Flutter Entertainment plc
Q1 2021 Earnings Call Transcript

Published: 10 Aug 2021

Operator:

Good morning, and welcome to the Flutter H1 Results Update call. My name is Joe and I'm your operator today. But first, I will hand over to Peter Jackson, Group CEO of Flutter. Please go ahead, Peter.
Peter Jackson:

Thank you, Joe. Good morning, everyone and thank you for joining us. With me today, is Jonathan Hill, our CFO. Hopefully you've had a chance to read our announcements and watch the presentation we released this morning but for those that have not yet, I'll just cover off a few of the key points. Firstly, we're very happy with the progress we've made in continuing to scale our US business. Flutter US is now 50% bigger in revenue terms than our next nearest online competitor with the gap between FanDuel and each of its competitors widening during the first half. Our sports betting and gaming customer base is now three times as big as it was just 12 months ago, having added 1.7 million customers in the last year alone. We believe that our superior sports product and the strength and reach of the FanDuel brand have been the key drivers of this growth. In Q2, we crossed the $0.5 billion mark in quarterly US revenues for the first time, with our US division, now the second largest in revenue terms within the Flutter Group. As a result of our strong customer acquisition and retention, we now expect to generate between $1.8 billion and $2 billion in US revenue this year. While delighted with the performance of the business as a whole, our market share in sports betting, particularly stands out. We finished Q2 with a 45% share of the US online sports betting market leading new and more mature states alike. And while we believe there are good opportunities for us to grow our gaming share as we better leverage more of Flutter's enhanced capabilities, it is the shape and pipeline of new state regulation with its emphasis on sports betting that is particularly exciting. We now expect up to nine further US states to regulate mobile sports betting by the end of 2022, close to doubling the proportion of the US population who will be able to sports bet legally online. And of those nines states, just one is expected to regulate gaming initially. Given the strength of our sports betting offering and the key competitive advantages we enjoy in this space, we feel this positions FanDuel very well, to compound its leadership position. Secondly, our performance outside the US has exceeded our expectations during the first half. And both our UK & Ireland, and Australia division's online earnings grew by more than 50% year-on-year in the first half. This has been driven by recreational customer growth. We grew our average monthly players or AMPs by 44% in the UK & Ireland, and by 52% in Australia, in H1. These growth rates reflect an ongoing shift of customers from retail to online. In the UK & Ireland, where we've only emerged fully from stay-at-home restrictions, relatively recently, it is probably a little bit soon to say definitively how permanent the shift in player behavior has been. But in Australia, which was largely unaffected by COVID for much of H1 and where our retail competition was open, we now believe that the events of the last 18 months have resulted in a permanent step change in the size of our business there, with customer retention that has exceeded even our most optimistic expectations. In International, the revenue decline following the spike in player activity in H1 last year was less pronounced than we expected, albeit the division did continue to benefit from a tailwind from ongoing stay-at-home restrictions in parts of Europe. We are transforming the shape and quality of our International division by investing more in regulated and high growth markets with encouraging early signs. Our customer base in H1, were just 3% below the elevated levels of H1 last year. What this all means is, we've today issued 2021 EBITDA guidance for the group ex-US of £1.27 billion to £1.37 billion, materially above current consensus. Finally, we've announced this morning that we now believe our US business will be profitable in 2023 based on the expected timetable for new state regulation. We believe this will have a transformational impact on the overall earnings, cash generation and balance sheet profile of the group. To be clear, we are not setting a target date for profitability. The date our US business turns profitable remains an output for us. We remain entirely focused on growing the embedded value of the business by acquiring as many customers as we can, as long as we can, generate attractive returns on investment. The 2023 projection instead reflects simple mathematics. We now believe we will reach a tipping point in 2023, where the sheer scale of our existing US customer base, and the positive contribution those customers generate will more than offset the cost of acquiring additional new customers and the more fixed operating cost base of the business. Side 29 and 30 of our presentation cover this in more detail. Our projection assumes that none of California, Florida, or Texas launch online sports betting and gaming before 2024. Should one of those large states regulate sooner, our level of investment in new player acquisition will be higher and profitability could be delayed but such a scenario would represent a nice problem to have, as it would mean our TAM will be bigger again. If the US does turn profitable in 2023, it is not difficult to see what that would mean for Flutters overall earnings and cash flow profile and the leverage benefits that would bring. Overall then, I'm delighted with how the business is performing and the longer term prospects for the group. With that, I'd be happy to take any questions you have. As always in the interest of giving everyone the chance to ask their question, can I ask you to limit yourself to two questions each to start with. This time, at the end, we're more than happy to say follow ups. With that I'll handover to Joe.
Question-and:
Operator:

Thank you. Thank you. Okay, we have our first question that's coming from Michael Mitchell from Davey. Go ahead. Your line is now open.
Michael Mitchell:

Yes, good morning, Peter. Good morning, Johnson. Thanks for taking my questions. Two, if I could. Firstly on the US, and one of the more notable features of your performance in market share terms for us has been, what appears to be a strengthening in your position as each day becomes more established. And you can comment in terms of market share kind of across New Jersey, Pennsylvania and Indiana being 51% in the period. I wonder, could you comment on that dynamic and why you think the gap between FanDuel and other competitors tends to widen and how sustainable those structural drivers are? And then secondly on Australia, if I could, and despite snap lockdowns in the country, that country did emerge from the more sustained COVID disruption seven or eight months ago and yet AMPs in Q2 were up 61% year-on-year against a high watermark. And I wondered, could you comment again, just in terms of how - why you've been so successful in retaining what looks to be the majority of the retail customers you've acquired through the COVID disruption? Thank you.
Peter Jackson:

Thank you, Michael. Look, I think the question you ask about the US is an important one, because it is true that we are seeing our position strengthening in sports. And I think it's, down to the factor that we've talked about, for a long time. We do have a fantastic product and we do benefit from having a brilliant pricing and risk management capabilities, not just in FanDuel, but ones which we are tweaking leverage from across the globe as well. And if I reference a few pages in the presentation, if you look at Page 33, for example, and you look at the benefits, we're getting from the Same Game Parlay, as an example of what we're doing from a product perspective, I think that's a really good example. And it's one thing, the bettors are buying these products externally, which often leaves them to effectiveness beside the other products but it's another thing to actually develop it in-house as we've done, and have as an integral part of the customer experience. And I think that is important. And if you look at page 35, you can see that we've seen some very structural benefits from margin, which have actually only, grown in recent times as actually customers have taken advantage of some of the range of products we have. And I think one of the things that we're sharing today that we hadn't commented on before, you see on page 37 is, actually the database we have for DFS has almost doubled since 2017. And that's as a result of the big investments we've been putting into the to the FanDuel brand. So I feel like a lot of this stuff is sustainable, we are continuing to invest in product. We are bringing more of our markets that we're managing for pricing risk management perspective, in-house, and we are continuing to pour more money into building and developing the FanDuel brand and with all the benefits of that drive. So, yeah, I think we're in a strong position. With regards to your question about Australia, it is true that the Australians have had a very different sort of path through COVID to sort of the rest of the world. And unfortunately, a lot of them are now back into lockdown there. But I do believe we have seen a permanent step change in the size of the business. And whilst last year, there was not a lot of sport going on, but racing continued. And so that has undoubtedly led to a growth in AMPs. I think what we're seeing is a lot of customers, trialed and sampled our online product in the period and actually found they really liked it. So we've got some fantastic product innovations in the Australian markets, we just launched Bet with Mates, which has been a fantastic way of bringing in another wave of new customers, and of course, offering generosity and value to our customers in the market in ways that the retail monopoly provider can't do. So I think that that's what's leading to us having as a permanent step change in the size of the business. And of course, we're getting brilliant operating leverage off the back of that as well because we - and have helped us to grow our business in the same time. And look, we'll talk more about that in September, on the 22nd when we do our Investor Day. So it will be a good opportunity for you to talk to Barney and the rest of the team.
Michael Mitchell:

Super, many thanks.
Operator:

Thank you. The next question is coming from Ed Young from Morgan Stanley. Please go ahead, your line is open.
Edward Young:

Hi, thank you for taking my questions. And thanks for the additional disclosure on the US, very useful. My first question is on the US. You mentioned a couple of times, Peter, direct casino acquisition. And I noticed your well-made points around the next wave of states being sport. Most of what you spoke about in the presentation was, it sounded like the pipeline of product improvements you expect to put into that area. But can talk a little bit more around about brand? I appreciate you've got Stardust and perhaps you could touch on that. But do you think you need another direct acquisition brand? How do you think about casino or gaming databases in the States? And then my second question is on the International, sort of the mirror image of the rest of the group in terms of sort of gaming versus sports, I guess. I know some of your launches over the last year have been, even on third party platforms, I guess for sort of pace and you're going to move to in-house. Can you tell us a little bit about that transition, how you think sports and International growth in general might look and what the timeline for that? I know, you said it won't be overnight, but just to give us an idea of when growth in that area might look a bit more like growth in some of your other markets on the sports side or strength in that side, that'd be very useful. Thank you.
Peter Jackson:

Thanks. And look and I realize we've put a lot of information out to you early this morning, so apologies if I've ruined all of your breakfasts, but there was just no other way for us to do it, I'm afraid. So as it relates to the US, we, I think it's - it is right, that we've got a very strong position in sports. FanDuel has always been synonymous with that, the DFS database has given us a strong advantage, which has allowed us to build to the position that we've got to. And I think, it is also worth remembering that when we think about casino, we run the world's largest online casino business, and have tremendous capabilities, knowledge and know how in doing so. And so, the plan that we have for the US is to make sure that we can bring a lot of that expertise into the US market. And we will continue to do so whether it's the products that we've developed and grown in-house. And actually, when I look at the proportion of our revenues in the International casino business that comes from our own products, is now sort of approaching 20%. Now, which I think positions us well, and shows that we're good at building our own products out. So that's one thing. But we're also getting much better at improving the cross-sell journeys that we see in the US. So for example, we were able to offer some promotional mechanics to users of the Same Game Parlay product that gave them in states, where it's relevant, access to some free spins on casino. And having the largest user base of sports bettors gives us a tremendous ability to cross-sell into Casino in the US. You're right. We do have the iconic Stardust casino brand, which we're using in the US market. But I think it's - there's a lot of plans, and we've got a lot of opportunity to extend and improve what we do for the FanDuel brand, as well. But I think the most important point is actually the fact that we'll - we continue to lead in sports, and that gives us a great platform to grow from in casino. And of course, eight of the nine next states to launch are going to be sports only.
Jonathan Hill:

I mean, I'll probably add that, you remember the where we have states where we're doing gaming, as well as sports betting, we have market access partners, like our friends in Boyd. We work very hard in terms of cross-sell from, from those offline databases online, as well. So we do access through our market access partners, more online potential customers as well. So that's another area where we are working hard.
Peter Jackson:

And then regarding your question about International, look, it is right that we have used some third party platforms. And so we've done that recently in Colombia, just to give us the ability to get into market quickly. It's not dissimilar to what we did in the US market, remember, where, we used third party platforms, and when the time was right, we've moved that business over onto our core platform. You've also seen during the period, we announced the acquisition of Singular, which is the technology stack that powers Adjarabet. Our business was so successful in Georgia, Armenia, and that gives us an additional set of capabilities that will be useful for us in that part of the world and indeed, possibly elsewhere. So we have - we are developing out our capabilities in-house. As it relates to putting the global betting platform into the International business, we hope that we'll be able to trial a small, possibly some markets towards the end of this year, but as you say, it's going take a while before we get that fully rolled out. The thing I'd focus on in International is that is the success we're seeing, actually in casino. The business is doing incredibly well. That has now become our biggest vertical and the investments we've been making to grow that business through things like affiliates, and the - and some of the campaigns we've put around, have been very successful. We got five times the number of customers coming direct into our business than we saw pre-COVID. So, we're pleased with the progress we're making in International in casino as well.
Edward Young:

Thanks so much. I appreciate the detailed answers. Thank you.
Operator:

Thank you. The next question is coming from Kiranjot Grewal from Bank of America. Please go ahead. Your line is open.
Kiranjot Grewal:

Hi, morning, guys. I think just building on that question on brands. We saw DraftKings acquiring Golden Nugget yesterday. You've got five brands already in the US. So maybe you can - could you comment on the rationale and potential benefits of having several brands in the US? Or is there going to be a time where you ramp up investment or focus into other brands other than FanDuel? And then the second question is around your US 2023 positive EBITDA. That's really encouraging. I know in the past, you've mentioned a potential IPO for the US. Do you still see virtue in spreading out the US beyond just the potential valuation crystallization? And if the US were to separate, would you expect the US EBITDA to come down, say, and losing some of the benefits of having Flutters group level scale benefit? Thank you.
Peter Jackson:

Okay. So, we've obviously shared quite a lot of information with the market today, in terms of, how successful we've been using the FanDuel brand for customer acquisition. And you can, if you look at the chart on Page 27 of the presentation, you can see, as we've grown through the number of states, the number of customers we've acquired, and we've now got over 2.2 million sports and gaming customers with a CPA of $291. So, whilst we continue to see the results, so we're saying, we are going to invest very heavily behind the FanDuel brand. And that's very successful for us. You are right that we have a number of other brands available to us in the market and we will continue to push on those as well. And I think TVG is a good example where we've seen real benefits as we've helped grow that business but we've also launched racing under the FanDuel brands as well. And yeah, and we have, as we were just discussing with Ed, the Stardust brand. So, I think we have - we like operating if we can in markets with multiple brands. I think it gives us a good opportunity to target different groups of customers who've got different needs, and we'll continue to do that and invest as much money as we can when we see is compelling and effective acquisition cost of lifetime value dynamics, as we shared with you in the presentation. I think - as to the second part of your question, I think it's - it would be worth making a very important point of clarification that, whilst we have been contemplating an IPO of a small stake of FanDuel, we, if we were to do that, we would consider it to continue to be a sort of controlled subsidiary of the group. And therefore nothing would change in terms of the way in which that business would operate, in terms of continuing to provide no support to the rest of the group through things like its pricing, risk management capabilities, and enhancements it builds. So things like the global betting platform, and nor would anything change in terms of that part of the business being able to benefit from the broader Flutter family. And I think one of the undoubted things that's helped - driven the success of the FanDuel business over the years since we've owned it, is the fact that we have so many cheerleaders on the side supporting it. There's 5000 engineers across the rest of the divisions in Flutter who are helping support the FanDuel business and that's a very important part. So if we were to go down a path of an IPO, it would only ever be for a small stake, and it would be important, it would be - continue to be as a controlled subsidiary. And that would allow us to maintain this symbiotic relationship that we see between that division and the rest of the group.
Kiranjot Grewal:

Okay, perfect. That's incredibly helpful to know the economics will be the same. Thanks a lot.
Operator:

Thank you. The next question is coming from Simon Davis from Deutsche Bank. Please go ahead.
Simon Davies:

Yeah, morning, and two for me too, please. Firstly, you talk about 160 basis point decline in net revenue margin across the group. Can you talk a bit about how that breaks down, i.e. how much of that is down to increases, how much down to pricing? And can you give us a bit of a feel in terms of your pricing strategy in the US now? Are you still increasing bonusing or suppressing pricing to support growth rates there? And my second question is on the International division, obviously, a big impact from online poker. Can you break out what percentage of revenues now come from online poker? And as that business finally stabilize year-on-year, and roughly how is it running as a percentage relative to pre-pandemic levels? Thanks.
Jonathan Hill:

So maybe Simon, I can deal with the first question. So we talked about 160 basis points, reduction. Actually, about half of that was due to reduced luck across the group. Reduced positive sports is also while still positive about 120 basis points, in the half year period in 2020, it was actually 200 basis points of positive sports results. And secondly, we have invested more in generosity, which is the other element. And that's helped us drive the fantastic performance we've seen in terms of our AMP growth across the group. So we continue to work on optimizing the right level of generosity versus - and how that plays into driving the top line. So those are, to me the critical points.
Peter Jackson:

And now as it relates to our pricing strategy in the US, when you look at the page in the presentation on margin, which is on 35, don't think that the fact that this line is heading upwards has anything to do with us moving asset core underlying pricing, we're not moving sort of vague or over ends, depending on whether you want to take us an American whereas an European way of looking at it. We've maintained a very, very tight pricing. It's actually through product mix, that we've actually seen those margins change. I think the other thing to, the other parts of your question was around the International Division.
Jonathan Hill:

So can I just add one other point because the because of our tight pricing in the US, and because the US is becoming such a - so much bigger component of the group, actually our expected margin has down marginally in the first half over the first half year before only because of the, very aggressive pricing we've got in the state. So there's sort of three components, a little bit more aggressive, a little bit more - a small reduction in expected margin due to the US becoming a greater component, a bigger step down in luck, which is the bigger elements and then a smaller increase in the promotional spend, just to give you three moving parts in terms of overall group.
Peter Jackson:

Okay. And so Simon, in terms of the second party question around what's going on from a poker perspective, look, I mean, if you look at the gaming AMPs in the first half and compare them with the prior year, which was a very tough comparative period, they're down 9%. So, we still maintain 91% of our customer levels in 2021. We had our second largest tournament ever in poker with Sunday Millions in the period. I think we're doing great things around the live streaming category in poker, where PokerStars branded and sponsored content had, around two thirds share of all poker views on Twitch. So that part of the businesses is doing well. And I'm pleased that we're making some changes to the way in which we look at reward and generosity for those - that part of the business. So we know we're trialing a new reward scheme. But I think, we said, today that we've seen that business performed better than expected rate there. I think we saw a large influx of new customers last year, and we had expected volumes to be to be off more than they have been. And I think that the team has done a great job in retaining those customers into things like casino and some of the costs are into sports, albeit, we know there's a lot more to do in, particularly in sports.
Simon Davies:

Thank you. Can you can you split out what the poker component is within International and whether that has stabilized?
Peter Jackson:

We disclose that, Jonathan? Well, Simon, we'll come back to you. I don't have the figures to hand.
Simon Davies:

Yeah. Okay. Thank you very much.
Peter Jackson:

I mean, I think the easiest way to look at it, Simon, is that the in terms of the gaming revenues, in H1, it's roughly equal between the two but actually casino overtook poker in the second quarter.
Simon Davies:

Okay.
Operator:

Thank you. The next question is coming from Joe Thomas, from HSBC. Please go ahead.
Joe Thomas:

Good morning. And a couple of questions, please. One is the UK Responsible Gambling initiatives. I think you said that's going to be ramped up in the second half of this year. I'm just wondering if there's any sort of further quantification that you can give us to the drag that that's having and perhaps a tailwind as we go into next year as these - as sort of comps normalize? And indeed, whether that's going to be rolled out further across the business beyond UK and Ireland? And then the second question, I'm intrigued by some of the news coming out of India recently, in Tamil Nadu, in particular, and I'm just wondering if there's any - if there any sort of high level thoughts that you could give us about the scale of the market opportunity there and, and further changes?
Peter Jackson:

Hi, Joe. So we're not putting a number on the changes we're making around RG. It's captured within our guidance. I think it is worth just reflecting that when you look at the brands that we have operating in the UK, when you particularly thinking about Sky Bet and also with Paddy Power, we have the very, very recreational focus brands in the UK. And I think, we are continuously looking for additional things we can do but I think, when I when I look at how the market could evolve and what the gambling commission may decide to do, I think we're, very well placed. Your question about whether we'll be rolling these things out further? Look, I think if you look at what we're doing, what we've done recently in Ireland, we've unilaterally decided to introduce a number of changes which you think are right to put in that market, which we haven't been asked to do. So for example, the moves we've taken around credit cards. In Australia, we're undertaking a number of activities there specific to that market. I think it is important that we look at this on a market-by-market dynamic, whether that's the focus we've got around sort of deposit limits or the work we're doing around affordability. There are different - there are different ways we need to manage this and of course, where we get learnings from one part of the world we will take those elsewhere. Your question about India and Tamil Nadu, is a good one. So, for people on the call who aren't aware, Tamil Nadu have recently published a change in their view around legislating skill games, which particularly positively benefits our business there. It is a large part - well, it used to be a large part of the market in India before it was temporarily closed down. And so we're excited that it comes up again. And we think we have a well-placed brand to capitalize on there.
Joe Thomas:

Is that - is that just the Rummy? I mean, is there any sort of quantification you could give us on - or views on where that might end up and, impact on different states, etc.?
Jonathan Hill:

Yeah, I think what we what we'd prefer to do is, it's a relatively small business at this point and we are very excited about the prospects for it. And at a time when we think it should be on the radar, we'll certainly bring it forward. But I think it does start to set an interesting legislative framework in one state. And we hope that that might, therefore push out across other states, which potentially have a positive view on skill games.
Peter Jackson:

I mean, look we have a podium position with Junglee in the market, and we're taking share, and I will tell you that Joe and we will -
Jonathan Hill:

We'll come back with more detail later. We'll leave it at that, I think.
Joe Thomas:

Thank you.
Operator:

Thank you. The next question is from Gavin Keller from Goodbody Capital Markets. Please go ahead.
Gavin Kelleher:

Good morning, Peter. Good morning, Jonathan. And just my first question on the US, obviously, great detail today in the release in the presentation. We can all guess, the multiple competitive advantages you have and the scale advantage just on CPAs. You mentioned the $291CPA you've seen. Can you give any sort of comment on how this has - the CPAs have trended and then how they're trending, let's say across states? And obviously, gaming states, probably different to sports, but how CPAs are panning out across different states? And then as you look forward to this NFL season, do you expect a big increase in competition? Are you building in a big increase in competition around marketing, etc.?
Jonathan Hill:

Hi, Gavin. We give you one bit of detail, and you want to know the next bit. I mean, I think that the most important thing is to look at the stat that we've published that we got a 1.2 times payback on those $291 CPAs. And the fact that in the second year, and albeit this is, we got this - we haven't had that many customers in this avenue but the data we have for the second year, shows that actually the contribution we get form the second year is greater than it was in the first year. So, I think when you extrapolate that and start thinking about what that means, the lifetime value of those customers are and how they compare the CPAs, you can see well, we're very pleased with the sort of the embedded value we're creating in the business. And while we've been acquiring as many customers as we can, frankly, and we'll continue to do so.
Peter Jackson:

Realistically, Gavin, we don't obsess about CPAs. What we're obsessed about is CPAs versus LTVs. And that is completely our focus. And if we have to spend $400 in one state and $150 in another state, because that's the right tag to LTV equation, then that's what we do. We analyze it on that on that level. So we are - almost the CPA is an outcome of how we invest against the LTV.
Gavin Kelleher:

That's perfect, it's very clear. So just one small follow up question on the US. The Golden Nugget and DraftKings deal yesterday, does that have any implications for your New Jersey license agreement?
Peter Jackson:

You're referring to the fact that we use the Golden Nugget from our houses? Well, this is DraftKings have acquired the online businesses from Golden Nugget. So we don't believe it has any bearing on our licensing.
Gavin Kelleher:

Perfect. Thanks. Thank you Peter. Thank you, Jonathan.
Peter Jackson:

It's an expensive way for them to see our market share data. Cheers Gavin.
Gavin Kelleher:

Thanks.
Operator:

Thank you. The next question is coming from Joe Stauff from Susquehanna. Please go ahead. Your line is open.
Joe Stauff:

Hi, thank you. Good morning. I wanted to ask a couple questions if I could on the US. With now the migration of your in-house sports platform completed, I wanted to ask how to think about maybe the growth in products that you might be able to offer especially this sort of football season - this football season in the US, the second half? And then the second question was, you provided a lot of data in the slide deck as well as the press release. And you indicated, just this is a question on kind of sourcing new OSB customers in the US, you had indicated about 40% of your OSB customers came from your daily fantasy database. And you indicated about a third came from, I guess, overall marketing efforts. I was wondering if the difference in terms of the rest of customer acquisitions came from your TVG database?
Peter Jackson:

Okay, so Joe, look, to take your second question, first. We have acquired, as we said, 40% of our customers from our DFS database and a big chunk from marketing. The balance isn't coming from TVG. I mean there is a - there is some degree of crossover there but I think the thing that actually we're finding that's really beneficial is there's a lot of a lot of businesses coming to us through sort of a friend - refer a friend type of mechanisms. And that, the Spread the Love campaign has been very successful for us in terms of the types of viral acquisition, which is helping us. When we think about the benefits we get, on our business, and having the platforms all in-house, there's a multitude of them. We had some outages in the last football season, because frankly, the volumes were pushing through the third party platforms, they just couldn't cope with it. So we are hoping that now that we have everything under our own control, we'll have much better stability going into this season. We can obviously bring a lot more of our pricing in-house and it's something that I referenced in the commentary I gave over the over the presentation in terms of the proportion of our products that we can price and put in-house. And there were benefits to that in terms of our ability to then manage the models and ensure that we increase the proportion of things like cash out. So there is lots of things that we have on the product roadmap, and there's some things we wouldn't want to share with our competitors, frankly. But having - but having it in our own gives us a lot more control.
Jonathan Hill:

And also, I mean, the amount, the amount of tech effort that it's taken to actually get all of this stuff down and get across to GBP, we can then repurpose that and get focused on, really making sure that we can develop all of those bells and whistles for our customers.
Joe Stauff:

I can appreciate that. Thank you. If I could squeeze one additional, maybe the win rate is very high in the second quarter in the US in a seasonally weak period. Is it fair to assume that, what's the right way to think about that, I guess kind of going forward in the second half, especially maybe the third quarter?
Peter Jackson:

Yeah, sure. About half of, so we increased our structural margins very positively in the second quarter over the second quarter in the year before, a big uplift in structural margins, really driven by that Same Game Parlay product. But so that was about half of the uplift, then the other half was sports results, which obviously get magnified by the Same Game Parlay effect. So it's just a kind of a double positive there but the more we can keep the penetration increasing in Same Game Parlay, the more we can improve the structural margins. And this is what we've seen in other markets and in Australia, we still see the penetration going up in Same Game Parlay. In the UK & I and into sort of bet builder products, which are almost more sort of, do it yourself, build your own bet. So, we think there's a long way to go on this. So we've certainly - we're only at first page, I think in your terms in terms of where we're getting to in terms of the development of the product and the penetration into the customer base.
Joe Stauff:

Thank you.
Peter Jackson:

Thanks, Joe.
Operator:

Thank you. The next question is coming from Richard Stuber from Numis. Please go ahead.
Richard Stuber:

Hi, good morning. Just two questions for me, please. The first question, in Australia the average players up 52% and I think he's implied that a lot of it comes from retail customers. And do you think you've also taken any market share from the other online bookmakers over in Australia? And the second question on the US, I guess, as you sort of mentioned on the on the call, there has been lots of M&A activity in the US in the last few weeks. Do you think there's any product or technology deficiencies within your financial offering, which could benefit from bolt-on M&A or is it outside litigation with FOX or balance sheets, is that a common impediment to M&A?
Peter Jackson:

Right, Richard, in terms instead of the question, look, we've definitely taken market share in Australia. So that's a simple answer to the question. A slightly more difficult one is precisely where all those customers come from. Now, we can say a lot of those customers are so exhibiting behavior and profiles where we believe that they have come from using the retail monopoly service in Australia. And we definitely benefited from those customers trialing our products in a way that they may not have done in the past, and finding that they enjoy it and like the value and generosity we provide them as well as the enhanced products experience. Yeah, there's almost certainly been some gains in online. But it's very hard to sort of gauge it when you compare this year with last year, because of the fact that the sporting calendar is so different. When we look at our business and compare with a couple of years ago, just to see that the level of profitability is nearly three times and actually, even if you just look at the growth we've seen in, in customer numbers, year-on-year picture, I think that the team Australia has done a great job. And we'll hear much more from them on the 22nd of September. When you look at the US business, and I suspect that our continued growth and strength in our position we have in the market is what's driving people to undertake M&A activity in a way to try and give themselves some capabilities to catch us. And we will work very, very hard. We can, we have that ever since we first decided to go hard after America in January 2018, to make sure that we have all the capabilities that we need to set ourselves up to win in the market. And at this moment, we think we have everything that we need. And you can see the success that we're seeing in the business. So I think there's a lot of exciting opportunities in front of us that those nine new states which are opening up. We've got everything set on our tech platform, eight of those nine states are sports focused. And the size and scale of the FanDuel organization there is just at a completely different level to any of the other competitors in the market. And so we're getting our flywheel going as fast as we can. And a lot - we're investing a lot of money in developing products, services and capabilities around it. And if we've identified something that we thought we needed to acquire as a bolt-on we would do that. There's nothing that would get in our way at the moment.
Richard Stuber:

Good, that's great. And just as a follow up, obviously FanDuel is doing phenomenally well. Are there any metrics, you could share in terms of FOX Bet, how that's going and what sort of revenue that achieved in the first half or EBITDA?
Peter Jackson:

And what we shared was the FanDuel made up 93% of the revenues in the first half, and we don't split the EBITDA performance by the businesses.
Richard Stuber:

Great, thanks very much. Thank you.
Operator:

Thank you. The next question is coming from James Roland Clark from Barclays. Go ahead, your line is open.
James Rowland Clark:

Hi, morning, everyone. Just two questions, please, and both on the US. The first, are you close to finding a new CEO for FanDuel? And then secondly, I wonder if you could just provide a little bit of color on what you're seeing in terms of the competitive environment going into the NFL season, given the numbers of medium sized players who want to have a good crack at the market? And should we be surprised at all if we see your highly, very strong market leading sports betting market share, drop off a tiny bit during the autumn? Thank you.
Peter Jackson:

Well, James, if you're wanting to put your name forward for the CEO job, it's probably not, you wouldn't want to do it in this public forum. But there have been a lot of people who have come and talked to me about it. It's a very exciting job, I think. In fact, I don't think there's many better jobs in sports or entertainment in the United States. So, yeah, we've met an awful lot of people and we are close to putting in place now our long term CEO, in the business. And yeah, I will say I think Amy's done a very good job for us, since she picked up the reins from Matt. And as you can see, the business hasn't missed a beat. In terms of the competitive environment, I remember talking about the competitive intensity that we were expected to see coming, when we did our first Capital Markets Day, at the Meadowlands. And we're saying that we never expected it would be, harder with the next season. And that's the way that we continuously think about. We are not at all complacent, we are completely paranoid, we're regularly waking up in the middle of the night panicking about how people are going to attack us, and state by state, we're taking them on and working out how we continue to win. And that's the way that we're thinking about it. And, look, we've never set ourselves a market share target, if we had done we would never have set ourselves the levels that we'd find a way achieving, or we will continue to do as Jonathan mentioned earlier, as we're looking at on a state by state basis and looking at the, the amounts of money we can spend based on the returns that we're seeing from the customers. I think the one thing that we would wish that we'd done was we would wish that we'd realized that the customers were going to be as valuable as they've turned out to be because, we've seen better levels of retention from them, we're seeing higher levels of cross-selling from them and we're seeing high usage of the product, and actually better margins because of the mix. So actually, the customers have ended up being more valuable than we anticipated. And it probably means we should have spent even more money initially acquiring even more customers. But we'll try to rectify our models and improve them and make sure we acquire as much business as we can. And the point at which we get to profitability or the market shares that's all outputs for us, it's the math that drives us to that point where we'll see profitability in 2023. Because it will be the ratio between the number of existing customers we have and the embedded value that they have in the business, the contribution they're generating, and the ratio of them to the volume of new customers, we get to. And once you get past the tipping point, and of course the business becomes profitable. That's not our focus, market share is not our focus, its building as bigger business with the return characteristics that we can see today as we can. And of course, we were in the nice position and we've got operating leverage in the business. So we can add in those nine new states, that we'll launch in the next 18 months, without having to add huge amounts of operating costs. And clearly, there'll be extra marketing investment. We have the risk and we've got the pricing risk management teams, we've got big marketing capabilities, we've got big commercial functions. Yeah, just to reiterate the point, you know, market share is a function of two things. It's a function of how successful you are in acquiring customers. And that's obviously driven by how much you spend and how well you spend it. But the revenue is driven by the quality of your product, the retention, and the stickiness of that product. And therefore the wallet share that you gain from the customers who are in the market and are accessing your product. That's why we talked so much today about the product because it is critical in winning in the market. You can acquire as many customers as you want, but you need the product to be able to make sure the customers have a great experience and stick around.
James Rowland Clark:

True. That's great. And thank you very much.
Operator:

Thank you. The next question is from Christine Zhou from RBC. Please go ahead. Your line is open.
Christine Zhou:

Hi, and good morning. Thank you. So my first question is just on the percentage of regulated market. And during the presentation you see that increased from 82% to 90%. Do you expect that to increase more in future and/or are you sort of happy with where that is at the moment? And just a second question on the US specifically on your sort of media and partnerships with sports teams and sports leagues, etc. I think on Page 38, you mentioned that you believe we have the highest share of voice on some of the regional networks. Just wondering if you could give a bit more color just in light of the fact that we're seeing lots of competitors find, lots of deals with various teams, leagues etc., and do you think you've got more partnerships versus others? Or is there something else that's giving you the highest share of voice and how important you actually think these are? And so for you, given that you've got the FanDuel base, etc.? So yeah, any more color that'd be, that'd be very helpful. Thank you.
Peter Jackson:

Christina, in terms of your first question, we said naturally, it would increase from 80% to 90%. Just because, at that time, we knew the US would made up - make up a greater component. Obviously, you can see on one of the first charts in the presentation that the US has already in a move to be our - effectively our second biggest division by revenue in Q2. And as the US grows significantly, that will mean that mathematically, that will increase regulated. The other point to note is that, of our unregulated markets, there are three of our top markets, Canada, the Netherlands and Brazil, which are in the process of going towards regulation. So, naturally, our percentage is going to move up towards 95% in the short to medium term. There will always be a series of markets whereby they are moving towards regulation and haven't regulated, so, do I ever think it's going to be zero? That's a very long way off, but I'm very comfortable with having a pipeline of markets will sit within unregulated or moving towards regulated. And look, Christine, in terms of your question about, what we're doing with all the different media assets that we have, the deals with leagues, teams and stuff. We spent more than $300 million in the first half, which is greater than the revenues of most of our competitors. So it's the scale, it's the breadth, it's the depth of the assets that we have, that will continue to invest behind where we find one that works, we'll spend more on it. So there's a lot of flexibility built into this. So there's not one of those that I'd necessarily call out. The other, aside from the quality of our team in the US who are executing so well for us, so, I think they spend their money very effectively and efficiently. And you can see that from the CPA figures and the numbers of customers we've acquired and they will continue to innovate and push forward, going into this next football season where everything starts again, really.
Christine Zhou:

Cool. Thank you.
Peter Jackson:

Okay, Joe, I think we're done on questions now. So thank you very much, everybody. And I appreciate your time this morning, and particularly the time listening to Jonathan and I take you through the presentation. I think there is some very important information that we have shared in the market, or shared with the market today. So if you haven't had a chance, I'd encourage you to spend some time listening to it and going to the materials. Thank you all very much for your support.
Jonathan Hill:

Thanks.
Operator:

Thank you. Thank you everyone. That does conclude your call for today. You may now disconnect. Thanks again for joining and enjoy the rest of the day.

Flutter Entertainment plc Q1 2021 Earnings Call Transcript

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Q1 2021 Earnings Call Transcript