CMA to Investigate Merger of Flutter and Stars

The UK’s Competition and Markets Authority has announced that it is currently investigating the potential merger of two of the largest online casino, sports betting and poker sites in the world – Flutter Entertainment Plc and The Stars Group plc. In common will all such deals that may have a significant impact on other companies and their rights to remain competitive, the proposed merger of these two gambling behemoths will need to be ratified by an independent third-party charged with protecting business and casino rights.

The original deal was announced in October 2019 after a lengthy period of negotiation between the two companies. The merger will effectively see Flutter swallowing up The Stars Group, and the two companies had originally hoped that the merger would be completed by autumn 2020. If the CMA found that the deal would constitute the potential setting up of an eventual monopoly, the deal may not go through at all.

The Stars Group

The Stars Group Inc is the leading Canadian online gambling company, primarily based around poker. The company was previously known as Amaya, which eventually became the Rational Group and The Stars Group in August 2017.

Amaya was a relatively small player in the online casino realm until 2014 when they stunned everyone in the gambling sector by borrowing $3 billion and purchasing PokerStars for the ground-shaking amount of $4.9 billion. At the time, PokerStars also owned Fult Tilt Poker. This meant that Amaya (as they were then) now owned two of the three biggest online poker sites in the world, the third being Party Poker.

After rebranding at The Stars Group in 2017, the company went on to purchase Sky Gaming, Sky Betting, BetEasy, BetStars and a few others. The Stars Group are currently the 7^th biggest gambling company in the world, with revenues over $2 billion per annum.

Flutter Entertainment plc

Even the most knowledgeable online casino guru might be forgiven for never have heard of Flutter Entertainment. That’s because they are a 2019 rebrand of two of the biggest sports betting companies upon the globe.

Flutter began life an online gambling entity in 2015 when the controversial Irish betting firm Paddy Power began merger talks with another leading betting company and exchange, Betfair. Paddy Power announced that as part of the merger, they would be the biggest shareholders in this new venture retaining a 52% share of the company. Betfair was granted the remainder of the shares, and the merger went ahead in early 2016. Immediately, 650 UK jobs were lost as Paddy Power decided to slim down both its and Betfair’s operations a little.

The company soldiered on successfully as ‘Paddy Power Betfair’, maintaining distinctly different brands even though they both remained primarily as sports betting companies. In March 2019 in a surprising move, the company decided that it was going to rebrand itself as ‘Flutter Entertainment plc’.

Flutter is now the umbrella company of several other wagering operations, including Paddy Power, Betfair, FanDuel and Sportsbet.co.au, a wagering site in Australia. Flutter is currently the fifth biggest online wagering company in the world with revenues over $2.6 million.

What will this merger mean to the rest of the wagering world?

The merger of Flutter and The Stars Group would see them combine their resources and their potential for revenue, which could, by the end of 2021, climb over $5 billion. This would easily eclipse all the other leading online gambling companies, including IGT, GVC Holdings, bet365 and Scientific Games.

This is, however, not a mutually beneficially deal. The Stars Group would in effect be completely swallowed up by Flutter, ceasing their identity as a company. However, they would still live on thanks to the Poker Stars brand, which – like Full Tilt Poker – would become a Flutter Entertainment brand. This is why The Stars Group has said yes to Flutter’s $6 billion offer, which represents three years of revenue plus shares of potential revenue in the future.

Why does this deal need to be investigated?

Smaller companies almost always lose out to bigger companies. You may think that this is just a way of life, but monopolies can have a devastating effect on economies and employment. Once a company becomes too big smaller companies have no option but to seek to merge with them or go to the wall. Monopolies are bad for all forms of business.

Monopolies affect the consumer as well. Say Starbucks suddenly bought up all the other coffee chains in the world, including Caffe Nero and Costa Coffee. This would mean that people would be forced to go to a Starbucks (as there was nowhere else to go) or go without, which means in turn that Starbucks were free to fix their prices and to pressure coffee bean companies to lower their prices as they had no one else to sell coffee beans to. This could lead to further job losses which in turn could destabilise economies.

What can the CMA do?

It is unlikely that the CMA will stop the merger of Flutter and Stars from going ahead, but they could put conditions on the deal. In 2016 the CMA investigated the proposed merger of Ladbrokes and Gala Coral in the UK, and they decided that the number of betting shops the new company would own would represent an unfair advantage. The CMA decided that the merger could only go ahead if the new company sold 400 of their real-world betting shops,

Of course, there’s the chance that conditions placed on the deal by the CMA could make the purchase of The Stars Group less attractive acquisition for Flutter Entertainment, and they could then pull out of the deal. To quell any possibility of The Stars Group taking legal action against Flutter should they pull out, Flutter have already agreed to pay Stars $60 million should a pull-out actually take place.