US and Australian growth boosts Flutter in 2019

27 February 2020

Flutter Entertainment has reported a 14.3% year-on-year increase in revenue for 2019, with growth in the US and Australia offsetting declines in its online sports betting and retail businesses.

However, rising costs including tax hikes in the UK, Ireland and Australia weighed on the operator's earnings, for which it reported declines.

Revenue for the year ended 31 December 2019 grew to £2.14bn (€2.53bn/$2.76bn), driven by a 13.1% hike in sports betting revenue to £1.67bn, and an 18.5% increase in gaming’s contribution, to £473m.

On a proforma, constant currency basis, as if all acquired assets were incorporated from 1 January 2018 and all converted into GBP, revenue would have been up 9% year-on-year.

The majority of revenue came from the Paddy Power Betfair Online business. The division saw its full-year total rise 6.1% to £1.01bn, aided by the acquisition of Georgia-facing Adjarabet in February 2019, and the Paddy Power brand.

However, changes made to Betfair’s sportsbook offering led to sports betting revenue falling 1.8% to £666m. Fixed-odds betting revenue was flat, Flutter noted, with exchange and B2B revenue down 5%, on stakes of £5.18bn, down 4.9%.

This was more than offset by a strong year for gaming, for which revenue was up 25.9% to £340m, supported by new advertising campaigns. However, this may fall going forward, as Flutter shifts its focus away from high-value customers to a lower-spending, more recreational player base.

In Australia, staking for the year was flat on a constant currency basis (but up in Australian Dollars) to £4.30bn. From a net revenue margin of 10.4%, the operator held £446m in revenue, up 10.7%.

The profitability of the division was affected by a shift to point of consumption tax regimes in a number of Australian states, which resulted in cost of sales as a percentage of revenue rise to 40.7%.

The year’s star performer proved to be the US, which Flutter noted had been “transformed” by the acquisition of FanDuel in May 2018. This saw sports betting stakes soar from £423m in 2018 to £2.33bn in 2019, with FanDuel’s daily fantasy sports database providing 42% of its US customers.

On a reported basis, revenue was up 96.9% to £376m, or 59.3% on a proforma basis. This broke down to £325m from sports betting (up 89.0%) and £51m from gaming (up 155%).

The FanDuel sportsbook alone saw revenue clear £100m in 2019, compared to £11m in the prior year, equating to a 44% online market share across the four states it is live. This growth positively impacted casino cross-sell, to the point that by December 2019, 54% of gaming revenue came from sportsbook customers.

“In the US, FanDuel finished 2019 as the largest online sportsbook and casino, less than 18 months after the launch of our sports betting operations,” Flutter chief executive Peter Jackson (pictured) said. “Our online market share during 2019 of 44% in the states where we have gone live is testament to the quality of our products, brand and team.

“We remain as confident as ever in the size of the prize in the US and in our strategic approach which positions us well for the future.”

The TVG advance deposit wagering business and daily fantasy sports, meanwhile saw revenue climb 4% over the year.

Finally, retail stakes were up marginally to £1.79bn, with revenue falling to £312m, a 5.7% year-on-year decline.

While the operator was less exposed to the effects of the £2 fixed odds betting terminal (FOBT) stake cut than some of its UK peers, revenue from the machines fell 34% from April, when the cut was enforced. Performance improved however, though total retail gaming revenue still finished the year down 25.5% at £82m.

Sports betting, on the other hand, saw revenue grow 3.6% to £230m. Flutter noted that its retail betting operation benefitted from rival shop closures and efforts to create a more immersive betting experience in its Irish estate drove growth.

Cost of sales for the year, as a result of rises in Remote Gambling Duty in Great Britain, a tax hike in Ireland and the introduction of point of consumption taxes across Australia, increased 38.3% to £650m. This left a gross profit of £1.49bn, up 6.2%.

Sales and marketing outlay rose to £465m, while product and technology costs were up 15.3% at £166m. Operating costs grew to £378m, while central costs increased marginally to £55m. The increased in expenditure was due in part to the introduction of the IFRS 16 accounting principle, which changes how liabilities and lease expenses are reported.

This left underlying earnings before interest, tax, depreciation and amortisation of £425m, down 5.8% from 2018. After depreciation and amortisation of £145m was stripped out, operating profit for the year stood at £281m, a 21.9% decline.

After underlying net interest expenses of £14m and £131m in separately disclosed items - relating to the amortisation of acquisition-related intangibles and transaction fees - pre-tax profit was down 37.9% at £136m. After income taxes totalling £23.8m, Flutter’s net profit fell 38.1% to £112m.

"2019 was a very significant year for Flutter, with further successful expansion in the United States, enhancement of responsible gambling initiatives within our business and the announcement in October of our proposed merger with The Stars Group,” chief executive Jackson commented.

“I am immensely proud of the group's performance given the complex regulatory environment.

“The entrepreneurial culture of our business and the quality of our people are continuing to drive our global expansion while providing our teams with the opportunities they seek to develop their careers and gain new experiences.”

The Stars Group reported its own results for 2019 today (27 February), with a strong performance in the UK and Australia thanks to the acquistions of acquisitions of Sky Betting & Gaming and BetEasy ensuring revenue grew 24.6% to $2.53bn (£1.97bn/€2.32bn). Combined revenue of the two businesses exceeded $5bn.