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Fair Value

12 Months Ended

Jun. 30, 2020

NOTE 6. FAIR VALUE

In accordance with ASC 820, “Fair Value Measurement,” fair value measurements are required to be disclosed using a three-tiered fair value hierarchy which distinguishes market participant assumptions into the following categories: (i) inputs that are quoted prices in active markets (“Level 1”); (ii) inputs other than quoted prices included within Level 1 that are observable, including quoted prices for similar assets or liabilities (“Level 2”); and (iii) inputs that require the entity to use its own assumptions about market participant assumptions (“Level 3”).

The following tables present information about financial assets and liabilities carried at fair value on a recurring basis:

	Fair value measurements
	As of June 30, 2020
	Total			Level 1			Level 2		Level 3
	(in millions)
Assets
Investments in equity securities	$	531		$	531	^(a)	$	-	$	-
Liabilities
Other		(6	)		-			-		(6)	^(b)
Redeemable noncontrolling interests		(305	)		-			-		(305)	^(b)
Total	$	220		$	531		$	-	$	(311)

	Fair value measurements
	As of June 30, 2019
	Total			Level 1			Level 2			Level 3
	(in millions)
Assets
Investments in equity securities	$	761		$	545	^(c)	$	216	⁽^d⁾	$	-
Redeemable noncontrolling interests		(189	)		-			-			(189)	^(b)
Total	$	572		$	545		$	216		$	(189)

^(a)	The investment categorized as Level 1 represents an investment in equity securities of Flutter with a readily determinable fair value (See Note 3—Acquisitions, Disposals and Other Transactions under the heading “Flutter” for further discussion).

^(b)

The Company utilizes the market approach valuation technique for its Level 3 fair value measures. Inputs to such measures could include observable market data obtained from independent sources such as broker quotes and recent market transactions for similar assets. It is the Company’s policy to maximize the use of observable inputs in the measurement of its Level 3 fair value measurements. To the extent observable inputs are not available, the Company utilizes unobservable inputs based upon the assumptions market participants would use in valuing the liability. Examples of utilized unobservable inputs are future cash flows and long-term growth rates.

⁽^c⁾	The investment categorized as Level 1 represents an investment in equity securities of Roku with a readily determinable fair value, which was sold in March 2020 (See Note 3—Acquisitions, Disposals and Other Transactions under the heading “Roku” for further discussion).

^(d)

The investment categorized as Level 2 represents an investment in equity securities of The Stars Group estimated using the quoted market price of The Stars Group common stock less a discount due to a lack of marketability (“DLOM”) as a result of certain transfer restrictions. The DLOM was derived based on the remaining term of the lock up period and the volatility of The Stars Group common stock. The investment in The Stars Group was transferred from Level 2 of the fair value hierarchy to Level 1 during the fourth quarter of fiscal 2020 as a result of The Stars Group equity securities being exchanged for Flutter equity securities upon the completion of the Combination in May 2020 and the removal of the transfer restrictions on the Company’s investment (See Note 3—Acquisitions, Disposals and Other Transactions under the heading “Flutter” for further discussion).

Redeemable Noncontrolling Interests

The changes in redeemable noncontrolling interests classified as Level 3 measurements were as follows:

	For the years ended June 30,
	2020				2019				2018
	(in millions)
Beginning of year	$	(189	)		$	(275	)		$	(154	)
Acquisitions^(a)		(109	)			-				-
Net income		(33	)			(33	)			(41	)
Distributions		24				32				41
Accretion and other		2		^(b)		87		^(b)		(121	)
End of year	$	(305	)		$	(189	)		$	(275	)

^(a)	See Note 3—Acquisitions, Disposals and Other Transactions under the heading “Credible Acquisition.”

⁽^b⁾	As a result of the expiration of a portion of the put rights held by the sports network minority shareholder during fiscal 2020 and 2019, approximately $120 million and $200 million, respectively, was reclassified into equity.

The fair values of the redeemable noncontrolling interests in the sports network and Credible were determined by using discounted cash flow analysis and market-based valuation approach methodologies. Significant unobservable inputs used in the fair value measurements of the Company’s redeemable noncontrolling interests are EBITDA (as defined in Note 17—Segment Information) projections, discount rates and multiples. Significant increases (decreases) in multiples would result in a significantly higher (lower) fair value measurement. Significant increases (decreases) in discount rates, assuming no changes in multiples, would result in a significantly (lower) higher fair value measurement.

Another portion of the put rights held by the sports network minority shareholder became exercisable in July 2020 and the remaining portion will become exercisable in July 2021. The put right held by the Credible minority shareholder will become exercisable in fiscal 2025.

Financial Instruments

The carrying value of the Company’s financial instruments, such as cash and cash equivalents, receivables, payables and investments accounted for using the measurement alternative in accordance with ASC 321, approximates fair value.

	As of June 30,
	2020		2019
	(in millions)
Borrowings
Fair value	$	9,746	$	7,643
Carrying value	$	7,946	$	6,751

Fair value is generally determined by reference to market values resulting from trading on a national securities exchange or in an over-the-counter market (a Level 1 measurement).

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The Company’s assets measured at fair value on a nonrecurring basis include investments accounted for using the equity method and the measurement alternative in accordance with ASC 321, long-lived assets, indefinite-lived intangible assets and goodwill. The Company reviews the carrying amounts of such assets whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable or at least annually for indefinite-lived intangible assets and goodwill. Any resulting asset impairment would require that the asset be recorded at its fair value. The resulting fair value measurements of the assets are considered to be Level 3 measurements. In addition, investments accounted for using the measurement alternative in accordance with ASC 321 are recorded at fair value as a result of observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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