Ep 579: Flutter’s Q2 Results: Has It Bitten Off More Than It Can Chew?

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It's no great secret that the global gaming industry is navigating choppy waters across regulated markets as tax raids and regulations rock the boat. But Flutter Entertainment leadership expects a clear voyage, raising its full year guidance within its Q2 report. CEO Peter Jackson is bullish that the global operator will be buoyant during these testing times, denying that it's a victim of global volatility and doubling down on its intentions to be the industry's highest valued PLC. So, Ambitions remain sky high, but Q2 trading results raise concerns about Flutter's tax liabilities, cost controls and its ability to generate a profit from an ever expanding cost base. So as we head into an H2 filled with uncertainty, has Flutter bitten off more than it can chew? Welcome back to iGaming Daily brought to you by Optimum, the number one CRM marketing solution for the iGaming market. I'm Charlie Horner. Welcome back to iGaming Daily. Today I'm joined by SBC Media's editor-at-large Ted Menmure and SBC America's reporter Tom Nightingale. Ted, we'll come to you first. How are you doing today? Did you enjoy your weekend? Yes, I did. It's enjoying the hottest day on the calendar so far. So yeah, doing well in London, Beautiful. And Tom, you're actually out in DC at the moment. How are you doing? Yeah, Rovin Reporter this week down in DC for some training. So coming at you from a poorly lit hotel room. But yeah, all good. Beautiful. Sounds great. Look, Flutter, they reported their Q2s and H1 results last week. I'm sure you've been mulling over these results all weekend long, Ted. What do they reveal about the company's ambitions versus the sort of current landscape and the current realities? So having had a weekend to dissect Flutter's results, to me, they tell me more about Flutter's kind of changing relationship and changing dynamics with markets and with investors. And I now feel that Flutter, since it's moved to the NYC, it's a company that has to make a statement of intent and that has to kind of play into its status as global ganin's biggest operator, I think what Peter Jackson and Co are saying to the market is that, know, volatilities aside, we cannot perform everyone and we are the flag bearer of the global gambling industry and that's why we carry the highest valuation. And I think that from now on, every kind of interim statement that you're to see from Flakta, it's going to have big headline statements. It's really kind of showtime for them. And Tom, Ted mentioned that it's the biggest operator wants to set all the headlines. One of the big headlines in the last 12 months or so was that set that relisting in New York. Does that reflect on Flutter's increased importance on FanDuel and that performance there? I mean, I think it has to to a certain extent, doesn't it? know, there's no every time you hear from Flutter, understandably so they are. shouting pretty loudly about the fact that Fangil is the US market leading sports book. If you've got it, flaunt it, why would you not shout about that? So, mean, the US results, it's easy to say they sort of speak for themselves because there's strong growth. I think EBITDA was up about 54 % or something year over year, revenue up about 17%. But it's actually quite interesting because if you peel back some layers, there's a bit more to it than that. I know they credited things like, for a start, credited like very customer friendly sportsbook results for a lot for a large amount of that sort of revenue increase, which is interesting, isn't it? Because it sort of shows that no matter what your strategy is, no matter what you do, so much of sports betting is dependent on the scores falling the right way. so in that way, you can say that there's a little bit of a little bit of good fortune for them. Although I suppose the argument would be that other sportsbooks experience the same, you know, the same trends. But it's certainly not, you know, market leading sportsbook. Great growth. Great. but I'm sure we'll dive in a little bit deeper. There is a bit more to it than that on the US side. Yeah, absolutely. And not just on the US side, there's global headwinds. We've talked about it on the pod for some weeks now. So Ted, what are the key liabilities that Flutter are facing as we come into the H2 period now? Okay, I think I'm going to divide this into two elements. Number one, it's the tax liability and the tax exposure. We saw this bill increase kind of three to four X. reaching above 150 million just paid out in taxes alone. The other dynamic is that now as their earnings grow in US states, they're going to have more accountability of their taxes. And then coming into Europe, you're seeing kind of big projects, integration projects and their kind of earnings decreasing from their operational base. So these are kind of concerns for the investors. I'd outline those two as the main points of where Flutter are being probed at. Yeah. Let's talk about the tax bill because it was around $160 million, Tom, and this could get worse as we go along. What moves Flutter making to sort of mitigate that tax bill? And I know... specifically, they mentioned the fees in Illinois. Could you maybe expand on that and talk about a little bit about how they could do this elsewhere, perhaps? Yeah, I mean, so for anyone not familiar with what's happening in Illinois, the answer is lots. Last year, you know, they for a start last year in Illinois, they changed their tax rate and they didn't just increase their tax rate. They, you know, they completely overhauled it. It was previously, think, 15 % flat tax rate on sports betting revenue. They changed that to a progressive tax rate. So like a sliding scale that goes up as high as 40 % for, and that 40 % I think applies to about 200 million in revenue and know, above. For reference, I think I'm right in saying Fanjul did about 500, 550 million in revenue in Illinois last year. So like they are well above that ceiling. So they're on the hook to pay that 40 % rate. know, straight off the bat, they've pretty much tripled. their base rate they pay. And then this summer, got everyone talking out here in the US was the Illinois introducing a per-wager fee. So now in Illinois, anytime a sports book takes a bet, they have to pay 25 cents to the Illinois government. After above 200 million bets a year, that doubles to 50 cents per bet. And again, you can bet your bottom dollar that Fanjul are going to clear that threshold. So they'll be on the hook again for the highest amount. That per-wager fee is also applicable to like bonus bets and credits and all that sort of stuff. So it's not just cash bets, which is another element of that. And while other states have also changed their tax like Illinois, that per-wager fee, we haven't seen anything like this before. So, Fangil, not only Fangil, should be said, DraftKings, Fanatics as well, responded to that by introducing their own kind of surcharge. They're effectively, the way they're framing it is they're passing that per wager fee onto their customers. And Fangil, know, Flutter seemed pretty confident that that measure is going to offset the majority of the hit they would be in line to take in Illinois just from that per wager fee. But I mean, it's just honestly, the thing is out here in the US, it's just sort of indicative of how states are looking at sports betting as a cash cow and states want to milk it for all it's worth really tax wise. indeed. And we're seeing that even here in the UK, we're facing down the barrel of plenty of tax hikes come the autumn. But Peter Jackson was asked in the Q &A of the Investor Call whether this is something that they were looking to replicate in other states or maybe in other jurisdictions. He denied them for now. We'll see how that progresses as the lawmakers get their hands on on the tax rates. So Tom, know, US growth for FanDuel is undeniable. I think revenue is up 17%. I think that included iGaming or Online Casino up 42%. So that's impressive. But Flutter does... continue to stumble when it comes to earnings and net income? Have you got any sort of glimpses of why that might be? Yeah, I mean, it's interesting. I mean, think there are, you know, there are many factors, but one interesting one on the US side that stood out is that there is that Fox Corporation, the TV company, have an option to acquire about 18 percent, shade over 18 percent, I think, of Fanjul. Goes back, I think, about. six years to end Flutter required stars group. That is set reportedly at like a fixed fee of about 4.5 billion US dollars or I don't know if it's set but like that is the amount that's been touted. So obviously when you've got a sort of fixed fee approach like that as the value of the company changes that deal can look better or worse, can't it, for Flutter? And I think a big thing now is know, Fandual is undoubtedly increasing in value significantly year over year. A development we just saw recently is Flutter buying Boyd's 5 % stake in Fandual, right? So Flutter have now taken 100 % ownership of Fandual. They bought that 5 % stake from Boyd for about $1.7 billion. That puts Fandual's total valuation about over $30 billion, whereas the Fox valuation puts it more about $20 billion, I think. That's a pretty big difference. Boyd's deal, 5%. Boyd's deal would imply that the 18.6 % stake that Fox can buy in Fandual is actually worth more like 6.5 billion rather than 4.5 billion. so the reason I'm saying this is Flutter account for this in their financials and in their earnings. Whereas last year, This was a big positive boost for their financials this year because of the Boyd deal and the increase in in phanjul valuation means that they're down tens of millions of dollars in terms of implied theoretical financial. So, mean, that's a big factor on the US side. Ted, have you got any sort of global aspects that you can bring into this just before we go to a quick break? Yeah, look, I mean, down, if you look at there, there are cats, the two major projects and all the two major acquisitions out in Brazil with bet national and in Italy with, um, it's a larger advice, NYTEC. And those are kind of key projects that are going to take kind of fundamental kind of integrations. But I think most importantly, this kind of reverts back to what Tom is saying with the Fox office reliability. Brilliant. Okay. Thanks, Ted. Thanks, Tom. We'll go for a quick break and then we'll continue the conversation. Welcome back to iGaming Daily. Today we're talking all about Flutter and their Q2 report. Ted, we'll come to you for this one. So we've talked about, you know, earnings and net income is struggling, but revenue's up. One interesting thing was that Flutter's leadership raised guidance in this report. So why raise those targets now? We should say that... Flutter's share price has been, has been cut by about 8 % in the last five days since the report came out. Okay. I think it's, an interesting move and I kind of revert back to what I said at the start that I think Flutter now kind of views itself beyond kind of gambling and it just, it sees itself as a blue chip stock. It has to act in a certain way as leader of the pack. And also why the heck not? It's, and I'd like to kind of. Here got to reference what Tom was saying. We're only halfway through the year and like, yeah, it's been a difficult kind of H1. But I think what the Flutter board and the C-level team can really are kind of viewing is that, you know, there's a lot of kind of game changing opportunities in the next six months. One thing we've known from, especially from the US results is that if they go in your favor, you know, you're talking about multi-million pound payouts every weekend. Those swings are going to be so generous for your business. I don't think it's necessarily that they're just increasing target. I think that they're saying to the market, look, this is the nature of our business. And even if we're facing global volatilities, if results go our way, we can really cash in. Tom, it seems like a real sign of confidence from Flutterleadership in terms of, we can can navigate these tough times. think so, yeah. it's, you know, to Ted's point, like, you know, it's that sort of bullishness, I think is, you know, it's kind of understandable, isn't it? When you're the US market leader, you're never going to be too down on yourself. But it is interesting. mean, if you want to, we talked a bit about the, you know, if you peel back the curtain on the US results or whatever, what I found interesting, you mentioned Charlie earlier, like, I casino revenue, I think, was about 42 % growth. Correct. Sports betting about 11 % growth, I think. Handle overall up about 7%. You know, they're not huge on the sports side of things and that, you know, they're not huge gains, particularly compared to some of the others in the industry. But I mean, when you're already sort of sat atop the podium, you know, you sort of just tick along, don't you? And everybody's planning for the future, which I'm sure we'll get into. But I mean, there's going to be things as well like Missouri offering sports betting, Alberta in Canada, big markets coming. So that's probably factored in as well down the line. Tom, what do you think the investor class wants out of Flutter? I mean, is it now looking at just what's its earning potential or is it still very much focused on growth quarter by quarter? I I would say it's probably a mixture of both. think the earning potential obviously is to be a big concern. And then also there are so many things going on out here in the US from the, you know, on the Fanjul US side of things, you know, I'm not going to take this podcast off on a sidetrack, but you know, we've got things like prediction markets coming up and is that going to be a viable avenue for sports books in the future? We still don't really know because nobody's made a sort of firm decision on it yet in terms of the regulatory standpoint. New markets opening, like I said, there's always talk about more sports betting markets. more online casino markets, which is much slower. only seven currently, but there's always talk about more. And Fandual, know, Flutter and Fandual are going to think if a new market opens or a new opportunity like prediction markets does come up, who's better placed to take advantage, they will say, than, you know, the person who's top of the pile already. And Peter Jackson was asked about this in the call as well. And he said, look, we've got 20 years of experience with the Betfair exchange. And that's really similar to these prediction event contract type markets. So again, just come into the market with plenty of confidence. Look, we know that Fanjuli is sort of the growth child of the Flutter stable of brands. We know that it's the primary focus for a lot of these newer investors, particularly since the New York listing last year. But let's look more internationally. You know, some of the results do remain sort of mixed. Do we think that maybe the Italian, the Brazilian operations can come in and... deliver that next phase of growth? And if not, what brands can we be looking at for some new opportunities? Ted, maybe you'd like to take this one. Can you, you asked me if I can compare kind of anything to FanDuel. I think even the board of Flutter realizes that that's not possible. I don't think they're doing a comparative between Sni and Cesare in Italy versus FanDuel. It's, can't, yeah, there's no basis to compare there. And I think you have to of reflect on just what a good acquisition Fantial has been for Flutter. There was a purchase price of 500 million. Okay. I know that views will be saying, well, it's yet to kind of prove kind of earnings effective and the amount of investment that they pulled into that brand. But like Tom said, the valuation now is about, can reach up to kind of 30 billion. In terms of the markets they want to kind of refresh and be active in, I think Yes, Italy kind of the performance in Italy will kind of stabilize Europe. And especially as I think everyone kind of projected kind of a downward turn in the UK via the regulations and especially kind of tougher kind of casino enforcements coming in. In all kind of points to kind of Brazil, I think they are kind of loading up in that market to be kind of their next ventures. And hopefully I also think that they're kind of viewing to see how the Brazilian market pans out, what's the level of competition, and what is the makeup there as in the competitive makeup of the Brazilian consumer and how many brands are active in there. Yeah, it's going to be a really competitive place in Brazil and I'd be really eager to see how that market sort of shapes up in the coming months and as we topple over the one month of the regulated market. So we've kind of been positive so far. mentioned that there are sort headwinds and things like that. But what if, what happens if Flutter stumbles? You know, we've said that the biggest and the most valued PLC in the industry. So what would the overall impact be of the confidence of the entire industry if Flutter were to have a wobble? It's a question. It's a big no, it's a good question. And look, I put stateside elements to Tom. I think that returning back to a more international view, yes, look, that is reflective of where the overall sentiment for the global gambling industry is. And if it does stumble, do see, especially investor consensus start to decline in the gaming industry. It's funny how every company, whether they like it or not, has kind of an entwined relationship with Flutter and Flutter's performance and what it says to kind of the investor class on a global scale. Tom, do want to add something from a US perspective? if Fanjul had a sudden slip and DraftKings took the mantle? Yeah, I mean, it's interesting in the US. mean, I think first up with like Fanjul, you know, when you set And such standards, I think you almost sort of like make a rod for your own back. Like FanJaw obviously have been the standard bearer. when growth, I mean, like we said, US growth overall has been strong, but on the sports betting side, what was very interesting to note is that I sports book revenue growth for FanJaw was like 11%. That was significantly lower than not only Drakings, biggest rival, but it was lower than BetMGM. It was lower than Caesars. This is also without even taking into account companies that we don't get the public earnings calls from. Bet365 who continue to expand in the US, striking some pretty significant deals as well. Fanatics in the US have really, really grown and are doing a lot of pretty interesting things in terms of their product. So the competition, I think the idea of that kind of historic duopoly in sports betting of Fanjul and DraftKings, That is pretty much still the case, but the gap is definitely narrowing. These challenger brands are doing some really interesting things and getting some really strong results in places. know, I don't think it's hard to look at it in the US and say that they're slipping, but they're certainly slowing. And the thing now is they're in a position where they're having to look over their shoulder, I think, more than ever before, which is why developments in the US such as prediction markets. I didn't even mention the legal status of daily fantasy sports in California. California, no legal sports betting. Fanjul, DraftKings and others have been offering fancy, very lucrative fantasy games to millions and millions of Californians for years. That state's attorney general says that DFS should be illegal. If that ends up turning into law and that avenue gets closed off, that again is another big, big, big blow that's going to have significant impacts, not being able to offer that sort of stuff in the US's most populous state. So, I think for Fandual, it's about trying to stay the course, but they're going to have to continue to innovate on product because some of the stuff that their competitors are doing has really come a long way in the last 12 months. absolutely. And there's lots of investor pressure globally. So how do we see Flutter closing out 2025? More integrations, maybe restructuring something else. Ted, Ted, how do you see this for Flutter? Again, speaking kind of from a more international point, I think the investor base is going to kind of look at really prioritise the beta, how it's kind of growing earnings from its operational base. The other thing here is that its integrations for SNI, BetNationale in Brazil and also MaxBet in Serbia. So those are three major integration projects coming up for the Flutter Edge program. How they progress on that. Yeah, very busy year for these guys. All eyes on Flutter and how it turns out by the close of year. Excellent. Well, plenty of plates spinning all over the world in the US, in Europe, in Brazil. and the rest. So Ted, thanks a lot for your insights. Tom, thanks a lot for bringing the US perspective on this. It's been really refreshing and ever more important as we discuss FUTTA moving on. And thanks a lot to the listeners for tuning into another episode of iGaming Daily. We'll be back tomorrow so make sure you do tune in. Thanks for listening.

Ep 579: Flutter’s Q2 Results: Has It Bitten Off More Than It Can Chew?
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