Flutter Entertainment PLC (LON:FLTR) shares fell on Friday after the bookmaker unexpectedly lost a legal case in the US and was hit by a huge penalty.
The Kentucky Supreme Court overnight ruled against The Stars Group (TSG), which Flutter acquired earlier this year, concerning a judgment made in a lower state court in 2015 over a case brought in 2010.
The award of damages relates to court action first brought on behalf of Kentucky residents who had incurred losses on the PokerStars website, which TSG acquired in 2014.
The Supreme Court confirmed the judgement and said that US$870m plus compounding interest of 12% per annum should be paid as a penalty.
Including interest, the amount could be up to US$1.4bn.
“Flutter is 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 FTSE 100-listed company said in a statement after market close yesterday.
“This litigation had sought recovery of alleged losses by Kentucky residents during a period between 2006 and 2011 relying on a centuries-old statute.”
The shares were down 2% to 15,150p in early trading.
Analysts at broker Peel Hunt said there was no suggestion about how the Paddy Power and Betfair owner might challenge a judgement of a state supreme court.
The amount in question is around 4% of Flutter's market capitalisation but “it might, depending on if/when the payment is made, create a liquidity challenge for the group”, the analysts added.
Analysts at AJ Bell said: “Flutter will have been aware of the issue having done due diligence on The Stars Group but presumably thought it was behind them given an appeal court reversed the initial award in 2018.
“The market reaction so far is measured, with investors perhaps reassured by Flutter’s insistence that it has legal avenues available to contest the decision and that ultimately in the worst case it would pay a ‘limited proportion’ of the reinstated judgement.
“An interesting takeaway is that 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.
“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.”