Flutter Entertainment Acquires The Stars Group in $6B Deal

The real money online gaming industry was stunned on the morning of Wednesday, Oct. 2, 2019 to find out that Flutter Entertainment is acquiring The Stars Group (TSG) for the princely sum of $6 billion. The deal is being funded solely through the issuance of Flutter shares to Stars stockholders. The new company will have a market capitalization of about $11 billion based on the share prices of the two companies and will thus become the largest online gambling entity in the world.

Details of the Transaction

Under the terms of the arrangement, each holder of a share of TSG will be compensated with 0.2253 new shares in Flutter. Given the closing prices of both corporations Tuesday night, 0.2253 shares in Flutter was worth about $21.15 whereas stock in The Stars Group was only valued at $15.31. Therefore, Stars investors are getting a substantial premium of about 40% on their holdings.

Existing Flutter ownership will exercise control of approximately 54.64% of the new enterprise with Stars Group shareholders owning 45.36%. The new organization will be based in Dublin, Ireland and will be listed on the London Stock Exchange.

Current Flutter CEO Peter Jackson will retain his position in the new company, and Stars Group CEO Rafi Ashkenazi will become chief operating officer. The chairman of Flutter and its CFO will occupy corresponding positions at the combined firm.

Flutter Chief Exec Peter Jackson

Commenting on the merger of the two companies, Flutter CEO Peter Jackson said:

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 US through a media relationship with FOX Sports as well as our development of US sports betting through Flutter’s FanDuel and TSG’s FOX Bet brands. We are committed to these two high quality brands to drive the growth of the Combined Group in the US.

Giving the perspective from The Stars Group's side was CEO Rafi Ashkenazi:

This exciting combination will allow us to enhance and accelerate our existing strategy. In recent years, we have transformed TSG from a single product operator in poker, to a diverse global leader with multiple product offerings across poker, gaming and sports betting. The combination with Flutter will further enhance our company’s core strengths, and position us strongly for the future in this rapidly evolving industry.

Rafi Ashkenazi, CEO of The Stars Group

About the Two Organizations

Both The Stars Group and Flutter Entertainment are already large concerns with many moving parts. They are both active in online poker, sports betting, casino gaming, and other related fields.

Neither of them is a stranger to mergers, purchases, strategic partnerships, and other corporate maneuverings. TSG, for instance, is the descendent of the Rational Group, which itself consisted of PokerStars and its longtime rival Full Tilt Poker. Rational acquired Full Tilt in the aftermath of the Black Friday fracas in 2011.

Some of the Companies Managed by The Stars Group

A more recent addition to The Stars Group's portfolio is Sky Betting and Gaming, which was bought in 2018. In May 2019, TSG and FOX Sports teamed up to create Fox Bet, a sports betting venture that has already launched in New Jersey and Pennsylvania and intends to expand into other legalized sports betting states soon.

Flutter Entertainment's biggest components are Paddy Power and Betfair, two bookmaking outfits that joined forces in 2016. Flutter – or Paddy Power Betfair as it was then called – brought daily fantasy sports leader FanDuel under its umbrella in 2018. Licensed Australian online sportsbook Sportsbet.com.au is also one of Flutter's brands.

Some of Flutter's Brands

What Each Side Brings to the Table

Though each part of the Flutter/TSG duo is experienced in a wide array of gambling endeavors, they have their own particular advantages and weaknesses.

Flutter has significant exposure to the British regulated gambling scene, which has become a more difficult area to operate within because of the continual tightening of the rules pertaining to betting activities. For example, a higher remote gambling duty and reduced maximum stakes on fixed odds betting terminals came into effect in the United Kingdom in April 2019. By contrast, The Stars Group collects its revenue from a broader portion of the globe, so it won't be as drastically affected by developments in a single country.

Although TSG has been attempting to grow its online casino and sportsbook verticals, its largest product division remains the somewhat lower-margin poker. Flutter has a much stronger sports betting division, which will certainly help TSG as it seeks to enhance its performance in this department.

Projected Growth Areas and Cost Savings

Both companies are greedily eying the burgeoning USA sports betting landscape. This part of the economy got kick-started by the May 2018 Supreme Court decision that permitted individual states to legalize and license sportsbooks within their borders. There are now around a dozen states that host sports betting companies, and the total is expected to eventually exceed 25: more than half the country.

In 2018, the U.S. Supreme Court Invalidated a Law That Prohibited Sports Betting at the Federal Level

By combining their efforts, Flutter and TSG believe that they'll be able to better compete in the sports betting USA arena. They will surely face many challenges from rival international gambling consortiums, local casino management, homegrown betting establishments, and other stakeholders.

Beyond this, the deal is expected to lower costs through synergies worth an expected $172 million per year. The combined corporation is also projected to free up a lot of cash flow, which will enable it to reduce its debt load.

Stock Market Reacts

Though endeavoring to gauge the reasons for any short-term movements in stock price is a dicey proposition, it appears that the investment community applauds the deal between Flutter and TSG.

Going from a closing price of £76.34 on Tuesday, FLTR jumped briefly above £92.00 Wednesday morning before closing Wednesday at £81.64 for an almost 7% gain day-over-day. It was a similar story with TSG, which followed Tuesday's close at $15.31 by skyrocketing above $20 in the early trading Wednesday morning before settling back down to $19.90 at the end of the trading day. Stars Group stock thus gained about 30% on the day.

Not a Done Deal Yet

Before we get ahead of ourselves, we must remain cognizant of the fact that this agreement could still come off the rails. The executive leadership of both groups is fully onboard, but the purchase does have to be approved by the shareholders of the corporations. This is expected to occur sometime in the second quarter of 2020.

Perhaps more of a hurdle will be regulatory scrutiny of the merger. The United States, United Kingdom, Australia, and Canada are just a few of the regions in which one or both of the parties to this transaction have a presence. Therefore, officials from quite a few jurisdictions have the power to nix the deal before it's fully consummated.

The primary mechanism for derailing the plans of The Stars Group and Flutter could be anti-monopoly laws. After all, the new, larger corporation will have a commanding presence in several markets. This is true for online poker, sports betting, and daily fantasy sports.

Of course, Flutter or Stars isn't the leading provider of all three of these services in each jurisdiction that they do business in. But in quite a few of them, their level of market share might give officials cause for concern.

There's some precedent for governments interfering in these kinds of online gambling deals. In July 2018, for instance, the UK's Competition and Markets Authority put a halt to a bid by TSG to acquire Sky Betting & Gaming. The transaction was eventually cleared to proceed, but this entire episode illustrates the powers that bureaucrats hold over the activities of businesses.

What Does This Mean for Poker Players

It's a given that the combination of Flutter and The Stars Group will have implications for all forms of gambling online, not just poker. However, we here at ProfessionalRakeback are poker players first and foremost, and so it is on this pastime that we will keep our attention focused.

Adding in player liquidity from Betfair and Paddy Power should produce a shot in the arm for the flagging PokerStars. It was once indisputably the numero uno in online poker when it came to cash game traffic, but recent figures demonstrate that it has been eclipsed by IDNPoker, an Asia-focused operation. This is the consequence of almost a decade of continuous decline on the part of 'Stars.

Impact on iPoker Network

The fallout from this acquisition will probably include a reduction of the player count at the iPoker Network, the current home of both Paddy Power and Betfair. It's unlikely that Flutter will continue to participate on that network once the transaction with Stars is finalized, so a big chunk of players will be removed from iPoker, currently the 10th largest internet poker provider by ring game traffic.

iPoker: Always a Busted Flush Draw?

We don't know for sure what fraction of the iPoker player base comes from the two brands that will change ownership, but there are indications that this percentage is significant. On the webpage for the network, there's a timeline of its history, and included on this graphic are the dates that Betfair and Paddy Power joined the network. One can only assume that their departure would be equally important.

It's possible that iPoker will be able to muddle along as a second-tier offering for a while. But it's also feasible that the reduction in player counts will feed upon itself in a spiral of doom. This is what happened to MPN after Unibet abandoned the network in 2014 in order to debut its own standalone poker solution and PKR declared bankruptcy in 2017. On Sept. 20, 2019, MPN revealed its plans to shutter its poker network sometime in the latter half of 2020.

No Difference Outside Licensed Poker Jurisdictions

The doings of mammoth licensed online gaming providers may be interesting to behold, and the sums of money involved are truly staggering. However, for those of us in unregulated markets, these spectacles have about as much relevance to our day-to-day lives as retellings of ancient Greek myths, like the battle between Achilles and Hector or Atlas holding the world aloft on his shoulders.

For offshore destinations where you can actually play real money poker while located in an area that has not explicitly legalized it, read our country-specific guides:

▶ USA-Friendly Online Poker Sites

▶ Canada Online Poker Destinations

▶ Online Poker for Australians