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Paddy Power Betfair in talks to buy FanDuel after US sports betting ruling 17/05/18
• Discussions with fantasy sports league company come as UK bookmakers are well placed for slice of US market

Paddy Power Betfair has made the first move in an expected wave of takeover activity prompted by the legalisation of sports betting in the US, as it launched a bid for fantasy sports league company FanDuel.

Shares in UK gambling companies soared earlier this week as investors responded to the US supreme court’s decision to overturn a law known as PASPA, a ban on sports bets that had stood for 26 years.

Many analysts believe London-listed firms are well placed to grab a slice of the US market, where some estimates say nearly $150bn (£111bn) in illegal wagers are placed every year.

While US states will have to draw up their own gambling laws, a process that could take years in some cases, the shift in the US landscape is expected to encourage British firms to seek takeovers or become targets themselves.

Paddy Power confirmed it was already in talks with FanDuel “to create a combined business to target the prospective US sports betting market”.

FanDuel is a web-based fantasy sports game with 6 million registered users, who can put together virtual teams in sports such as American football and win cash prizes based on their success against other players.

Such websites have slipped through the net of the US ban on sports betting because they are seen as games of skill rather than of chance but an alliance would help Paddy Power push betting products through the site.

If a deal goes ahead, it is likely to be worth considerably more than the $48m (£35.6m) that Paddy Power paid for FanDuel’s smaller rival Draft last year.

FanDuel, which was blocked from merging with its main competitor DraftKings by the US competition regulators last year, has been valued at $1bn by some analysts.

Paddy Power Betfair’s shares jumped by more than 12.2% in a day when the supreme court announced its decision earlier this week, signalling analysts’ belief that it is well placed to launch an assault on the US market.

They closed up a further 6% on Wednesday at £82.15 as markets digested the potential for the company to add FanDuel to its existing US operation.

As well as its fantasy sports presence via Draft, Paddy Power Betfair owns horseracing TV channel TVG and an online casino in New Jersey, the state that challenged the ban on sports betting and has made the most progress putting preparations in place for the industry to grow.

However, while Paddy Power hopes to be the buyer in this case, analysts at the stockbroker Goodbody said European betting firms could find that they are tempting targets for US companies looking to purchase expertise.

“Given the regulatory and taxation headwinds that European operators are facing in their home markets over the next few years, [the repeal of PASPA] is a very attractive long-term positive for the companies under our coverage and as such is supportive of their long-term growth prospects,” they said.

“It also could see European operators speculated as potential M&A targets, given the unique sports betting skill set they possess,” said the analyst Gavin Kelleher.

Shares in the online casino 888 and the high street bookmaker William Hill jumped by 15% and 11% respectively on the repeal of PASPA. Both have a US presence and have previously explored options for consolidation before ultimately rejecting them.

William Hill and Canada’s Amaya called off a £4.6bn merger in 2016, while the British bookmaker turned down a tentative approach for a three-way merger with 888 and the Mecca Bingo owner, Rank.