Flutter shrugs off Covid-19 impact to post Q1 revenue growth

17 April 2020

Flutter Entertainment reported a 16% year-on-year increase in revenue for the first quarter of 2020, though growth slowed as a result of the novel coronavirus (Covid-19) pandemic suspending sports and closing of venues.

Revenue for the three months ended 31 March 2020 amounted to £547m (€628m/$680m), thanks to growth across the core online business, supported by progress in the US and Australia. However, prior to 15 March, by which point most sports had been suspended, it revenue had been tracking 29% up from the prior year.

The Paddy Power Betfair (PPB) Online business accounted for £247m of the Q1 total, up 9% year-over-year, though prior to 15 March, revenue had been 18% ahead of Q1 2019.

Online sports betting contributed £159m to the channel, up 6%. While the operator did not break out stakes and revenue for sports betting and exchange betting, Flutter noted that sportsbook revenue for the quarter was up 43% in the period before 15 March, boosted by an improved net revenue margin and favourable results.

Staking, largely as a result of the sporting shut-down but also affected by lower customer recycling due to the bookmaker-friendly results, fell 10%.

Exchange and B2B revenue, meanwhile, fell 10% due to the brand pulling out of international markets and clients ceasing to use Flutter’s services.

Gaming, on the other hand, was unaffected by the Covid-19 crisis, with revenue up 17% to £88m.

With revenue of £120m - up 51% - the US moved ahead of Australia as the second biggest source of revenue. Before 15 March, this looked set to be an even more impressive quarter for the market, with revenue tracking 72% above the prior year.

Growth was driven by expansion into Mississippi and Michigan and “excellent” customer acquisition, Flutter said. FanDuel has acquired more than 100,000 new customers since the beginning of the year, taking the total sportsbook customers acquired since its launch in the market to 450,000. This has helped it build a 41% share of all regulated US state markets.

The £120m figure broke down to £87m for sports betting (up 24%) and £33m for online casino, a 255% year-on-year rise. Growth was aided by successful cross-sell strategies in New Jersey and Pennsylvania, where FanDuel launched online casino on 20 January. Across these two states alone, the brand’s combined igaming market share reached 25% in February.

Revenue across the TVG racing and daily fantasy sports businesses, meanwhile, grew 3%.

Australia followed, with revenue of £109m, up 21%. This was aided by active customer growth of 16% (pre-15 March), supported by a new marketing campaign, a 3% increase in player stakes, and an improved net revenue margin.

Finally retail saw revenue fall 8% year-on-year to £71m, though it had been trading 13% ahead of the prior year before the 15 March shut-down. In the period to 15 March, sportsbook growth of 32% offset a 20% reduction in gaming revenue resulting from the new £2 fixed odds betting terminal stakes.

Flutter noted that the closure of competitors’ shops as a result of this cut had boosted its retail performance in the quarter.

"The group performed very well in the period prior to the disruption to sporting events in mid-March,” Flutter chief executive Peter Jackson (pictured) said. “We delivered strong customer growth across each of our brands and benefitted from favourable sports results across our sportsbooks.

“Following the widespread cancellation of sporting events, group revenue has been more resilient than we initially expected, helped by the continuation of horse racing in Australia and the US. Gaming continues to perform well across the group.”

While the performance to 15 March had been largely positive, the period from 16 March to 12 April highlighted the impact of the Covid-19 restrictions.

In that four-week period, PPB Online revenue fell 32% year-on-year. While gaming revenue is up 15%, this has been more than offset by a 57% drop in sports betting revenue, which increased to 65% after Irish racing was suspended on 25 March.

Australian revenue, meanwhile, is down 7% over the period. The impact of Covid-19 has been less pronounced, as a result of racing continuing  behind closed doors, and Sportsbet has successfully migrated retail customers online as a result of betting shops being shuttered.

The US has also proved more resilient, a 46% decline in sports betting revenue offset by gaming revenue growth of around 200%, for an overall decline of 8%. This, Flutter said, reflected FanDuel’s expanded US gaming footprint, and the continuation of some racing.

With racing coverage being televised on mainstream channels as a result of other sports being suspended, the TVG product was being introduced to a new potential customer base, it noted.

With UK retail operations suspended since 16 March, and Irish shops closed from 20 March, the channel did not provide any revenue in the four weeks to 12 April.

Jackson said that during the crisis, Flutter was “keenly aware” of its duty to promote responsible gambling to protect its customers.

“We have stepped up our own practices and are collaborating with our peers within the Betting and Gaming Council to continue to raise standards across the sector,” he said. “We are also working hard to provide all the support we can to our employees and I would like to thank them for their ongoing commitment and support for each other during this difficult period.”

On 16 March the operator estimated that earnings would decline by up to £110m as a result of the disruption caused by Covid-19, though that assumed that all UK and Irish betting shops would remain open.

Flutter didn’t provide a revised update on the earnings hit as a result of the shop closures, but said it would provide further updates “as and when appropriate”.

However, it will not take advantage of financial support offered by governments as a result of the crisis for the time being.

“We have concluded that for as long as possible, we will endeavour to fund the salaries of all of our employees through the group's own financial resources,” Flutter explained. “Should the duration of the crisis be such that not taking this support would jeopardise jobs, we will review our position.”

In conclusion, Jackson said the disruption caused by the pandemic underlined the importance of product and geographic diversification.

“As such, the strategic logic of our combination with The Stars Group remains compelling,” he said. “Following approval of the deal yesterday by the Irish Competition and Consumer Protection Commission, we look forward to completing the transaction in Q2 upon receipt of outstanding shareholder and regulatory approvals.”

The Stars Group, which issued its own trading update today (17 April), reported record revenue for the first quarter of 2020, as the novel coronavirus (Covid-19) outbreak led to significant increases in online poker and casino play. The operator saw revenue for the three months to 31 March rise 27% to $735m (£592m/$679m).