Fox, based on sports betting. The company soon paid
$236 million for a 5% stake in Toronto online bookmaker the
Stars Group which helped launch Fox Bet and owns the app.
    Combining Fox with News Corp could bring a larger audience
to sports betting, potentially increasing the financial rewards
for attracting new gamblers and gaining more lucrative
sponsorships from sportsbooks eager to promote their apps, said
one media executive.
    The Murdochs' early foray 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 gamblers.
    The growth of Fox Bet has stagnated since market-leading
FanDuel's owner, Flutter Entertainment Plc  FLTRF.L , acquired
Stars Group in 2020. The companies have been locked in a dispute
over the price Fox would pay to exercise its option to buy 18.6%
of FanDuel. The matter is the subject of an arbitration case and
Lachlan Murdoch told investors a decision is expected
imminently.
    News Corp has previously stumbled in sports betting. Last
month, News' first direct investment in Australian bookmaking,
Betr, went live ahead of the country's most-watched horse race,
the Melbourne Cup. Within two days, an ad that ran in News
Corp's tabloid newspapers triggered a regulator inquiry into
whether the ads breached laws prohibiting inducement to gamble.
Betr says it is cooperating with the regulator.
    Matt Davey, chairman of Las Vegas sports betting investment
firm Tekkorp Digital Acquisition Corp  TEKK.O , which
co-invested with News Corp in Betr, said News had seized on its
media reach in Australia, where it sells more than half of all
newspapers and runs sports-heavy cable TV channel Foxtel, to
create a "pretty powerful combination" of media and betting.
    At least one investor is waiting to be convinced that
approach will work in the United States.
    "Fox has got a far-reaching audience so it does make sense,
if you're going to launch (sports betting) into the U.S., that
you have that Fox network, distribution and partnership," said
John Ayoub, a portfolio manager at Sydney-based Wilson Asset
Management, which owns News Corp's Australian-listed shares.
"But we'll probably need a little bit more detail."
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BREAKINGVIEWS-Rupert Murdoch’s odd reunion simplifies succession
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Rupert Murdoch considers combining Fox, News Corp   
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 (Reporting by Dawn Chmielewski in Los Angeles, Byron Kaye in
Sydney, and Noel Randewich in Oakland, Calif.
Editing by Kenneth Li and Matthew Lewis)
 ((mailto:Dawn.Chmielewski@thomsonreuters.com;))