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  • Flutter’s multi-market dominance laid bare in 2022 as US profitability approaches in 2023
Flutter Entertainment continued to dominate leaderboards in key markets throughout 2022 as it grew full-year revenue by more than 27% year-on-year.

Topline numbers

Flutter generated revenue of £7.69bn during full-year 2022, an increase of 27.5% year-on-year.

Of that total, £5.09bn, or around two-thirds, came from the group’s operations outside of the US, amid annual revenue growth of 9.6%.

The remaining 33.8% of revenue, at £2.6bn, came from Flutter’s FanDuel-led US operations, where revenue rocketed by 87.2% year-on-year.

Non-US operations generated £1.3bn in adjusted EBITDA, up 4.1%, while US operations generated an EBITDA loss of £250m, compared to a £243m EBITDA loss for 2021. 

(On a constant currency basis, however, EBITDA losses from the US shrank by 6%.)

As a result, overall group adjusted EBITDA came in at £1.05bn, up 4.4% year-on-year.

The number of average monthly players (AMPs) across the group throughout 2022 was 10.2 million, up 25.8% year-on-year, driven by increased numbers of players both in and outside the US.

News nugget

Flutter’s market dominance in several key markets was laid bare in its 2022 results.

FanDuel’s leadership position in the US, where it holds 50% of sports betting market share and 21% of iGaming, is widely recognised across the industry.

Meanwhile in the UK & Ireland, Flutter is also the number one operator by market share, with 38% of sports betting and 22% of iGaming.

In Australia, where Flutter operates its mass market Sportsbet brand, the business also holds the top spot for sports betting with 48% market share. Online casino is illegal in the country. 

Following its acquisition of Sisal in August 2022, the operator also now holds the market-leading position in Italy.

That scale allows Flutter to launch into newly regulating jurisdictions with relative ease, as was demonstrated in Maryland towards the end of 2022, and in Ohio following the end of the reporting period.

Market share across those two states has shot to 50% already according to Flutter’s figures, with more than 6% of the states’ combined adult population using the operator’s products.

They were Flutter’s most successful launches ever. In Ohio, first-month customer acquisition as a percentage of the state population was three times higher than in New York following its launch last year.

Flutter made combined strategic investments in Ohio and Maryland of $78m in Q4 2022, consisting predominantly of pre- and post-launch generosity and brand content to acquire customers, which is intended to create greater future value by front-loading investment now.

In Q4 specifically, Flutter posted positive US EBITDA of £31m, excluding its investments in those two new state launches. The operator reported a full-year EBITDA loss of $313m in the US. For comparison, closest market-share rival DraftKings reported an EBITDA loss of $722m over the same period.

Best question

Also referring to the balance between investing in future growth and short-term profitability was the best question on Flutter’s 2022 earnings call, which came from Craig-Hallum analyst Ryan Sigdahl.

With many operators guiding to positive EBITDA at some point this year, he said: “Our thesis is that some of those had structural challenges scaling to meaningful profits beyond that. 

“We agree with you that FanDuel can and will, but how do you think about the need to achieve positive EBITDA now, versus making investments in the near-term to build the business that can earn potentially billions in profits longer term?”

In response, Flutter CEO Peter Jackson said: “I think the important thing is that we’re compounding the advantages we have in the market. 

“We’re continuing to see higher levels of hold against our handle than our competitors do. The parlay penetration was fantastic in things like the Super Bowl, and the product offering that we have there is the best in the market, and we’re continuing to develop and improve it. 

“So we have a structural advantage in revenues, and we know that we are more efficient than anybody else from a customer acquisition perspective.”

CFO Jonathan Hill added some additional colour on Flutter’s strategy regarding profitability. 

“Some of our competitors are targeting getting to profitability in Q4 of this year,” said Hill. “We’ve never targeted getting to profitability this year. 

“We said it was a resultant outcome of [the building momentum among cohorts of US customers]. So this is not the be all and end all target. We expect it to happen because of the cohorts.”

Hill made reference here to the below slide in Flutter’s results presentation, demonstrating that each new group of customers brought in by the operator has required increasing levels of investment each year since 2018, but that as the investment in each new cohort grows, so too do the resulting revenues.

Best quote

The idea of growing momentum in the US market was also the topic of the best quote from Flutter’s earnings call, which came from CEO Jackson. He said:

“The strong performance we’re seeing in the US is not just being driven by recently launched states. I think the benefits that we have are compounding.

This was once again supported by an accompanying slide, which Jackson said demonstrated improvement in revenue performance and more efficient marketing, thus “powering the flywheel”:

Current trading and outlook

Flutter said trading in the first eight weeks of 2023 was in line with expectations, with the US continuing to deliver strong growth across existing states, and following successful launches in Maryland and Ohio.

Flutter has already acquired more than 1.2 million customers in those two states in 2023, it added.

The US remains on track to deliver positive EBITDA for the full-year 2023, it said, which will mark the first time any US sports betting operator has delivered a full-year profit since the market began to open following the repeal of PASPA in 2018.

“The group is currently at an earnings transformation point and we look forward to delivering future growth and progressing further against Flutter’s strategic priorities in the coming year,” commented Jackson in the firm’s financial report.

Non-US revenue is also benefitting from strong momentum in the UK & Ireland and in International, which is helping to offset the impact of a “more challenging environment and tough comparatives in Australia,” Flutter added.

For 2023 across the group, Flutter said it expects capital expenditure of between £480m and £500m, alongside adjusted depreciation and amortisation charges of another £480m as a result of increased US product investment, as well as group investment in casino studios and shared platforms.

In a note sent to investors, Regulus Partners said of the firm’s performance: “There are reasons to be positive for each of Flutter’s divisions. Perhaps most crucially, Flutter is clearly showing that a strong central investment in product and technology can drive revenue synergies as well as cost synergies.

“If Flutter’s capex is anything to go by, it is hard to see how disruptors dent Flutter’s market share in key markets without a radical shakeup of the customer proposition (which in fairness the online gambling sector is due for).”

Flutter is working on a new renumeration policy for its top executives after almost a third of shareholders voted against a motion to increase the pay of senior figures at the company’s last annual general meeting.

The FTSE 100 operator said it has engaged in conversations with its shareholders to discuss its proposals for a new renumeration policy and the feedback it has received will help shape its 2023 pay packages.

At its last AGM in April, Flutter approved double-digit pay increases for its CEO and finance chief.

CEO Peter Jackson saw a salary increase of 26% to just under £1.2m, while CFO Jonathan Hill’s pay went up by 20% to £715,000.

However, around 32% of the company’s shareholders were not in favour of approving Flutter’s remuneration report and voted against it. Prior to the AGM, two influential advisory firms urged shareholders to oppose the pay increases.

One of them, Institutional Shareholder Services (ISS), a proxy advisory company that provides large investors with voting recommendations on AGM resolutions, said the increases are “not considered justified, especially against the background of a fall in share price”.

In March, Flutter’s share price dropped after the company reported that EBITDA fell by 6% in 2021 as easing Covid-19 lockdowns lowered demand for its products.

Meanwhile, advisory firm Glass Lewis, which also advised shareholders to oppose the salary increases, said it “views high fixed pay raises with scepticism, as such remuneration is not directly linked to performance and may serve as a crutch when performance has fallen below expectations”.

In a statement, Flutter today (28 October) said: “We understand that a minority of shareholders had concerns with the level of base salary increases awarded and felt unable to vote in favour of the resolution on that basis.”

The operator added that its remuneration committee had consulted widely with shareholders during 2021 on proposals that would bring the remuneration of its executive team “to a level that is competitive in both the current UK market and the wider international digital markets in which we now operate”.

Flutter said the salary increases made were part of this plan and “the remuneration committee and the board continue to believe that these measures were appropriate and in the best interests of the company”.

However, Flutter continued: “The views of our shareholders are important to us and, following the AGM, Flutter continued to engage with our larger investors to fully understand their perspective in relation to executive director remuneration.”

The operator said it will provide a final update on the pay proposals in the 2022 annual report.

Shareholder revolts against rising executive compensation proved a common theme last year.

In 2021, 16 S&P 500 companies had the pay of their CEOs and other top leaders rejected by more than half of investors, up from 10 in 2020 and seven in 2019, according to a report published by As You Sow, a shareholder advocacy group focused on environmental, social and governance (ESG) matters.

Flutter Entertainment has pinpointed a new CFO with current finance chief Jonathan Hill set to take over the group COO position from next year.

Hill, who arrived at Flutter in 2018 from Saga, will be tasked with maximising the benefits of the operator’s global scale while supporting the strategic direction of the wider business.

The FTSE 100 operator has already recruited his replacement in the shape of InterContinental Hotels Group (IHG) CFO and group head of strategy Paul Edgecliffe-Johnson.

Edgecliffe-Johnson, who has spent nearly two decades with IHG since arriving at the company in 2004 from HSBC, will join Flutter in the first half of 2023.

Hill will continue as CFO until that time, with Flutter set to report its Q3 financial results on 9 November 2022, as well as hosting a FanDuel Capital Markets Day event on 16 November.

Flutter CEO Peter Jackson: “I also wish to acknowledge Jonathan for all he has done for Flutter to date and I am very pleased that the group will continue to benefit from his experience.”

He will then take up the newly created executive committee role of group COO and leave his position on the board.

Commenting on the appointment, Flutter CEO Peter Jackson said: “I am delighted that Paul will join us next year as group CFO.

“I am confident that his highly relevant skills and experience will help us to take advantage of the significant opportunities before us and will be invaluable as we continue to execute our strategy.

“I also wish to acknowledge Jonathan for all he has done for Flutter to date and I am very pleased that the group will continue to benefit from his experience in establishing the new COO function,” he added.

Flutter has made a series of senior leadership changes in 2022, particularly across its UK & Ireland division, where redundancies have been made over the last few months.