Shares in Flutter Entertainment (FLTR) dipped 2.1% to £151.60 after the firm was slapped with a hefty fine by a US court over a case originally brought against The Stars Group, with which it merged in 2019.
In 2015, a court in Kentucky fined The Stars Group $870 million, but the ruling was overturned in the appeals court three years later. This week, however, the Kentucky Supreme Court reinstated the fine and added a 12% annual rate of interest to the payment.
KEEP CALM AND CARRY ON
Flutter said it was ‘wholly surprised by today's ruling and strongly disputes the basis of this judgement which, it believes, runs contrary to the modern US legal precedent’.
The ruling seeks to recover alleged losses by Kentucky residents between 2006 and 2011 based on an old statute. Flutter says the gross gaming revenues generated by The Stars Group during the period were just $18 million, and it is confident that any amount it ultimately has to pay will be ‘a limited proportion of the reinstated judgement’.
DUE DILIGENCE
As AJ Bell investment director Russ Mould points out, the near-$900 million judgement from the supreme court is ‘like a painful echo from the past, linked as it is to The Stars Group. Flutter would have been aware of the issue having done due their diligence but presumably thought it was behind them given an appeal court reversed the initial award in 2018.’
‘In their clamour to take advantage of the opening up of the sports betting market in the US, companies may have somewhat neglected to consider the risks alongside the opportunities’, adds Mould.
So far the market reaction has been fairly muted, with investors presumably reassured by Flutter’s insistence that it has legal avenues available to contest the decision and that ultimately in the worst case it would only pay a limited amount of the fine.
HOPE FOR THE BEST
However, a look at the 2019 annual report reveals no mention of the Kentucky case in the list of principal risks and uncertainties on pages 45 to 48, even though it could have ‘a material impact on the group’s long-term performance and achievement of its strategic objectives’ as well as its reputation.
Moreover, not one of the 32 references to Stars Group in the strategic report or the independent auditor’s report mentions any legacy risks from the merger, nor does the firm appear to have provisioned against any fines.
‘This may be prove to be an isolated incident, a complete outlier, but the US is a litigious society, including in the corporate sphere, and this news may have a sobering effect on the sector’ says Mould.
