Good morning, and thank you for all joining the PointsBet Holdings Limited Q1 FY 2021 business update and activities report. This is Sam Swanell, CEO, I'm joined on the call today by our CFO, Andrew Mellor. This morning, I would like to walk you through the Q1 FY 2021 trading performance for the Australian and U.S. businesses. I'll then hand over to Andrew Mellor to talk to the Appendix 4C quarterly cash flow update released to the ASX this morning. Please note, all numbers referred to are unaudited and in Australian dollars unless otherwise stated. Turning to slide four. The Q1 performance of the global trading businesses resulted in strong growth across the key KPIs compared to the prior corresponding period of Q1 FY 2020, to be referred to as the PCP. Turnover was up 193% at AUD 691.9 million. Gross win up 282% at AUD 70.4 million.
Net win up 222% at AUD 38.1 million. Active clients up 88% at 165,000. As can be seen on slide five, in Australia, active clients were up 73%, and in the United States, active clients were up an impressive 159% compared to the PCP. The company recognizes a structural change in the Australian online wagering market, including brand consolidation with the BetEasy brand recently being folded into Sportsbet and a shift from retail to online wagering. To capitalize on this opportunity, Australian marketing expense was increased to AUD 11.3 million in the quarter as the company acquired and retained clients during the recommenced NBA, NRL, and AFL seasons, and leading into the important spring racing period. It can be seen on slide five that this increased marketing spend has had a direct correlation to the increase in active clients.
In the U.S., Q1 FY 2021 saw the recommencement of the NBA and NHL, together with the commencement of the NFL and MLB. As a result, in July 2020, PointsBet U.S. resumed its targeted marketing investment in New Jersey and Indiana and launched operations in Illinois in September 2020, assisted by the NBC Sports media assets. Total U.S. marketing expense for the quarter was $11.8 million. As evidenced on slide five, these efforts have seen U.S. active clients increase from just under 21,000 for the 12 months to June 30, 2020 to almost 40,000 for the 12 months to September 30. Before turning to our U.S. trading results, I would like to provide an update on our partnership with NBC Sports. Turning to slide six. As previously announced on August 28, 2020, PointsBet and NBCUniversal have entered into a five-year media partnership.
Under the partnership, PointsBet has become the official sports betting partner of NBC Sports, providing PointsBet access to leading national and regional television and digital assets with the largest sports audience of any U.S. media company, accessing over 184 million viewers. On the September 1st, PointsBet began the utilization of these assets with some of the integrations seen on slides six and seven, including integration of the NBC Sports designation and logo into our website and app, PointsBet odds and branding added prominently throughout nbcsports.com and targeted regional sports television networks, PointsBet Sportsbook attribution in key sports broadcasts, and delivering over 4.4 million total digital impressions in September. These types of integrations are just the beginning, and we are thrilled with the progress being made, which speaks to the aligned interests as structured within our agreement.
Turning to slide nine, I will touch on the U.S. trading results for the quarter. Q1 FY 2021 saw the return of the four major U.S. sports, and as a result, the company saw an unprecedented level of activity from our clients. As a result of the COVID postponements, this was the first time that clients could legally bet on all four sports at the same time. As mentioned in July 2020, PointsBet resumed its targeted marketing investment in New Jersey and Indiana and launched operations in Illinois in September 2020, assisted by the NBC Sports media assets. PointsBet will not make significant marketing investment in Iowa until in-person registration is replaced by online registration on the January 1st, 2021.
U.S. marketing expense was $11.8 million in Q1 FY 2021, resulting in active clients during the 12 months to September 30, increasing by 90% to just under 40,000 compared to the 12 months to June 30, 2020. The U.S. business achieved a quarterly gross win of $9.8 million, compared to gross win of $ 1.1 million in the PCP, with a net win performance of $ 3.1 million, compared to a loss of $ 800,000 for the PCP. Strong net win in New Jersey of $ 5.5 million at a net win margin of 4.1% was offset by negative net win in the recently launched states of Indiana and Illinois, as the company's strategy to acquire and retain clients resulted in promotions exceeding gross win in these states. During the quarter, the U.S. business achieved 6.5% market share in New Jersey and 3.2% market share in Indiana for online handle.
The quarter also saw PointsBet enter into various strategic sports partnership deals with teams within the four major U.S. sports. In the MLB, PointsBet became a partner of the Detroit Tigers, being the first sports betting partnership for a professional sports team within Michigan and the first for any MLB franchise. In the NBA, PointsBet partnered with the Denver Nuggets and Indiana Pacers. In the NFL, PointsBet partnered with the Indianapolis Colts and the Chicago Bears. In the NHL, PointsBet partnered with the Colorado Avalanche. In addition, PointsBet became the official sportsbook partner of the Denver Nuggets home arena, the Pepsi Center, recently renamed the Ball Arena. Under these deals, which link closely to markets where PointsBet is operational or will soon be, we gain usage of the team's trademarks and logos, as well as sponsorship opportunities and brand visibility across various assets and databases.
At the end of the quarter, PointsBet was operational in four states, New Jersey, Iowa, Indiana, and Illinois, with the next launches planned for Colorado in November and Michigan in Q3 FY 2021. Michigan will also see the launch of PointsBet's iGaming product. As per slide 11, PointsBet has brought together a highly experienced iGaming team and is well advanced with the development of our in-house proprietary iGaming platform, remote gaming server, and administrative tools. The iGaming team is led by Kieran Power, a previous CTO at Ainsworth Game Technology and former VP Advanced Products and Intellectual Property at Aristocrat. Mr. Power reports to Manjit Gombra Singh, President of Product and Technology, who has a deep background in online casino, including in his former position as CTO of Aristocrat. We are focused on ensuring that both our sportsbook and iGaming platforms and products are customized for the U.S. market.
Our proprietary iGaming platform will be complemented by targeted licensed third-party iGaming content, including a live dealer solution, together with a focus on innovating and developing our own content. Turning to slide 12. As mentioned earlier, there is a clear structural change occurring in the Australian market. As a result, the board of management have agreed to capitalize on this change. The acceleration of the transference of retail to online and the cessation of the BetEasy brand has made management more bullish on the Australian opportunity than we have been for some time. There is now a growing opportunity for PointsBet to achieve a 10% market share in Australia by 2025. It is currently estimated that the Australian online wagering market generates AUD 3 billion of net win per annum.
We expect the transition of betting activity from offline to online to continue over the next five years and for the online total addressable market to grow above AUD 4 billion by 2025. PointsBet's strategy involves growing our in-house digital and analytical marketing teams, increasing targeted marketing spend, and continuing to take full advantage of our strategic media assets, including the Channel 7 horse racing coverage. This strategy will result in continued growth in net win across FY 2021 and beyond, whilst ensuring that the Australian trading business remains EBITDA positive and does not require any further group funding. Now turning to slide 13. The Australian trading business continued its strong performance, achieving a net win for the quarter of AUD 35.1 million, up 178% from the PCP. Net win margin of 6.6% was down from 7.7% in the PCP as a result of increased promotional activity.
This promotional investment is reflected in active client growth and turnover, with 124,715 active clients to September 30, an increase of 73% on the PCP, and Q1 FY 2021 turnover of AUD 527.7 million, more than tripling compared to the PCP, up 221%. The recommencement of AFL during June 2020 saw the company benefit from its exclusive partnership with Fox Sports AFL. Towards the end of the quarter, the company continued its national broadcast role as an exclusive Channel 7 Victoria odds integration partner for the spring racing coverage. This will be an important media asset in Q2 FY 2021, especially given the current brand consolidation and reduced attendance at racetracks, pubs and clubs over the spring. The Australian trading business marketing expense for the quarter was AUD 11.3 million, generating a net win of AUD 35.1 million.
Before I hand over to Andrew Mellor, I would like to make some brief comments on our in-house technology platform. As I have regularly spoken to, owning and controlling your technology stack is unquestionably a superior position. To provide some tangible evidence of our recent product deliveries, as can be seen from slide 14, we recently launched an improved app in New Jersey, Indiana and Illinois, where the user experience is more than two times faster than the average sportsbook. This will certainly aid the in-play experience of our customers in the US. The right-hand side of the slide highlights our recent focus on the US parlay or multi as it referred to in Australia segment, including the launch of Single Game Parlay Booster and In-Play Parlays, which are traditionally high-margin products and drive client engagement.
It was encouraging to see PointsBet's focus on user experience recognized by Eilers & Krejcik in their recent review of New Jersey's 17 operator apps. They commented that our app was fast and intuitive and enhances the user experience with its attention to detail. They stated it is the most polished and modernized on the market. The report also spoke to the learnings from the U.K. market, emphasizing that a customized user experience is of the utmost importance. I will now hand over to Andrew Mellor to talk to the Q1 FY 2021 Appendix 4C quarterly cash flow update released to the ASX this morning.
Thank you, Sam. Good morning to those in Australia and Asia, and good afternoon and evening to those in the U.S. and the U.K. Now turning to the Q1 FY 2021 Appendix 4C cash flow summary released earlier today, please refer to slide 15 of the presentation. At the September 30th, 2020, the company's corporate cash balance was AUD 436.5 million, with the quarterly AUD-USD FX movement resulting in an unfavorable FX translation of AUD 4.1 million during the reporting period, as the company held a significant portion of its corporate cash in USD. The company has no corporate borrowings. On the 25th of September 2020, PointsBet completed an AUD 353.2 million capital raise. Under the offer, PointsBet raised AUD 200 million at AUD 11 per share under a placement. AUD 153.2 million at AUD 6.50 per share under a one to 6.5 pro rata accelerated renounceable entitlement offer with retail rights trading.
Eligible shareholders in the entitlement offer received one new option for every two shares issued under that offer at no further cost to them. The new options will be exercisable at AUD 13 and expire on the September 30th, 2022. The company will receive an additional AUD 153 million in funds should these options be exercised in full. Receipts from customers or net win for the quarter totaled AUD 38.1 million, as previously detailed by Sam. Net cash used in operating activities in the quarter ending September 30, 2020 was AUD 10 million. Excluding the movement in player cash accounts, net cash used in operating activities was AUD 21.6 million. Major operating cash outflows during the quarter were cost of sales of AUD 19 million, non-capitalized staff costs of AUD 6.4 million, marketing costs of AUD 28.6 million, and administration and corporate costs of AUD 5.8 million.
These cash flows primarily resulted from the resumption of targeted marketing investment in New Jersey and the launch of full operations in Indiana and Illinois, the prepayment of some U.S. marketing obligations, and the increase in cost of sales payments as the U.S. business grew in this quarter and the Australian business grew through the last two quarters. Net cash used in investing activities in the quarter ending September 30, 2020 was AUD 15.3 million. This predominantly related to market access payments of AUD 10.8 million, a significant portion of which related to the Illinois Gaming Board licensing fee, and further, the capitalization of our technology and product staff costs of AUD 2.7 million. I'll now hand back to Sam to provide some concluding comments.
Thanks, Andy. Turning to slide 16. This slide reflects the sports wagering and iGaming market opportunity over the term of the NBCUniversal partnership to 2025. This opportunity is predicted to be at least $12.1 billion of annual revenue. This is the immediate opportunity in front of us as we pursue our target market share. Moving to slide 17. PointsBet continues to execute on its strategic and operational objectives. Since listing in June last year, the company's strategic objectives have included gaining additional U.S. market access, achieving strong market share in New Jersey, launching operations in additional U.S. states, reaching profitability in the Australian trading business, and executing a media deal with the market-leading U.S. media company, NBCUniversal. We plan to launch in Colorado in November and Michigan in Q3 FY 2021 for both Sportsbook and iGaming, followed by iGaming in New Jersey.
One of the important goals of our technology team is to improve the efficiency and speed of the rollout of our state infrastructure, with the aim to ensure that we are on the starting line for future state launches, supported by the NBC Sports assets and their ability to help facilitate a fast start in these new states. It's a truly exciting time for the business. Thank you for your time today, and we welcome any questions.
Thank you. If you wish to ask a question please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're using a speakerphone, please pick up your handset to ask your question. Your first question comes from Alice Li from Credit Suisse. Please go ahead.
Hi, Sam. Hi, Andrew. My first question is on the margins. In the U.S., I believe some of your competitors commented that they had low yield this quarter because sporting events are held behind closed doors and the results are unpredictable. Your margins, at least in New Jersey, growth and net win are reasonable. I wonder, there's some luck factor in there or maybe some sort of bookmaking techniques?
Hi, Alice. I think, obviously our gross trading margins in New Jersey were good, 6.8%, but I think to balance out that, Indiana was 2.6% and Illinois was 0.3%. We had some, let's call it, some luckier clients in Illinois and Indiana that capitalized on, yes, there were some favorable results for punters in sports betting in the U.S. in September, and that's been reflected in those wider results. I think our results do reflect that, although there is some differences between what's occurred in New Jersey and what's occurred in Indiana and Illinois. The right result is probably the blend between the three.
Okay. In Australia, the margins are still, in my opinion, relatively high, despite the competition and the fact that sports have returned, so not just horse racing anymore. For PointsBet as well as the broader market, do you see these levels sustainable?
Yeah, it's a good question. I mean, look, you're right, sports did resume and that's undoubtedly led to some evening off of margins from the previous quarter where obviously racing dominated. Look, we obviously historically guide to those 10% gross margins and sort of 8% net in a normalized environment. I think that's a low bar. We'd like to outperform that. I think in summary, we're happy with the 11.5%. I think that's a good result, as you said, considering the resumptions of sport and the fact that it would make up a higher portion of turnover compared to the previous quarter.
Okay, sure. I just have one more question on the U.S. market access. I actually haven't heard too much news market-wise, in terms of new state legislations as well as PointsBet obtaining new market access. Just wondering what's happening in the broader market and if PointsBet is still having conversations with potentially new market access partners.
Yeah. Most definitely. It's a constant focus for the company to ensure that as new states are legalized, that we're in a position to be operating in those states. I think we talk about Colorado and Michigan being our next two states. A state like Virginia is getting ready to launch. We haven't announced any partnerships in terms of Virginia, but we back ourselves in to secure market access there and be operating in Virginia when Virginia goes live. I think another state like Massachusetts is a state to watch. There's moves afoot there. Again, we're working hard to ensure that we're in Massachusetts and have confidence that we will be.
Our position is that, we'd already secured those 12 market access arrangements through a number of partners, which talks to, I think the faith of those partners in the industry that PointsBet's going to be a material player and that we are a good partner to secure. I think on the back of having the NBC assets behind us, being the sports betting partner of NBC, and the intent that that signaled, I think our position in the marketplace in securing market access has only been enhanced. That not only ensures that we get into markets, but ensures that we get into markets on the best possible terms. It strengthens our position in terms of what our partner fee may be, in terms of what we have to pay those partners.
I think well and truly the momentum is still there in terms of states legalizing sports betting. It's only been, I think, enhanced by obviously the state-based budgetary problems. I think even a state like New York is looking far more likely on the back of the budgetary issues that they're having and the possibility of them passing an overall revenue package bill. I think the momentum is well and truly still there, and I think PointsBet's ability to ensure that we're in states that legalize has only been improved post the NBC deal.
Mm-hmm. Thanks very much, Sam.
Thanks, Alice.
Thank you. Your next question comes from Jed Kelly from Oppenheimer & Co. Inc. Please go ahead.
Great. Thanks for taking my question. Just circling back on Illinois. When were you actually live in that state? Can you give us, since you've launched, anything you're sort of seeing with the trends in October?
Yeah. Good day, Jed. We only launched, I think it was the September 10th. We got three weeks of operating. Three weeks of operating. As you know, we were the fourth to go live. DraftKings, FanDuel, and Rivers had been live before us in what is currently the mobile registration environment. We were the fourth to go live around September 10. I think it was the first weekend of NFL and we were ready to go and activated assets and got going from a marketing perspective. I think everyone's pretty happy what they're seeing out of Illinois. I think Illinois was always a state that we thought would have the strong DNA for sports betting and get out of the gate strong, and we're certainly seeing that that's the case. Obviously, the fact that there's only five competitors.
I think William Hill launched after we did. Five competitors in what is the biggest state to legalize so far. Obviously, we have the Chicago RSN assets plus the other assets that we're leveraging up in Illinois. It's certainly taking up a decent portion of our focus and our marketing investment. We're seeing the results. All in all, very good.
All right. That's helpful. A lot of the sportsbooks, I guess they do use third-party providers, and I think a couple of weeks ago there were some outages in a couple of states. Can you talk about, in terms of how your outage is compared to some of your competitors? On the Parlay Booster or the parlay product, what percent of that is coming from in-game wagering? Do you have those stats?
Yeah. I'll come back to the latter. In terms of outages, I think our performance in that space has been outstanding. Again, it's one of the cores. We view our priorities from a technology perspective in terms of being, first of all, you've got to master stability and scale. There's no point having bells and whistles and features if your app is breaking down regularly and going offline. In recent weeks in our Spring Carnival here in Australia, we've obviously processed some very high volumes with success. Once you've got the stability and the scalability, then you want to move to user experience and speed, and then you worry about the bells and whistles, the real sort of finite features on the end. We put a lot of emphasis on reliability, and I think our performance in America and Australia has certainly been up the top.
There was an outage, I think early this week or late last week, where all of the geolocation functionality on all the apps came down. We basically all use a single vendor there that had some problems. If that's the one you were referencing, that was not really a result of anyone's platform. It was the third-party geolocation provider. Even prior to that issue, some of our competitors in America have certainly had some pretty serious outages. Touch wood, so far through our preparations and hard work, we haven't had experienced anywhere near the same issues that they have. In terms of the Parlay business, no, I can't give you the exact stats of how much of that is happening in play.
I will say that the American market, from a product perspective, we've spoken regularly and others will speak to it as well, that we see from a UX perspective, two of the focuses need to be in play. That in-play experience being as quick and your bet slip being as efficient as possible to facilitate in play. We're seeing in-play numbers approaching 50% of turnover in America already, and we expect in play to go well above that, over the long term. The other element is Parlays. Parlays is that opportunity to increase engagement for your clients and to produce some larger margins.
When you combine the two, if we're facilitating clients being able to have an in-play bet on five basketball matches that are going on at the same time, or five sporting events that are going on at the same time, and to parlay them up in play, that's a pretty good experience for the client. The operators that can facilitate that sort of seamless experience are going to have success.
All right. Just one more from me. We do have the Breeders' Cup in the U.S. coming up in a couple of weeks. It's on NBC Sports Network. I know you're not completely in the U.S. with horse racing. Is there anything you can do or do customer acquisition around that event?
No, is the simple answer. I'm pretty sure that that event has a preexisting commitment. As part of signing the NBC Sports partnership deal, there were some existing commitments that were flagged and called out, and they have to effectively run their course. The short answer is no, I'm pretty sure we can't leverage that one, and I'm pretty sure it was a preexisting element of the deal. That's not to say that in the future, there might not be opportunities.
Okay, great. I'll get back in queue.
Thanks, Jed.
Thank you. Your next question comes from Rohan Sundram from MST Financial. Please go ahead.
Morning, Sam and Andy. Question's been answered on the U.S. yield front, but maybe just a follow-up on the U.S. gross margin, which looks quite solid, actually. I just wanted to ask, is it not too early to attribute any of that performance to the tech stack, or is it too soon?
Look, in this instance, I would say because there is disparity between the States. I pointed out that from just a trading gross win margin perspective, that New Jersey was at 6.8%, whereas Indiana was at 2.6% and Illinois is 0.3%. The industry sort of commentary that results were tough for sports bookmakers in particular in September, obviously that was when the NFL resumed. That was accurate. I mean, it was a sort of a tough quarter. To your point, most definitely, can tech and product make a difference to improving gross yields? I mean, we've just been talking about the role that parlays can play in that and the focus that we have on that part of our product. The difference between having 10% of your turnover in parlays versus 20% or 25% will make a meaningful difference to your gross yield.
The other part to that is the mix of your client base. As your product improves, if you lead the product, we believe product will win. What that means is when it comes to recreational customers who aren't necessarily price sensitive, they're not just shopping around for the best price. They're more likely to land on the best product. The best product features, the best functionality, the fastest app. Those recreational clients obviously will have a higher natural yield than a sharp client who shops around for price.
Okay. No, that's clear. Thank you. On that note, in markets like New Jersey, where you've got a net win of 4.1%, which also seems pretty solid early on. Are you saying that there's also a yield aspect to that based on product and mix? Would you expect to grow that net win over time as well rather than just a turnover story?
Well, there's two parts to it. There's the, let's call it the trading margin, the gross win margin, which is a pure view of how you've traded and how the results have gone from a sports perspective. Then there's how much you give away in generosities and promotions from that to end up in net win margin. I think it's really telling, and this is part of our, let's call it our model, is that obviously New Jersey, we've been live there circa 21 months. What happens there is you've got a client base or a business that is more mature. You've got more retained clients. Obviously, when new clients are coming through, you're giving away more in generosities. That speaks to closing the gap between gross win and net win margin because you've got a more mature client base and a more mature business.
In states like Illinois and Indiana, and Iowa come January 1st when we really kick off marketing there. In the early months, our strategy is to give away any gross margin in generosities and promotions for go net win, because you want to scale up. You want to add clients. You want to get them in, trying your app. By giving them back generosities, you get them through having their eight, 10, 15 bet milestones. If you can get clients going through those milestones, they're starting to appreciate how fun sports betting is. They're getting used to the app, and the navigation and, they can start to distinguish between a good app and a bad app. That's the modus operandi. As states mature, like in New Jersey, you'll see improved net win margins and the gap between gross win and net win closing.
As states launch early on, you'll see us giving away that gross margin in pursuit of client active scale. That's the strategy. I'll point out about Indiana, even though we launched in Indiana in March, we only had one week live. Effectively, then we went back into sort of hibernation mode until sports, as a result of COVID, until sports resumed again in late July. That's where we picked up marketing again. We view Indiana very similar to Illinois, in that it's a recently launched state.
Okay. Thank you, Sam.
Thank you. Your next question comes from Don Carducci from JP Morgan. Please go ahead.
Good morning, everyone. It looks like you added about 18,000 actives in the U.S. from the fourth quarter into the first quarter and spent about, what, $12 million to get there. The back of the envelope customer acquisition cost math means that you're in the low $600 per head. Was this CAC spend focused on defending the New Jersey turnover share, which seems to have dropped from 9% to 6%, or was this all due to early Illinois sign-ups?
Good day, Don. I think in terms of New Jersey market share, when we spoke last quarter about achieving 8.7%, we were pretty clear not to take credit, to put too much emphasis on that because it was off low activity as a result of there being no main U.S. sports. We spoke about the fact that until we launch our US iGaming products in New Jersey, we estimated that we would stay around the 6%-7% market share percentage because that's the level of marketing spend that we're doing. To maintain that 6.5% in a growing market on the back of sports resuming and obviously everyone in the marketplace starting to spend from a marketing perspective again, we think that's a great outcome. In terms of Illinois, yes, that is a big focus.
It's not only the biggest state. We've spoken before about a rough guide. This differs state by state, depending on the makeup of the state. If you take Illinois, which let's say is an $800 million revenue state, we're aiming to be 10%, that's $80 million of revenue. Then we guide that we'll spend roughly 30% of that on marketing. That's not going to be spent equally across various months because seasonality will play a big role in that. If you're talking about seasonality, this is as strong as it gets with the big four sports all operating and obviously us launching into a state where there was only three existing competitors and being the biggest state to go live so far. It's definitely a focus of marketing. We're spending in Illinois and Indiana according to let's call it that 30% of 10% model.
In New Jersey we're spending less than that. We're spending more to a lot of sort of a 6%- 7% market share position until we launch the iGaming product, next year.
Okay. To refocus that, so that $12 million that was spent in the quarter, was that predominantly or weighted towards focusing on those three weeks in Illinois where you feel like you got the initial keen punters at launch, so we shouldn't see an equivalent tick up in actives into the second quarter? Just keen to understand where those 18,000 actives came from.
Yeah. No, you can assume a big chunk of them came from Illinois. It's that biggest market, let's say it's AUD 800 million versus Indiana being AUD 300 million, it's 2.5x the size. Logically, even if all other things were equal, we'd be spending 2.5x more in Illinois than we would Indiana. We probably even overemphasized in Illinois a little bit more because of the more favorable setup in terms of number of competitors. No, you're right in saying that. First of all, the amount that was spent in September was more than was spent in July. July, August, September would've been the peak month of the quarter because of obviously the sporting calendar and return of the NFL. In terms of focus of that spend, we were only live in Illinois for three weeks.
If you may amortize that over the four weeks, it was certainly our biggest spending state.
Great. Then it sounds like the board's happy to focus on Australia a bit more with the growth expectation of AUD 3 billion online getting to AUD 4 billion by 2025. I think it's been well known that those five brands on slide 12 were going to dissolve, and that's been well known for quite some time. Keen to understand, again, what underpins that assumption of AUD 3 billion-AUD 4 billion, whether it's based on maybe an over-index of fixed odds sports growing, or is this really just you guys are taking or seeing all that retail money just converted to online?
Yeah. I think we'd previously flagged that, we had seen even before the cessation of the BetEasy brand, we had seen some heat come out of the market, a little bit. Obviously, we've been able to secure the racing deal and the Channel 7, the Foxtel footy deal, which on terms that we were comfortable with, which was probably reflective of some of the heat coming out of the market. The BetEasy brand was obviously a big brand, and for that to no longer exist provides a great opportunity. I think no doubt the biggest factor was the transference from offline to online has been fast. That was always going to occur over the next five years, but it has been fast-tracked by the COVID impact. Our expectation is that activity, only a portion of it will return offline or is returning offline.
What that's meant is we've had a fast-tracking of the online opportunity. As we've stated, we think it's above AUD 3 billion now, which is very encouraging and will continue to grow. I think our success in getting to EBITDA positivity and those market factors, what that's meant is we believe that we can grow revenue very strongly while still maintaining EBITDA positivity. That's a pretty attractive proposition.
Great. Thank you very much.
Thanks, Don.
Thank you. Your next question comes from Phillip Chippindale from Ord Minnett. Please go ahead.
Hi, Sam and Andy. Thanks for your time. First question, just talking about the Australian market and the marketing expenses that you're incurring there at the moment. First of all, just for FY 2021, how should we think about that marketing expense over the balance of the year? You've called out the AUD 11 million that you spent in the quarter just gone. Should we expect that to sort of ramp up particularly over the balance of the year? Then secondly, sort of a follow-on for that is obviously the 2025 target's going to require significant investment from a marketing perspective. Again, can you maybe paint us a picture about how we should be thinking about that? Sam, maybe you could connect it with your earlier comment about that sort of 30% number and how you think about that with the U.S.
Is that a similar approach we should be thinking about here? Again, just interested in your guidance.
Yeah, taking the end, I suppose. Look, I wouldn't take four times our quarterly spend on marketing as a hard and fast annualized result. This quarter it was pretty extraordinary. Again, we are mad about American sports in Australia. To have the four American sports going, plus the two AFLs, two Aussie domestic sports, rugby sports, plus racing, plus still a portion of lockdown, most definitely in Victoria and even restrictions in other states. It made sense to capitalize on that. Again, our approach when it comes to marketing is, let's call it responsive and iterative. If we see the early signs that the payback is there, then we have some flexibility where we can up-spend a little bit. If we see that the payback's sort of not there from our, let's call it our plans, then we'll dial it down.
We certainly were seeing encouraging results from that increased spend. You can see that in the active clients, but you can also see it in the turnover for the quarter for the Australian business, which is pretty remarkable number, to be honest. That encouraged us that that spend is getting the return on investment as well as the other measures that we use internally to do that. That takes you through to the end of September. Obviously, spending continues through to now and Cup week because that is still peak period. Then it'll really, we go into a quieter period through the second half of November, December, January. You look at the start of AFL and NRL seasons again, and you step it up then.
No, I wouldn't go to four times the quarter to sort of get a view on what marketing spend will be. I suggest it'll be less than that. Again, we have some flexibility in our plans based on the results that we continue to see. In terms of that pathway forward, the first point to note is all of our growth will be achieved within EBITDA positivity. That's the strategy, is to space self-funding. Then a little bit it will be formed by, again, what we see from a marketing perspective. If you're spending AUD 30 million or AUD 40 million on marketing, it's a little bit different, potentially the efficiency, than if you're spending AUD 60 million or AUD 70 million on marketing.
If we take that AUD 4 billion market, AUD 4 billion revenue, say, for the Australian market in 2025, and you estimated that we can be 10% market share, that's AUD 400 million revenue in 2025. Based on what we've been talking about, a rough 30% model, you'd be spending, what, AUD 130 million on marketing. I don't think you'll be spending quite at that level, because you do get some dropping off or pulling back of the marketing investment. I think if you look at most of our competitors who are operating in, let's call it a more advanced stage of their life cycle, their marketing investment is probably more around 21%, 22%, 23%, 24%, maybe high teens. I think once you get to that sort of scale, you can see margins pull back from that 30% marketing spend.
Within a model of EBITDA positivity, we don't see our marketing spend sort of going beyond 30%. Anything less than that, I suppose, contributes to that EBITDA margin. We delivered a nice little margin, obviously, this year, and the aim will be to deliver a positive margin again in FY 2021.
Okay, thanks. Can we maybe just shift to Illinois? Yeah, be interested in your assessment of your progress so far. Then as a follow-on, how should we think about that net margin profile in that state? Clearly, you're going to be investing with promotions, et cetera, for a period of time. We can look at your New Jersey, for example, as a case study and how that profile has changed over time. Should we be using New Jersey as a guide for how we should maybe expect that net margin to change? If not, why not? How should we be thinking about that? Should it maybe take a little bit longer, just larger states, et cetera? Yeah, just be interested in any differences that you'd like to highlight for us.
Yeah. No, I think you're pretty much spot on there, Phil. I think New Jersey is a good roadmap from a net margin perspective as to what you can expect in other new state launches, in particular Illinois. There's a couple of points I'll highlight, though. Again, gross margins do play a role in net margins. We just spoke about sporting results sort of going against bookmakers in September. The higher the gross margin, then the more chance that we would deliver positive net margins earlier. I think in general terms, you go through a period of wanting to ramp up your client numbers, get some scale, capitalize while there's less competitors, and that's certainly the plan. I think the other point that's worth pointing out is, we've never been first or equal first to a market.
I think in New Jersey we were eighth, and in Indiana and Illinois we're sort of fourth and fifth. Even Colorado, which will launch in November, obviously, there's existing operators that are live in Colorado. Michigan, depending on how quickly everything moves, we should be pretty close to the starting line. I made a comment at the end of my introduction that we see a great opportunity now with the NBC assets as well for PointsBet and our, let's call it, our greater operational tech capacity. We want to be on the starting line, let's call it, from April onwards next year. Of any new markets that open up, we definitively want to be on the starting line for those states.
Not only do we want to be on the starting line, we want to be warming up those states with the NBC assets, whether it's the free-to-play Predictor app, whether it's their email databases, other spend to warm up that state. What that should mean is it will be a slightly different experience to what we've experienced in New Jersey, Indiana, Illinois, where you're coming in, your competitors have already had months, two months, three months of operations. That gives you that opportunity, let's call it, to grab the keenest sports fans from day one. If I was in one of those states of being a person who loves to have a bet on sport, I'm signing up to the first operator that's live, even if the app might be terrible, whatever else, because I want to have a bet on sports.
The closer that we can be, the more that we can exploit the advantage of it having a great app and those NBC assets. That will be an indicator and will influence how quickly we can move through our gears in gaining scale from the clients and perhaps move to more net positive net win numbers as well.
Thanks. Final question from me, just on the Colorado and Michigan launches and their timing. What are the hurdles that need to be overcome in order for those launches to occur within the timeframe you've indicated?
Yeah. Colorado is very close. It's just us getting through, let's call it, the final stages of system sign-offs. That's within touching distance. Michigan, the regulator there is just sort of finalizing, let's call it, their rules and regulations. They will publish them. The expectation is that shortly after, operators will be available to go live. That's probably going to be around January. If it's around January, that will be sort of in line when operationally we're ready to go. That's why I say we hope to be close to the starting line in Michigan. If it's around that sort of current timeline that's being talked about. If it gets pushed back to sort of February or March, we'll definitely be on the starting line, all other things being equal.
If it came forward to sort of November, December, well then we may miss the first month or so. I think the current expectation would be around January, and that's going to be pretty close to when we can launch.
Thanks, Sam. That's all from me.
Thanks, Phil.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Damien Williamson from Bell Potter. Please go ahead.
Yeah. Hi, Sam and Andy. Just in terms of Illinois, can you give us an update on what's going on with the in-person registration process? Because it appears it's going online at the moment. Also, in terms of your customer acquisition strategy, have you seen any traction from your NBC Sports Chicago network partnership to this stage for your customer acquisitions in Illinois?
Hi, Damien. In terms of in-person, I think given the current COVID environment in Illinois, our expectation would be that it gets extended again in November unless there's some quick dropping of sort of COVID infection rates, et cetera. We're continuing at the moment as if remote registration will continue for the foreseeable future. Obviously, we would have a strong competitive advantage if in-person resumed. The impact of being the remote registration is the market will grow more quickly. The five operators that are there will invest from a marketing perspective and will get, let's call it, the potential sports betting customer thinking and converting to becoming a customer. Again, in the long term, we think our product wins out. The quicker the market grows, we'll accept that, and we'll accept the remote registration. We'll compete.
We're happy to compete, and we think, again, our product will serve us well for the long term. In terms of the NBC assets, yeah, as we highlighted, we've certainly been putting them to use. I would say that we're only going to get stronger. The lowest hanging fruit is the easiest stuff, logos and banners on their telecasts and the like, and hitting up some of their digital assets. It's going to be the deeper integrations into programming that we want to move towards and we are moving towards. We have someone from our team would speak to their team nearly every day. There's multiple meetings going on in multiple different streams, and the partnership is well and truly heading down the path that we hoped it would, which is great.
One point I think is worth pointing out about marketing is that I've been pretty clear about the fact that in New Jersey, historically, we hadn't implemented a full brand strategy. One of the things we would like to have done was announce to the market that there is an alternative to DraftKings and FanDuel. Because of the media DMA taking content from New York and Pennsylvania, we would have wasted spend into those states. Our marketing mix in New Jersey had been very digital-focused, and I think that is a different approach to what we're now implementing with the NBC assets behind us. In Indiana and Illinois in particular, we want to build a brand for the long term. We want to announce to the marketplace and the sports betting consumer that there are alternatives there to FanDuel and DraftKings.
That's why it's so important to have the NBC logo on our app to build that trust and credibility so people feel comfortable depositing their money. They know they're going to get paid out if they win half a million dollars on a big multi. That's a very big part of this industry, and that's something that we haven't been able to do in New Jersey, but we are doing now going forward on the back of the NBC asset. That will build a brand. That takes time, but over time, we expect that to have an efficiency impact on our other marketing channels. That is a different approach to obviously what we had previously been doing in New Jersey.
Yep. Okay. Just a second follow-up question. In terms of your NBC deal, looking at all the other big media companies in America, yours deals seem to be the most comprehensive. Recently you're seeing Turner do a deal with FanDuel and DraftKings, and DraftKings do a deal with ESPN. Other than your deal, which other deals do you rate as being decent deals that other betting companies have done with the media companies?
Yeah. I think the only one that compares is obviously the Stars Group deal, now owned by Flutter. The fact that they use the Fox brand and there's some equity changing hands, that's obviously a pretty deep relationship. I think you're right. I think the others are nowhere as deep as ours. It was interesting to hear Caesars talk about their takeover of William Hill and their plans post that takeover, which is to go back to their various media partners and to seek deeper relationships and integrations. I think that's a flag to say that's a nod to what we've already done. They would like, I suppose, or they're going to attempt to move down the path of the type of deeper relationship that we've secured with NBC.
I think NBC, through their equity and options based on current share capital, that represents 28% of our company, obviously subject to shareholder approval at our upcoming AGM. That gives them very real skin in the game. I listened to a podcast recently where one of the key execs that we worked with over this process talked about getting the deal done and then putting the agreement in the drawer because they didn't need to look at the detail of the fine print or the clauses because our interests were so well-aligned. They have that potentially 28% position that produces great alignment. That's why they gave us the favorable terms that they've given us, because they want to give us a competitive advantage to ensure that we achieve our market share aims and to ensure that they receive a return on investment on that 28%.
There's no point taking 28% if they're going to set us up to fail by putting in place punitive commercial terms. That's why they put in place favorable commercial terms, and that speaks to the structure that we wanted in the relationship. Unless other media partnerships try and structure up their deals in a similar way, I don't think they're going to be as effective as ours.
Okay. No, thanks. Well done.
Thanks, Damien.
Thank you. Your next question comes from Larry Gandler from Credit Suisse. Please go ahead.
Hi, Sam.
Hi, Larry.
Hey, Andrew. Yep. Thanks for taking the call. I was quite impressed by the number of active customers in Australia, 125+ thousand. It's almost about a quarter the size of Tabcorp's active customers. I was just doing a comparison, the turnover per customer is quite similar, believe it or not. Obviously, the net win you guys collect is significantly lower. I was wondering if usually with sort of a lower yield, you'd get some sort of elasticity on the turnover. Why you think your customers maybe aren't turning over more than your typical punter out there, given your yields are lower? Is there something you guys can do to stimulate turnover a bit more?
I think I'm following the math that you're doing there. You're definitely right in that a lower net yield should stimulate higher turnover, all other things being equal, over a long time. Obviously, over a short period, people can redeposit or withdraw and all those sorts of things. I suppose what I would talk to, Larry, I would expect that the people that are betting with Tabcorp, are still, let's call it, the dyed in the wool Tabcorp customer that's been with Tabcorp through the absolute long term. I hazard a guess that Tabcorp's customers probably have less accounts on average than the average corporate bookmaker account. I think that does talk to, I obviously don't believe that Tabcorp have an overall superior product than ours.
I think there's definitely something to be said for the fact that their brand's been in the market for 80, 60 years or something and had billions of AUD invested in. They have every shop in Australia bar W.A. branded. All of those things bring advantages, for Tabcorp, that may mean that they have just that more loyal customer that is giving them 100% of their share.
Okay. It sounds like it's something that is an obvious thing where your revenue per customer is lower than, say, Tabcorp's. You would expect some elasticity. In terms of getting that, is it digital marketing, specific marketing techniques that sort of-
Yeah. I think there's two or three things. First of all, as our client base gets more mature, you will see net yields improve. They've got a very mature client base. As you can be seeing by our actives numbers, we've acquired a large number of clients in the last quarter. This was the most we've ever spent on marketing in the last quarter. We were very aggressive with generosity. The larger the portion of your client base that is made up of first time bettors or new clients.
That has a negative impact on your net yields. Over time, as we get a more mature client base and as we further improve our product, I think we're going to get a more stickier recreational client base. There's no doubt that Tabcorp and then Sportsbet have the strongest brands, they've been around the longest.
The greater of recreational mix of clients. Also importantly, they have a very established retained client base, whereas ours is still growing rapidly as can be seen in those numbers. Having said that, we'd expect net yields in Australia to improve, from what we reported this quarter, on the back of generosities easing off. Yeah, we went particularly hard this quarter. We went particularly hard from a marketing spend perspective, and we went particularly hard from a generosities perspective. At the gross level, delivering 11.5% gross. If you look at Tabcorp's and Sportsbet's grosses, they're going to be higher than that. There's those two elements to it.
Okay. Just following, continuing on that train of thought. As your customer base matures, is that a changing profile of an existing customer or is that a churn of customers and bringing in more punters that are perhaps less sophisticated?
I think it's both. The clients, let's call your retained clients, they're your stable clients. They bet with you each month. A portion of them churn, and a portion of your clients are first time bettors. As you move through. If 80% of your clients are retained, or 60% or 90%, that's going to make a difference to your yields.
your percentage of retained clients in your overall client mix, the better your net yields are going to be because you're giving away less, I suppose, to acquire them or to reactivate them. That talks about net yield. In terms of gross yield, as your brand grows and trust and credibility grows, and as your product improves, that will improve gross yields. The reason I say that, brand will help you attract and retain a longer, a bigger portion of recreational customers. It's a bit like what I said before about America, is that the first clients to find a new bookmaker are price-sensitive clients because they're shopping around for the best prices.
Your client base starts off by being the more sophisticated client, and then as you improve your brand and your product, you add to those, let's call it more sophisticated clients with less price-sensitive clients, more recreational clients, and that helps improve your gross margin. You can also help improve your gross margin, obviously, through what we've just been talking about, a better multis product.
Yeah.
Driving products proactively from a marketing perspective to higher yielding products. Not all products are equal, as we know. Not only do some products yield lower sports versus racing, for example, but some products have higher cost of goods sold attached to them.
Once you even get below the net win number and you start thinking about your product mix from a gross profit perspective, because there's certain products that we don't pay any product fees on, and there's some that we do. All of that comes into play.
Okay, great. Thanks, Sam.
Thanks, Larry.
Thank you. Your next question is a follow-up question from Alice Li from Credit Suisse. Please go ahead.
Sorry, my question's been asked. I withdraw. Thank you.
Thanks, Alice.