Five things we learned about Flutter’s H1 US performance

Flutter Entertainment’s H1 results presentation outlining the performance of its US unit – or more specifically FanDuel – for the first half of 2021 was extra heavy on detail this time. In fact, FanDuel and what was titled the “US Deep Dive” hogged much of the limelight, accounting for 23 minutes of the 53-minute pre-recorded video presentation fronted by Flutter CEO Peter Jackson. There was much to unpack from the myriad of slides and charts, but below we have picked out five key discoveries about Flutter’s US arm in H1, which has snowballed from the group’s smallest unit to the second largest in the space of year.

Flutter expects its US business to be profitable in 2023

The scramble for market share in new and existing sports betting states is best summed up by the losses some operators have racked up, with DraftKings being a prime example. However, Flutter anticipates the US division will break even by 2023. That’s if states like California, Florida or Texas don’t roll out sports betting before then, in which case the operator would push the target back due to user acquisition costs. Discussing the path to profitability in the next 18 months with nine states expected to go live, Jackson said the US business had “reached a tipping point” whereby the contribution from the existing US customer base will more than offset the cost of new player acquisitions. “If that was the case, Flutter US would generate positive EBITDA in 2023, and this would take the cash generation of the overall Flutter Group to a different level,” Jackson told investors. This was music to the ears of analysts. Peel Hunt said in a note that the strong performance in the US and the 2023 target for profitability “extinguishes our remaining concerns that Flutter was overpaying for US growth.”

Colossal customer acquisition and strong LTVs have been key

To date, FanDuel has acquired more than 2.2 million sportsbook and gaming customers, of which 1.7 million, or 75%, have been onboarded in the past 12 months alone. One reason for that surge in player numbers is down to the fact FanDuel’s DFS database has almost doubled from seven million in 2017 to 13 million in 2021. The competitive advantage of having these fantasy sports customers already in the system was underscored by the fact the database accounted for ~40% of sportsbook customers in June 2021. Word of mouth and viral marketing have also played a part, the firm revealed, but that’s not to say Flutter isn’t afraid to splash the cash; more than $300m was invested in marketing and league/team partnerships in H1. These efforts equate to CPA rates in the past three months of $291, “which we believe is among the lowest in the industry and almost certainly the lowest achieved at this kind of scale of acquisition,” Jackson explained. More importantly, the contribution from new customers is 1.2x CPA in the first year and 11% higher in the second year. Indeed, Jackson said FanDuel customers had turned out to be far more valuable in terms of LTVs than first anticipated.

Product offering driving up sportsbook margins

When FanDuel Sportsbook first launched in 2018, its margins were around 4%, but margin, excluding UA and promotions, has steadily climbed since to reach around the 10% mark in Q2 2021. Indeed, margin increased by 140 basis points in the past 12 months, which the company said equates to 20% more hold for any given level of handle versus the average of FanDuel’s competitors. Jackson was keen to point out this wasn’t down to offering uncompetitive odds (FanDuel has the lowest vig in the market and 75% of handle is priced using in-house models, he said) but rather much to do with its popular Same Game Parley (SGP) offering. The firm disclosed that more than half of customers placed one of these parlay bets on correlated events within a single game during the previous NFL season. As well as covering all major US sports with SGPs, something which none of its rivals offer (not now at least), Flutter said leveraging proprietary models that third-party providers struggle to develop was a bonus. Moreover, Jackson said SGPs meant FanDuel enjoyed strong retention rates and “structurally higher win margins” than competitors.

Any IPO would only involve a small portion of FanDuel

With on-going pressure from some Flutter shareholders to IPO FanDuel after Flutter increased its stake in the US operator to 95%, Jackson stated than any such move wouldn’t involve the whole of the business. In response to an analyst’s question, he said he needed to make a clarification that while the group was considering a portion of FanDuel IPOing in the US, it would be a subsidiary still run by Flutter. “Therefore, nothing would change in terms of the way in which that business would operate.” He added: “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 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.” Jackson also announced that an independent arbitrator had been appointed in regards to the dispute with Fox Corp., with the hearing likely to take place in the first quarter of 2022.

FanDuel won’t relinquish the lead without a fight

Flutter emphasized FanDuel’s position in the US by reiterating it tops the market with a 45% share of sports betting (20% igaming). FanDuel, which is present in 10 states, is the GGR leader in the six largest states (New Jersey, Illinois, Pennsylvania, Michigan, Virginia, Indiana) and is out in front in West Virginia. As well as multiple references to keeping the “flywheel” turning, Jackson took a playful swipe at his rivals by saying the $300m FanDuel shelled out in H1 was more than the revenue generated by many of FanDuel’s competitors. Indeed, he insisted this investment illustrated intention, and that a motivation to keep growing and grabbing market share is what drives the FanDuel team. Responding to a question about the challenge from medium-sized competitors this NFL season, Jackson stated: “We are not at all complacent, we are completely paranoid. “We are regularly waking up in the middle of the night panicking about how people are going to attack us, and state-by-state we are taking them on and working out how we can continue to win.” Finally, it was revealed Flutter was closing in on a CEO for the US business to replace Matt King who departed in May. “We’ve met an awful lot of people and we are close to putting in place now our long-term CEO,” Jackson said. “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 US.”