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Each month, Australian bookmaking legend Tom Waterhouse publishes a newsletter from Waterhouse VC, his gaming and wagering-focused venture capital fund.

Since inception in August 2019, the fund has achieved a gross total return of 1,851% through to 31 October 2022.

In collaboration with iGaming NEXT, the November edition of Waterhouse VC takes a deep dive into US market leader FanDuel:

Don’t count FanDuel out of iGaming

In October, the total iGaming revenue in North America was a record $446m (+26% year-on-year and +10% month-on-month).

iGaming is a significant growth opportunity for FanDuel. The company currently has 18% market share in iGaming, lagging third behind BetMGM and DraftKings, which have 29.8% and 22.8% market share respectively.

While FanDuel’s sportsbook is their primary customer acquisition channel, around 41% of sportsbook customers are cross-sold into iGaming within 30 days.

FanDuel is committed to improving its range of iGaming product offerings and developing effective promotion tools to retain and monetise players.

Total iGaming Revenue in North America. Source: Taylor Collison

Taking a large slice of a large pie

There are many views on the potential revenue of US online sports betting at maturity. BetMGM and DraftKings estimate it to be $14.1bn and $22bn respectively (Legal Sports Report), while FanDuel estimates it to be $22.6bn (Flutter Entertainment).

At the moment, FanDuel has 42% market share and expects to generate around $2bn of sportsbook revenue this year. If the potential revenue opportunity is $19.5bn (taking the average of the three operators’ estimates) and FanDuel’s market share falls to 30%, FanDuel’s implied online sports betting revenue at maturity is $5.9bn, which is around 3x higher than this year.

If FanDuel’s market share remains at 42%, revenue would be around 4x higher.

Flutter’s Australian brand Sportsbet has an EBITDA margin of 34%. Flutter aims for FanDuel to achieve long-term EBITDA margins comparable to their other divisions (including Sportsbet).

If FanDuel achieves a mature EBITDA margin of 25%, the sportsbook business alone could generate higher EBITDA than Flutter’s entire business generated in 2021. This excludes any contribution from iGaming.

FanDuel’s target long-term key operating metrics. Source: Flutter Entertainment Plc

Waterhouse VC has been invested in Flutter since September 2019. While its initial investment has appreciated 70% over the past three years, it remains particularly optimistic about the growth profile of the company’s US operations.