Flutter - Betting giant, heading for growth in the USA

[LappuLiisa]

Flutter is composed of established betting giants as well as recent acquisitions.
The US market opened in 2018. Through its FanDuel subsidiary, Flutter has gained a significant foothold in the US market, and revenue is growing rapidly as more states legalize online betting.
Flutter plans to list on the US stock exchange in 2024: https://www.flutter.com/media/kjyhh5da/us-listing-faqs-v1.pdf

Flutter’s brands:

• USA: FanDuel (98% of revenue, +71% revenue H1)
• UK: Paddy Power, Betfair, Sky.
• Intl: PokerStars, Junglee (India) + smaller country-specific companies.
• Australia: Sportsbet

Flutter has a large amount of debt from acquisitions (-4.6bn). However, I see great growth potential here because they established a foothold in the US early on. The European markets are quite mature and competitive, so growth must definitely come from the US and emerging markets!

[LappuLiisa]

FanDuel Casino is available in 5 states. We also offer Casino in Canada.
FanDuel Sportsbook is available in 20 states.
FanDuel Fantasy is available in 44 states.

(c) Where can I play?

FanDuel | Make Every Moment More

Mainittakoon vielä että Fanduelin suurin kilpailija DraftKings tekee valtavia tappioita. Käsitykseni mukaan Betsson on laajentunut hitaasti USA:n markkinoille ja taitaa toimia vain Coloradon osavaltiossa.

[LappuLiisa]

Investors are jittery. The drop is apparently due to Flutter lowering its full-year earnings expectations. In my view, the Q3 report was a good read; revenue is growing well, although it’s hard to distinguish organic growth from acquisitions.

We have been pleased with the progress made on Flutter’s additional US listing. The Group has submitted a draft registration statement to the Securities and Exchange Commission and we expect the listing to become effective in Q1 2024. In addition, following a competitive tender process, the Board is pleased to announce that it has chosen the New York Stock Exchange as the future trading venue for Flutter’s ordinary shares in the US.

And the shares on the Irish Stock Exchange are being delisted.

[LappuLiisa]

I looked into the US market today.
FanDuel and DraftKings are competing for the top spot. DraftKings’ stock is soaring as the company predicted it would become profitable in 2024. The company is currently operating at a loss due to its extremely high marketing expenses.
Penn Entertainment is launching the ESPN BET betting site. ESPN is owned by Walt Disney. I am more pessimistic about this project. It might achieve a solid fourth place. However, competitors have five years of aggressive marketing behind them and large player bases.
Fanatics Betting is a privately owned company rumored to be considering an IPO. The final couple of contenders are the traditional land-based casino operators BetMGM and Caesars.

And looking further into Flutter’s stock: In 2018, FanDuel’s revenue was $191 million. In the recently released Q3 report, the US market size is projected to be $3.75 billion. Flutter’s share price hasn’t even doubled in that time, even though revenue has multiplied due to acquisitions and organic growth. I believe there is room for growth. What will happen to the P/E ratio once acquisitions are paid off and the US starts raking in mega-profits?

[Martingale]

By setting stake limits, FanDuel has apparently taken the stance that professional bettors have no place in their betting services. I can’t say whether this is a good or bad thing for the company. It certainly reduces turnover, as the betting volumes of professional bettors are massive. On the other hand, Unibet and Betsson practice the same stake limiting. Paddy Power and all the other British outfits have for decades been aggressive in weeding out profit-seeking bettors from their customer base. As a total opposite to these, one can name Pinnacle Sports, which has always welcomed all bettors. What I’m getting at is that it would be interesting to know what such a policy means for the company’s potential to achieve and maintain a leading position in the market.

I used to follow American betting discussions. There are some absolutely wacky bettors there—wealthy, gambling-prone, with a tendency for magical thinking, funny, self-deprecating, or unintentionally humorous types. I’ve laughed until I cried at their stories. It’s hard to imagine any better market for betting and casino companies.

I’ll have to look more closely at those different companies at some point. This thread is an interesting opening, thanks for that.

FanDuel has a decent reputation amongst sports fans, which is why Flutter Entertainment bought it. Yet, despite their prominent stance in the industry, leading market share, and enormous corporate backing, they still find a need to limit bettors who are finding an edge.

For this reason, it’s hard to recommend this betting app to anyone who is looking to make larger wagers. Books like Circa Sports offer much higher level limits – and even bigger players like BetMGM, Caesars and PointsBet tend to limit less than FanDuel does.

I’ve seen too many examples to count of players being limited to wagers of less than a dollar – at which point, is there even a compelling reason to make the bet? This is a major strike against the industry, and FanDuel is one of the biggest offenders.

Introduction and review of the company for customers.

[LappuLiisa]

Today, a brief reflection on whether the acquisition of The Stars Group was a bad purchase.
The deal was made in 2019. Flutter gained control of the Pokerstars, Sky Betting & Gaming, and Fox Bet brands.
Pokerstars has now lost its position as the market leader at the poker tables. Poker was never the most profitable business. Pokerstars’ former owner revamped the business by launching a casino and sports betting, and by 2019, these already accounted for 2/3 of the revenue.

So, a significant number of poker customers have been lost. It remains unclear how much this has affected the recreational and casual players visiting the site and, through that, the casino and betting business.

Fox Bet was shut down.
https://www.reuters.com/business/media-telecom/flutter-fox-close-betting-platform-fox-bet-2023-07-31/
Although it was a small part of the revenue, the partnership agreement contained a clause that has been disputed in court. Fox Corporation has the right to acquire an 18.6% stake in FanDuel.
https://www.reuters.com/legal/fox-says-arbitration-court-affirms-its-option-acquire-stake-fanduel-2022-11-04/

The Pokerstars brand has a future, particularly regarding poker in the United States. The new market leader GGPoker operates in several grey market areas and will not pass regulatory screening.
Flutter has reacted and is streamlining operations: https://igaming.org/casino-news/flutter-entertainment-announces-pokerstars-reorganization-with-job-losses/
https://next.io/news/hundreds-of-jobs-at-risk-at-tombola/

[LappuLiisa]

January 29 is the target date for the US listing:
https://igaming.news/news/2023-12-21/flutter-to-list-on-the-new-york-stock-exchange-in-january
As well as good news from Brazil:
https://www.gamesbras.com/english-version/2023/12/22/in-historic-night-for-the-sector-the-chamber-regulates-sports-betting-and-online-gambling-in-brazil-41736.html
Flutter does not share South American figures, unlike Betsson. But Brazil is on the investment list, and branding work has been done with football legends. I see this as a very good decision, especially if full benefit can be gained from those sponsorships following the ruling.
https://www.flutter.com/news-and-insights/press-release/betfair-international-signs-brazilian-legend-ronaldo-nazario-as-brand-ambassador/
https://www.gamesbras.com/english-version/2023/7/19/betfair-brings-rivaldo-as-vip-personality-in-bookmakers-ambassador-series-38675.html

[LappuLiisa]

Flutter’s CEO explains the company’s strategy excellently in the half-year report. Slow and well-articulated. It provides a good insight into what Flutter and its competitive advantage consist of.
https://player.vimeo.com/progressive_redirect/playback/852905524/rendition/1080p/file.mp4?loc=external&signature=f37f8ae66ab68ac9f54b09bd917d28cb3d28b6867dc3b57a2e070446d71c94f2

So far, I haven’t seen any news flow regarding the US listing, which has a target date of Jan 29. The company will delist from the Irish stock exchange on Jan 26.
My view is that the company’s share price has plenty of upside, especially once the positive news flow begins. The London stamp duty is a bit annoying (0.5%), but it’s hardly a barrier to buying the stock.
If you’re interested in gambling companies, you can still get it at a small discount:

[LappuLiisa]

The SEC has been a hot topic. Here is Flutter’s brand-new listing document. I’ll read through this when I have more time.

20FR12B

” For the period ended June 30, 2023, the enterprise value of FanDuel was determined using the Sum-of-the-Parts (“SOTP”) valuation approach applied by multiple analyst consensus equity valuations. The range of FanDuel’s enterprise value using this approach was $19 billion to $24 billion. Management has used the median of $21 billion, in developing the fair value measurement.”

$21bn = £16.43bn. Flutter’s market cap is now £22.77bn, so FanDuel’s estimated share would be 72%
I would argue that the ex-US business is worth more than 6.34bn.

[LappuLiisa]

Flutter’s Q4 results are out. In my opinion, excellent figures, especially the growth in the British Isles is great. As I understand it, there were no acquisitions included in the quarterly results. In the annual results, the growth of the International segment is likely explained at least by the Sisal acquisition.
Customer bets went well, and that ate into the profit. The stock might dip; it depends on what the hedge fund bankers are having with their morning coffee.
https://www.flutter.com/media/nlea2gpt/flutter-q4-trading-update-final-for-release.pdf

[LappuLiisa]

Competitor DraftKings released Q4 at midnight. It looked soft to me, what do you think?
https://next.io/news/draftkings-upgrades-2024-guidance/
My own estimate is that Flutter will turn a profit in the US in H2/2023

[LappuLiisa]

Doing a bit of research again on Flutter. The company indeed reports Adjusted earnings and “normal” results. There are good reasons for that. The adjusted version gives a better picture of the earnings capability of each segment. Corporate-level expenses are then added on top of that.

I started looking into the annual reports. In 2016, the Paddy Power + Betfair merger took place, and since then, the company’s intangible assets and their amortization have grown. The largest intangible assets come from the acquisitions of The Stars Group and Sisal, and they will remain on the balance sheet for another 20 years. This means an investor needs to look at the normal results instead of the adjusted version.

Here is the amount of intangible assets for each acquisition and their amortization periods. The Betfair merger will be fully amortized next year, and three years of the large Stars portion have already passed.

[LappuLiisa]

Sports betting has now launched in North Carolina. NC is the 9th most populous state in the US and the 4th largest state to legalize sports betting.
https://nypost.com/2024/03/11/sports/north-carolina-sports-betting-launch-live-updates-best-promo-codes/
Vermont is also a new state for FanDuel, but it only has 650,000 residents. Flutter has not yet received a license in Maine. Its population is 1.37 million.

[LappuLiisa]

Guidance was very strong, as were the Q1 preliminary results.

+34% like-for-like growth in the US.

[LappuLiisa]

Wall Street woke up to the fact that a new legislative proposal is being introduced to combat the harms of gambling. In addition, efforts are being made to bring changes to college sports betting prop bets. Flutter -8.31% and DraftKings -7%.

https://www.investors.com/news/draftkings-stock-futter-tumble-ncaa-crackdown/

The laws are the so-called GRIT Act and SAFE Bet Act. The former is already a year old, I think. The latter proposes no advertisements until 10 PM and that AI cannot be utilized. In other words, they are trying to kill all competitive advantages and innovation. I would guess that big money is against the bill. Gambling taxes go toward education in many states. Old gambling giants also have massive amounts of money for lobbying. Sheldon Adelson was not a poor man.

https://www.congress.gov/bill/118th-congress/house-bill/6982?s=1&r=12

https://www.pointspreads.com/gambling-news/us-rep-plans-to-introduce-safe-bet-act/

I also did a small comparison of Flutter vs DraftKings. Since meaningful net results have not yet been achieved, I compared the Adjusted EBITDA figures provided by the companies. Flutter definitely has more corporate overhead, but you have to pay quite a premium for DraftKings. And in my opinion, that premium is completely unjustified because FanDuel is the better operator. Flutter is also geographically diversified and therefore less risky. The figures do not include DraftKings’ proposed Jackpocket acquisition. After that, the company’s leverage ratio would increase to 4.6. DraftKings (a company that has never turned a profit) also paid $400m in stock-based compensation last year, Flutter slightly under $200m.
The figures are from the midpoint of the companies’ own 2024 forecasts.

So now we got a small correction, I might go shopping

[LappuLiisa]

FanDuel has a 53.4% market share. That is a cause for concern for other operators.

https://twitter.com/MattRybaltowski/status/1772700240396661222
In the conference call, according to the CEO, FanDuel offers the best odds and the best payouts, while being a highly profitable sportsbook. This speaks to the quality of the FanDuel and Flutter teams.
Here is an example of statistics from New York, the largest market in the US. GGR = Gross Gaming Revenue, i.e., how much revenue the company keeps from the bets received.
https://www.sijoitustieto.fi/system/files/sites/default/files/image_75.png
It should also be noted that the US markets are very centralized. While in Finland we can choose from dozens of operators, in the US only a small number of licenses are available. There are also significant moats to market entry, as acquiring new players requires investing hundreds of millions of dollars and operating at a loss for the first few years.
As the market leader, Flutter would be an easy investment target, but it’s a pity it has so much accounting-technical and legal jargon on its balance sheet . The undervaluation will eventually unwind at some point.

[LappuLiisa]

S&P 500 mentioned!

Client Challenge

An S&P 500 future is very much possible. Las Vegas Sands is part of the S&P 500 index with a $40bn market cap. Flutter would need to grow by just over 40% to reach this figure. The US is growing organically at a massive pace, as are the consolidated international companies. Inorganic growth is also possible, but with just revenue growth and a decent share price increase, it’s possible to pass Las Vegas Sands.
Here are the more detailed conditions:

S&P 500

Market capitalization must be greater than or equal to US$15.8 billion.

This requires 30% revenue growth from the -24 average estimate:

Domicile – The company must have its primary listing on a U.S. exchange, be subject to U.S. securities laws and derive at least 50% of its revenue in the U.S.

[LappuLiisa]

NY’s numbers are always nice to examine and they are one of the main reasons why I am bullish.
Flutter records 40% of NY’s handle, i.e., of all bets processed. However, Flutter records 47% of the entire state’s revenue, which is practically how much the operator is left with from the processed bets. Flutter’s performance is in a class of its own in this regard, and that’s why the company deserves a premium relative to others. Win % is revenue / handle, which is also the most important metric of performance.

The trend over the last 6 months has been that DraftKings’ share has weakened compared to the annual average. However, the duopoly has been maintained, suggesting that FanDuel is growing while DK is not. I also measured DraftKings’ % share of Flutter, which is also trending downwards. There may be seasonality in the numbers, but the trend is clear.
Here is also an article that provides insight into the company’s aggressive growth mindset. For example, in light of these figures, the company clearly has better profitability and can therefore invest more in player acquisition.
https://next.io/news/jmp-fanduel-regrets-not-spending-more/

[LappuLiisa]

Here are my thoughts on the Q1 of main competitor DraftKings:
https://keskustelut.inderes.fi/t/draftkings-fantasy-sports-vedonlyonnin-duopoli-haltuun/46900/4?u=lappuliisa

Flutter reports Q1 on May 14th. In light of the available data, an excellent Q1 is expected. I am particularly looking forward to seeing what kind of market share figures Flutter reports.

Here is a report from one analysis firm:
https://next.io/news/jmp-fanduel-consolidates-market-share-lead/
Purely on the basis of revenue, Flutter is #1 because they clearly achieve a better return (winrate) from betting than their competitors.

If we compare the handle, i.e., the bets accepted:

Market share figures by handle demonstrated the same trends but less dramatically, the analysts said.
On this basis, DraftKings’ market share declined only from 36% to 35% between Q4 and Q1.
On the other hand, FanDuel’s market share rose slightly from 38% in Q4 to 39% in Q1.

[LappuLiisa]

Excellent earnings report from Flutter. Unfortunately, even this report didn’t quite break the bank yet. The North Carolina launch was on March 11th, so its profit-bearing fruits will be seen in later reports. In the conference call, the CFO and CEO boasted about winning North Carolina. In some states, DraftKings is more popular, but according to management’s comments, FanDuel is now dominating NC.

US revenue grew +56% at the start of the year, then a couple of bad weeks in betting resulted in a +32% figure. Similarly, Italy’s Sisal suffered from good player luck. UK & Ireland grew +12% CC, which was an excellent performance when compared to a strong period.

Betting Gross Gaming Revenue market share was 46%, Net Gaming Revenue 52%. I imagine the difference between these relates somehow to “promotional spending,” meaning some states provide tax benefits for marketing.
iGaming market share in the US grew to 27 percent.

Cash flow was strong and debt was also reduced by a small slice, as I anticipated.

The Fox Option ate into profits again. As I had guessed, as FanDuel grows, the Fox Option—the 18.6% stake available to the Fox Corporation—grows in value. This is then recorded as an increasing liability.

Guidance remained unchanged. DraftKings, on the other hand, raised its guidance.

The North Carolina launch was good.

Excellent performance from Sisal, even though player luck ate into revenue. (ping betsson Italy)

I was personally convinced enough after the conference call that I am considering buying an additional lot. Flutter’s operational efficiency is growing so fast that it mitigates risks well.
The company already moved its HQ to New York, and the primary listing will be moved to the NYSE on May 31. It remains to be seen whether this will boost the share price.