Thank you for standing by, and Welcome to the PointsBet Holdings Limited Q2 FY 2023 Appendix 4C Investor Presentation Conference Call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Sam Swanell, Group CEO. Please go ahead.
Good morning, thank you all for joining the PointsBet Holdings Limited Q2 FY2023 business update and activities report. This is Group CEO Sam Swanell, and I'm joined on the call today by our Group CFO, Andrew Mellor, our regional CEOs, and our U.S. Chief Strategy Officer. Before we begin, please note all numbers referred to are unaudited and in Australian dollars unless otherwise stated. Turning to slide three. Before speaking to our quarterly results, we were pleased to announce this morning that we have agreed to amend the media services agreement with NBCUniversal, originally dated 27 August 2020. The original agreement had a five year term ending in August 2025, and the parties have now agreed to extend the agreement by two years to August 2027.
As a reminder, we are currently in year three of the agreement, which runs August 2022 to August 2023. PointsBet has trialed and gathered key learnings from a media perspective since going live in the U.S. market. We are thrilled to have agreed with NBCU on mutually beneficial adjustments to our agreement that fit perfectly within our more targeted, localized strategy, which is informed by those learnings. Put simply, we firmly believe a dollar spent in marketing on any other platform does not come close to rivaling the terms and efficacy of the partnership we now have with NBCU.
The remaining committed marketing spend for the final three years of the original agreement will now be invested over the remaining five years of the extended term, being August 2022 to August 2027, significantly reducing the marketing spend in each remaining year to match our desired level of investment under the more localized targeted strategy. The total committed marketing spend for the five remaining years to August 2027 is $294 million, with $25 million of this commitment having already been paid as at 31 December 2022, leaving $269 million remaining. The total commitment for the current year, ending 27 August 2023, is $50 million, a reduction of 42% from the original agreement.
It should be noted that over the next four years of the term, August 2023 to August 2027, the maximum cash payment in any one year will not exceed $56 million. Should the options issued to NBCU at the time of the original agreement not be exercised, instead of a lump sum repayment of the option premium value of AUD 105 million by the company at the end of year five, this amount will now be applied to pay for the media services across years six and seven.
In this scenario, the total cash commitment over the remaining five years of the term, applied largely on an equal annual basis, will be $270.4 million less the $25 million already paid this year, with the balance to be covered by the remaining value of the shares previously issued to NBC. To provide further context, we expect the U.S marketing expense for FY2023 to be circa $90 million, down from $118 million in FY2022. We will provide some details later in the presentation regarding the superior effectiveness and ROI we are seeing from our more targeted marketing strategy.
I will now ask our U.S. Chief Strategy Officer, Eric Foote, to provide some further insight into our marketing strategy and how the media properties of NBCU and Comcast under our amended agreement will assist. Eric?
Thank you, Sam. As a result of our learnings referenced by Sam earlier, we have shifted our marketing strategy from investing in large-scale national assets, which mainly focus on brand-building, to highly targeted investment into states where PointsBet is live. The local focus is aimed at acquisition and retention of clients in our immediately addressable markets and delivering a direct return on investment from the marketing spend. In the current year of the amended term, 99% of total spend with NBCUniversal is being utilized locally or through geo-targeted assets, such as NBC owned and operated broadcast stations, NBC Sports regional television networks, and Comcast Effectv. PointsBet continues to enjoy favorable media pricing across NBCUniversal's various media platforms and retains its status as official sports betting partner and exclusive online casino partner of NBCUniversal and NBC Sports.
The unrivaled media properties of NBCUniversal of which PointsBet have access to include exclusivity on local and regional assets in both the sports betting and online casino categories, including integrations with its NBC Sports regional television networks and our successful alternative television sports betting experiences called BetCast. First look rights on any new local and regional sports betting and online casino partnership opportunities across Comcast and NBCUniversal properties such as NBC Sports, Peacock Sports, Comcast Effectv, and any new digital properties, platforms, and products developed by NBC Sports during the agreement. The amended agreement allows PointsBet to more heavily utilized Comcast Effectv platform. With an estimated reach of 96 million US adults, Effectv allows PointsBet to target audiences with hyperlocal level precision across a wide variety of linear TV inventory.
Leveraging the best-in-class X1 Voice Remote in certain markets, PointsBet can serve a targeted call to action. Viewers are promoted to say PointsBet into their remote and then directed to the sign-up page via text messaging that includes special offers. As a result of our focused and targeted strategy, PointsBet has relinquished integration exclusivity over NBCUniversal's national media assets. During the first two years of the partnership, the NBCUniversal National Media assets have successfully assisted PointsBet with establishing strong national brand recognition. We have learned that this approach is not the most productive tactic at this current juncture. Now points can execute on its highly effective local-focused advertising strategy , while the reduction in the annual commitment marketing spend to NBC over the remaining five years of the agreement provides flexibility with the company's overall U.S. marketing budget.
Additionally, if desired during the life cycle of the agreement, PointsBet will maintain second look rights on these national properties. An external brand lift analysis conducted by Kantar in October 2022 indicates that between December 2021 and June 2022, we saw a 27% increase in brand favorability and an 18% increase in consideration intent against our key audience demographics via NBC advertising. Throughout the term, we will continue to refine our spend to ensure we achieve optimum efficiency, maintaining and building upon our momentum. NBC has been an excellent partner and very flexible through the process of this restructuring. I can speak on behalf of our entire team when I say that we are excited to enter this new phase and look towards 2023 and beyond. I will now hand back to Sam.
Thank you, Eric. Turning to slide four. The December quarter has been another period of progress for the company, achieving record Net Win across the group as well as each region. From a market launch perspective, on 24th November 2022, we successfully launched online sports book operations in Maryland. This was followed by our launch in Ohio on the 1st of January 2023. In both states, PointsBet launched on the starting line, representing the company's 13th and 14th online sports book operations in the United States. We've been very pleased with the activity we've seen since both state launches. During the first three weeks of operations, Ohio has delivered the highest number of first-time bettors of any state launch. This is very pleasing as Ohio has the 7th largest population in the US with 11.7 million people.
As we've mentioned previously, these early results highlight the importance of being on the starting line in order to improve state launch effectiveness. From a product perspective, during the quarter, we delivered continued enhancements of our broader live betting product with the successful launch of additional Lightning Bet contingencies, including important NFL markets such as result of next drive. Further, our in-house OddsFactory soccer model was released for the start of the FIFA World Cup, offering a market-leading array of live betting opportunities, including live player props and additional Lightning Bet options as we continue to focus on broadening the depth and breadth of our market-leading live betting offering. In addition to the FIFA World Cup, soccer OddsFactory markets are now available across 18 international leagues, including LaLiga, MLS, French Ligue 1, and UEFA Champions League, providing customers even more betting opportunities across numerous time zones.
Turning to Slide five. Compared to the group results for Q2 FY2022, to be referred to as the Prior Corresponding Period or PCP, in Q2 FY2023, sports betting Turnover was up 56% to AUD 2.06 billion, Total group Net Win was up 34% at AUD 103.4 million. As you'll hear from our regional CEOs, the U.S. continued its strong trend of Net Win growth while Australia is back into growth mode, having cycled through a strong PCP comparison that lapped lockdown-assisted months. I'll provide some concluding comments at the end of the call and will now hand over to the regional CEOs to provide an overview of their regions. Firstly, our U.S. CEO, Johnny Aitken.
Thank you, Sam. Turning to slide six. Compared to the PCP, the U.S. trading business ended the quarter with sports betting handle up 75% at $1.05 billion, and total Net Win up 68% at $40.6 million. The strong growth in Net Wins compared to the PCP was assisted by our strategy to focus on targeting, delighting, and retaining a superuser customer through product and service excellence. Given our focus on the superuser, it was pleasing to see our Net Win growth, which increased 68% compared to the PCP, outpacing our player growth with rolling Cash Actives growing 39%, 292,000.
This implied growth in player value is driven by our continuously improving products and has impacted our customer Net Promoter Scores and bets per player dates go favorably. This has been achieved while simultaneously reducing our bonus investment. Our primary objective, sports betting Net Win, grew 51% when compared to the PCP. Gross trading margin at 5.2% was impacted by some short-term negative VIP variance late in the quarter. Margins have corrected higher in January as trading normalized, with January Net Win expected to significantly exceed the December quarterly monthly average Net Win. This increasing Net Win growth momentum is pleasing to see. Looking ahead to the rest of H2 FY2023, we would guide towards an expected Net Win Margin figure in excess of 4% for sports betting.
This forecast for H2 is above the year-to-date trend, but in line with what we have observed to date in January. This shift is enabled by the continuous evolution of our pricing model and trends in consumer behavior towards parlay bet types. Both of these trends are enabled by continued improvements with our betting platform. iGaming delivered a 128% increase, I should say, in Net Win compared to the PCP. This meant we achieved a new record high for iGaming Net Win performance in Q2, driven by the overall growth of the casino-only cohort and an ongoing improvement in our ability to convert and retain cross-sold sports bettors on iGaming.
From a product perspective, Q2 saw improvements, with Everi content launching in Michigan and Gaming Realms and the Slingo game type launched in New Jersey and Michigan, supplementing content addition and improvements through existing suppliers. The iGaming lobby saw improvements in look and feel, with game category creation functionality deployed to support customers finding new and favorite content, as well as a more optimized game layout, ensuring more content is exposed above the fold. However, we believe we have continued headroom to improve our iGaming product and the Net Win contributions iGaming can deliver the business in live U.S. states. Our marketing efforts are hyper-focused. This means investing in our target customer and in regions and markets where PointsBet is live.
Despite increasing our total addressable market and being live in five more states this quarter compared to the PCP, total marketing expense reduced by 17% to $24.5 million. The aforementioned growth in player value is driven by three factors fundamentally. Number one is marketing, with our continued increased brand salience combined with more efficient and targeted investment. Number two is product, which fundamentally improves ability to retain and engage customers. The impact of our investments have been evident this half year in our internal Net Promoter Scores, as well as the Eilers & Krejcik externally published product rankings, where we continue to be ranked in the top three online sports betting apps in the U.S.
Number three is iGaming, with our ability to target both new direct casino customers and better engage our sports base, which has significantly helped drive up play values in live iGaming markets. The improving marketing ROI can be seen by the increased Net Win versus the decreased marketing investment. It can also be clearly seen via our internal marketing investment to Net Win payback ratio. Tracking with our forecast to payback ratio being more than 2x our FY2022 H1 PCP number. Payback is defined as the relationship between the expected lifetime by value of clients and the cost to acquire them. Our working CPA, our working media CPA, I should say, for the quarter, was well below $400.
On a like-for-like comparison, our same state total Net Win grew 36% compared to the PCP, despite the reduced marketing investment as we realize the benefits of retained client cohorts. As has been reported by some other operators, PointsBet has seen combined revenue from acquired clients in a given month, increased materially from year 1 to year 2. That is, acquired clients as a group are more valuable in year 2 than year 1. During Q2, we launched one new state, Maryland in November, and also launched Ohio on January 1st, 2023. That growth has meant that PointsBet is now live with its proprietary sports betting platform in 14 states of the U.S.
Each new market launch carries expectations of improved velocity from day one in terms of FTBs and overall activity as we continue to harness learnings from prior launches and optimize our go-to-market strategy. Despite Maryland being a smaller population size in comparison to launches in Illinois, New York, and Pennsylvania, for example, it broke internal records for first five day FTB volume compared with our prior 12 online sports betting launches. Our launch in Ohio followed on the 1st of January, 2023, where we again proceeded to beat the FTB record set in our prior Maryland launch. Turning to slide seven. We continue to shift more key sports onto OddsFactory, our proprietary trading platform, which powers our stated mission to own and create the best live betting experience for North American customers.
OddsFactory to date has enabled PointsBet customers to experience a comprehensive depth and breadth of live betting markets, supported by increased market uptime and faster bet acceptance than competitors. It is worth emphasizing some key data points on live betting and why it forms the foundation of our strategy and ability to win with the superuser customer. This includes significantly reducing NFL suspension times versus the 2020-2021 season. The inability to place a live bet because of suspensions is a key customer frustration, and we've invested considerably in delivering a leading betting experience in this respect, enabling customers to place faster bets with minimal interruptions.
Our Lightning Bets product, also referred to as micro markets, continues to attract our users, bringing them closer to the live action, allowing them to bet, for instance, on the NFL on the outcome of every play and drive. For Q2 FY2023, Lightning Bets accounted for an average of 20% of all cash in-play bets. We were pleased to have again ranked third in the Eilers & Krejcik Gaming U.S sports betting apps testing, continuing to demonstrate that we have got one of the leading apps in the US market. In the quarter, we debuted a market-leading suite of 130 live betting options for the FIFA World Cup. Customers had access to an unmatched number of one-minute and five-minute Lightning Bet markets, along with the ability to build a same-game parlay, pre-match or live to maximize their live betting experience.
As we articulated previously, we expect Net Win Margin performance to be sustainable above 4% as we continue to reap the benefits of owning our in-house sports betting technology and OddsFactory, our proprietary sports betting trading feed solution. This will allow us to continually decrease promotional investment as we lean on our product and service excellence to drive sign-ups, retention, and continued Net Win growth. I would now like to hand it over to our Australian CEO, Andrew Catterall, to provide an overview of the Australian trading business.
Thank you, Johnny. Turning to slide eight, Australia. In Q2 FY2023, the Australian trading business delivered PCP and quarter-on-quarter growth in Turnover, Gross Win, and Net Win. Our Net Win in Q2 was a record, not just for the second quarter, but for any quarter in the company history. Total Turnover was AUD 938.5 million, up 29% compared to the PCP, and Net Win was AUD 57.7 million, up 9% on the PCP. We cycled out of lockdown impacts on PCP comparisons by mid-November. December 2022 was the first full month in FY2023, clear of lockdown impacts for PCP comparisons.
Pleasingly, in December, we delivered 21% growth in Cash Actives and 14% growth in Net Win compared to December 2021, validating the underlying growth in the mass market appeal of the PointsBet brand in Australia. Sport continued to be the primary driver of growth in actives, Turnover, and Net Win in Q2 FY2023. In our last report, we called out a net decline in three-code racing Turnover for the first quarter, primarily due to the hangover of lockdown impacts on Victorian and New South Wales-based customers. As we cycled out of these lockdown impacts from December onwards, racing performance returned to a consistent, slightly positive year-on-year trend. Our overall trading margin was lower at 10% for Q2 FY2023, compared to 12.7% in the PCP and 11.9% in the previous quarter.
Turnover continued to weight towards sport versus racing through Q2, thus lowering margins despite the fact we made material improvements in the margin performance of Multis. We continue to prioritize improvement in Multi-performance in our combined local and global product roadmaps. The global rollout of improved Same Game Multi products powered by OddsFactory has helped deliver material increases in activity and Net Wins for the FIFA World Cup soccer and season-to-date performance for NBA and NFL, which we anticipate will also benefit in H2. We continued our strategy to improve the efficiency of our client promotions and to prioritize the retention and reactivation of known positive value clients over less valuable promotion-led clients recruited during the lockdowns. The rate of client promotions as a percentage of Gross Win improved to 38% versus 42% in the PCP.
The average monthly Cash Actives for the quarter was up 6% on the PCP. The 12-month rolling Cash Actives as at 30th December 2022 were nearly AUD 235,000, up 1% on the PCP. Total marketing expense was AUD 20.1 million for Q2, down 11% on the PCP and down 20% quarter-on-quarter. This is the continuation of our strategy to invest hard in brand promotion in Q1 and scale back from Q2. Our forecast marketing expenditure for the H2 FY2023 will be less than 50% of the H1.
In Q2, we extended brand partnerships with 7racing, Fox Footy, and Australian Community Media. Secured a new partnership with ESPN, which will underpin our marketing efforts in H2. I'd now like to hand it over to Scott Vanderwel to run through highlights for Canada.
Thank you, Andrew. Now turning to slide nine. We have been live in Canada since the market opened in April, and have completed three operational quarters. This past quarter, we were pleased to see growth and momentum continue to build across both our sports book and online casino offerings. Total sports book handle was AUD 80.4 million, up 284% quarter on quarter, with the NFL regular season in full swing and the NBA and NHL seasons returning to action. Our in-play mix of total handle grew to 63% in Q2, up from 59% last quarter, as customers continue to experience and enjoy this new form of betting, particularly during the recent FIFA World Cup.
Sports for Gross Win was AUD 3.5 million, up 121% quarter-on-quarter, and Net Win came in at AUD 2.1 million, 4.8 times higher than Q1. On the online casino side, we delivered AUD 2.9 million in Net Win, an increase of 128% quarter-on-quarter. In total, across the full offering, we delivered total Net Win of AUD 5 million, a 192% increase over our first quarter results. The competitiveness of the Ontario market continues to rise, with 67 licensed gaming sites from 35 different operators, as of the end of December. Within that highly competitive environment, we continue to be pleased with the strength and quality of the customers that are making the choice to play on PointsBet.
With rolling Cash Actives growing to almost 21,000, up 57% from Q1, and average Turnover per customer continuing to grow, our marketing spend was AUD 8.2 million in Q2, and our marketing to Net Win payback ratio is very strong. We continue to make gains in strengthening our brand awareness and consideration and building our presence in the local community. We recently opened our Canadian office in the heart of downtown Toronto, providing a permanent home to our local staff, supporting our Canadian clients. Our approach of working hand-in-hand with iconic partners and ambassadors, including Maple Leaf Sports and Entertainment, is helping to build connections with customers, and we see continued value in leveraging these trusted relationships as we build the PointsBet brand in market. Looking ahead, we expect to continue to deliver sequential performance improvements in Q3 as our base of customer grows.
Our already class-leading product continues to innovate and improve, and the sporting calendar continues to be robust through the NFL playoffs, Super Bowl, and the second half of the NBA and NHL seasons. I would now like to introduce our Group CFO, Andrew Mellor, to provide an overview of the cash flow statement.
Thank you, Scott. Turning to slide 10 for the quarterly 4C cash flow summary. I'll move through each of the main line items. Net cash used in operating activities, excluding movement in player cash accounts in the quarter ending 31 December was AUD 64.7 million, an increase on the AUD 58.5 million of operating outflows in the prior quarter. Receipts from customers for the quarter total AUD 105.8 million, a quarterly record for the group. This includes Net Win from sports book and iGaming verticals of AUD 103.4 million, and the balance includes cash receipts from our European and New York B2B operations and cash receipts from our U.S. Racing ADW business.
Cash outflows during the quarter included cost of sales of AUD 61.3 million, which was higher than last quarter, driven by timing of payments as well as by increased trading activities across the three regions in Q2 versus Q1. Non-capitalized staff costs of AUD 25.7 million, lower than Q1 due to the timing of the FY2022 annual performance payment during Q1. Marketing cash outflow for the quarter was AUD 67.5 million, higher than last quarter due to the timing of payments of accruals and prepayments across the quarters. As previously spoken to, the Australian marketing expense was AUD 20.2 million for the quarter, below Q1 of AUD 25.2 million, and the U.S. marketing expense was $24.5 million slightly higher than Q1 of $22.8 million .
The Canadian marketing expense was CAD 8.2 million above Q1 of CAD 5.5 million. Administration, corporate costs, and GST paid on Australian Net Win was AUD 18.9 million for the quarter, slightly higher than Q1. Turning to investing activities. Net cash used in investing activities during the quarter ending 31 December was AUD 16 million, higher from the AUD 14.9 million in the prior quarter. Capitalized development costs were lower than Q1 due to the timing of the FY2022 annual performance payment during Q1. The U.S. business development costs increased on the prior quarter. This was driven by market access and regulatory-related payments for the Maryland and Ohio state launches. There was AUD 1.1 million cash used in financing activities during Q2 versus AUD 0.9 million in the previous quarter.
It should be noted that there was a negative impact of AUD 12 million from the movement in exchange rates due to the move in the USD/AUD spot price during the quarter, given the majority of corporate cash is held in USD. The company has no corporate borrowings. At the end of December 2022 had AUD 320 million in corporate cash. To provide some commentary on the H2 FY2023 cash flow outlook. Based on our expected trading performance for the second half, we currently anticipate the H2 FY2023 net cash outflows, excluding movement in player cash-
Will be circa 35% lower than H1. The operating cash outflows for H1 FY2023, excluding movement in player cash, was AUD 123.1 million. H2 operating cash outflows, excluding the movement in player cash, are not anticipated to exceed AUD 70 million, a significant reduction versus H1. This will be driven by continued trading momentum of the three trading businesses. Further in Australia, we front-loaded the marketing expense into the first half, with marketing in the second half to be less than half of H1. In the U.S, we expect the marketing expense in the second half lower than the $47.3 million in the first half, with total marketing for the U.S for FY23 to be circa $90 million down from $118 million in FY2022.
In closing, we would note that the velocity of hiring into FY2023 reduced significantly versus FY2022, with a focus on hiring into low-cost locations up to the end of December. At the 31st of December 2022, we have reached operational scale. The group has implemented a global headcount freeze. We look forward to presenting our half-year financial statements later in February. I'll now hand back to Sam.
Thanks, Andy. The end of the calendar year marks a turning point for PointsBet. In Australia, we look forward to delivering another full year of growth and EBITDA positivity on the back of an improving product and greater promotional efficiency. In Canada, we are seeing strong ROI from our early investment in a jurisdiction structured favorably for operators with iGaming and a reasonable tax rate. In the U.S., we've delivered strong PCP revenue growth through H1 while reducing marketing investment materially. As previously communicated, we expect New Jersey to be EBITDA-positive by June 2023. With operational scale now having been reached, the impact of our growing revenues will begin to be seen in H2, as cash burn reduces by circa 35% from H1. We will report our half-yearly results in the coming weeks.
As can be seen from our H1 trading results, together with the realigned NBC deal and commentary on our cash flow outlook, we believe this is an important and positive juncture for the company and for our path to profitability. Thank you for your time, and I will now take questions with regards to our amended NBC partnership and our quarterly results discussed this morning. Before we do, please note that today we will not be commenting on or answering questions on the ASX announcement dated 28th December, which addressed speculation regarding our Australian trading business. As noted in that release, PointsBet will continue to keep the market updated in accordance with our continuous disclosure obligations. Thank you.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for a name to be announced. If you wish to cancel a request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. The first question comes from Rohan Sundram from MST Financial. Please go ahead.
Hi, team. Just I'd like to start with a question on iGaming. Johnny, you might have touched on it in the call, I might have missed it. I noticed in the states like Michigan, there was a step change up in the revenue in the December quarter versus previous quarter. Can you just recap on what is driving that? What changes have you made that's driving that, and is that the sustainable increase? Is that a new base we should now expect to see from iGaming and further strong ramp up?
Go ahead, Johnny.
Sure. Thanks, Rohan. Good to speak. Yeah, you know, I think it's a combination of three things. Firstly, we're getting better and better at knowing when to cross-sell engaged sports betters into casino with an improving product depth and game lobby. When they're cross-sold through to the PointsBet Casino, it's on par from an experience compared with other, again, iGaming products. Secondly, we're starting to invest in acquiring a direct casino player. That's someone that thinks and bets casino first, someone that's more drawn to play slot games. We're seeing them be quite engaged again, off a low base and a low spend, but something that will continue, you know, to ramp up with efficiency.
Again, part of our NBC deal realignment is the ability, for instance, to invest through a marketing mechanic called Effectv, which allows us to go sort of over the top in into the local markets around America. Again, we'll be doing that with casino branding and messaging, you know, in the state of Michigan. The third is, you know, the team just continues again to execute better and better. We're identifying customers earlier that are higher value, that are both playing across sports and casino and those that are playing across casino and giving them more personalized experiences, messages, and offers. You know, there's not one, I guess, sort of silver bullet there, Rohan.
It's been a combination of those, three key factors that has, you know, seen our sort of revenue performance in Michigan grow.
Thanks, Johnny. Maybe one more just for either Sam or yourself, Johnny. Just how are you seeing the competitive environment at the moment, especially in those new state launches? I appreciate that it's always gonna be competitive, but how are you seeing it now versus, say, 12 months ago?
Go again, Johnny.
Sure. What we're seeing is still a very, I guess, obviously, heavy-duty effort from all competitors that go live on sort of day one, both in call it brand spend and promotional spend. We're being very tactile and efficient with how we go to market in states. For both Maryland and Ohio, we were tactile in evolving our strategy to invest ahead of day one to continue to build a database that had been through the sign-up flow, again, without to the point of depositing, but again, been through a sign-up flow. When you get to day one, you know, they're sort of in our, in our net, call it, and then able to step up and become first-time depositors and first-time bettors.
I think that sort of materialized, you know, as Sam and I articulated upon setting FTB records for first five days of sort of Maryland is a record and then again, Ohio eclipsing that on the 1st of January. I am surprised the competitors are continuing to be really heavy duty sort of with the promotional spend. A lot of competitors are still investing 200%-300% of their gross earnings in promotions month one and two, which probably overstate to a degree their sort of market shares. Whereas sort of month three onwards, it starts to wash out as operators act more sort of normal and sort of rational, which we're sort of doing from month one.
You know, I'd say, Rohan, in general, you know, the launches in Maryland and Ohio, competitors have been as competitive as ever with their brand and sort of promotional spend.
Thanks, Johnny.
Thank you. Your next question comes from Phil Chippendale with Ord Minnett. Please go ahead.
Thanks, gentlemen. I appreciate your time. Just firstly on this marketing switch in the U.S. with NBC. You know, you've highlighted this sort of switch or focus, if you like, to more localized marketing. Can we just unpack that a little bit? Why are you convinced that that's the way forward? Perhaps you can reflect on your experience to date and just, you know, outline a bit more of the strategy.
Yeah. I'll go first, and then Johnny can chime in. Hi, Phil. Hope you're well. Yeah, I think, you know, we've learned obviously through the first couple of years of the NBC agreement, and I would note, you know, the changes to the agreement effectively. You know, we've been operating sort of under the expectations of this adjusted agreement, since August. While, you know, while we're talking about this in a sort of a forward-looking way, you know, we've been talking for the last couple of quarters about the more targeted, localized strategy that we've been implementing, and that's been critical to the success and the efficiency that we've seen.
You know, we've been moving in this direction since post the NFL launch season in 2021 when the market obviously went really, really hard and it got all overheated and we said, okay, we need to look, we need to be more targeted with the target client that we're after, and we need to, you know, we need to be more targeted with our marketing. We can't just be generic. I think we just feel that it's not, it's probably not a, you know, hard to see that if you're spending money nationally across all of America while you're live in 14 states, there's a bunch of states out there that you're not immediately monetizing.
You know, at this juncture, we wanna be monetizing and getting direct ROI from the states and where we're live. You know, we saw the benefits of, in terms of the impact it could have on brand by being on those national properties around the NFL, et cetera. You know, when it comes to marketing payback, making sure our marketing dollars are getting us on that path to profitability, it's far more efficient to focus them locally and regionally where we're live and making sure we're getting that ROI rather than perhaps worrying about, you know, when California might go live and the amount of marketing dollars that would be going into that jurisdiction if you're still spending nationally. Johnny?
Yeah. I think Sam sort of, again, articulated that really well. It's about firstly, stepping up, you know, our performance when it comes to cost of acquisition to lifetime value, and again, investing more and more of our sort of marketing dollars in states we're live and operational very much assists that growth. You know, from a local or sort of regional front, you know, we really like those assets. We've obviously used them now for two and a half years.
We've tested sort of robustly again on those assets, and we have most freedom working with the leagues and then the sort of regional network, for instance, in Chicago and Philadelphia, to sort of integrate inside the sporting broadcast for NBA, MLB, NHL be sort of one of one, you know, when doing those integrations, integrating our odds, our offers, our talent, and really adding to the storytelling, you know, of the broadcast. You know, that's what PointsBet wants to be. You know, we wanna be very authentic and bring to life what makes the company special, product taking big bets, odds movements and talent and such.
you know, we feel we have the best chance of bringing to life the brand, you know, with those key sort of regional and sort of local assets, and again, very pleased with the deal amendment that was announced today.
Okay. Thanks. Just if one more, if I may, if we can just pivot to the Australian business. Sam, could you make a little bit of a comment as to the competitive environment that you're experiencing here? You know, if I look at PointsBet, that gross margin's obviously down a little bit versus the PCP, but you've said that's due to the mix to sports. Yeah, I'd just be interested in that broader sort of promotional strategy that you've got here and how well or how aggressive you think the market is here at the moment.
Yeah. Again, I'll get us going and then Andrew Catterall can join in with some comments. I mean, look, I think there's no doubt there's a lot of competition still in Australia. You know, obviously there's a big brand that's coming in Betr during sort of the half, and you've still got a, you know, a long tail, I think of operators that came in. I, you know, somewhat probably emboldened by the growth that was experienced through that lockdown period. I mean, I'll be really interested to see other operators report this period. You know, we're back in growth mode. I'd be interested to see if others are back in growth mode. I think it'll be a marginal thing, you know?
You know, We believe, I think I, you know, said at the end of last financial year, you know, with Andrew coming on board, you know, we really believe that our Australian business hadn't had a lot of love and that if we put some product effort into it, along with Andrew focused leadership, we had a lot of improvement still to come. Perhaps, you know, took a little bit of while that first quarter after Andrew Catterall coming in for that to sort of start flowing through. Also, as we've highlighted, you know, we were cycling out against the COVID periods. I think we're now seeing that. You know, we've got great confidence in our continued growth through the rest of the financial year.
We stated that, you know, we'll be growing again this year, and we'll do it with an EBITDA positivity. Yeah, the market's definitely competitive. Again, it'll be interesting to see how behavior sort of goes if others aren't necessarily growing as they come out of that period. You know, again, our principles were improving product, greater use of promotional efficiency. Yes, there's been a little bit of a surprising change in yields due to the overweight of sport. We do think we can get those trading margins, you know, back above 12% as an example, as a starting point.
Because there was some particular Turnover that we saw during the quarter on some really low-margin product like tennis, sort of head-to-head stuff and things. On a normal product mix, even with sport growing, we think those margins can come back up. Perhaps I've probably stolen most of your thunder there, anything you'd add?
No, I think you've answered it well, mate. You've covered the margin issue. Just with respect to the competitive environment, I just reiterate that, you know, we're back in that growth mode as reported in the presentation. We've made a deliberate strategy to be much more efficient in our promotions and focus on that below the line, direct to target customer positive value customer activity. That's where the promotional tokens things referenced in the presentation really take effect. Also making sure we're competing more aggressively on our product offering, where the OddsFactory initiatives have had a lot of traction, especially for NBA and for soccer, and even other elements like our fast withdrawal implementation with Zepto.
We're not just competing on the promotional battle, it's the other dimensions such as our brand partnerships, our product, our withdrawals, et cetera, et cetera. I think you answered it quite well, Sam.
Great. That's all from me. Thanks, guys.
Thank you. Your next question comes from Ben Brownette with Jarden. Please go ahead.
Just had one for Johnny. Well, two. Can you just clarify, you're saying in the second half you'll see much better gross margin or Net Win Margin? Can you talk through that? Then talk through the market share. Was that lower than expected or was that within the range that you expected and what the key driver of that was in the second quarter versus the first quarter?
Yeah, I'll take the margin one.
Let me just start, and then Johnny-
Oh, yeah, you go, Sam, sorry.
Sorry, Johnny. I'll jump in first. Yeah, look, I think in terms of market share, answering the first, the second part first. Look, the market, we're growing very, very strongly. You know, as we've said, we know that there's been a focus on market share, but our focus is on Net Win growth. As long as we keep producing the type of PCP growth that we've produced for the last two quarters, we're steaming along, and we're doing so while reducing marketing, stabilizing our cost base. We know that we're earning that share on the back of our product, on the back of our better execution, and we're very happy with that Net Win growth.
If the market is outpacing us for growth because, you know, the big guys are, you know, still spending a lot more than us on marketing, you know, that's not the end of the world. They continue to grow the size of the market, educate the market, et cetera. We're very confident. We don't, you know, obviously have the starting brand recognition that they have, but with our targeted strategy, we're confident of continuing to deliver quarter on quarter, very robust growth. The other just point around sort of average sort of market share is obviously, a state like New York, with the biggest amount of Turnover, contributing most to the market, is gonna be overweight.
Obviously, if we do lesser in New York versus how we do in Michigan, as an example, that'll drag us down a little bit. We are targeted on certain jurisdictions. We are not investing in every market equally. I think the overall thing I would say is we're focused on the robust Net Win growth that we're clearly delivering. We're delivering that with less marketing spend, on the back of it, our improving product and better execution. If the market is outgrowing us and growing more quickly, that's okay. What that means is that there's a big market, and it's gonna reach the potential that we all see for this huge U.S opportunity. Johnny.
Thanks, Sam. Then, sort of in, I guess, relation to margin, you know, the comment there, Ben, just around our guidance towards a 4% or more Net Win Margin for H2. You know, our primary facilitator, again, of that guidance is the continued development and delivery of, again, sort of initiatives around the experience and excitement, placing parlay bets with PointsBet, particularly around sort of Same Game Parlay Plus, which we believe in turn will materially continue to increase parlays as a percentage of our overall handle. We know obviously the parlays can be, you know, five to six times, you know, the margin that at times you strike on a singles bet. The favorable shift in sort of bet type mix will definitely help to grow our growth.
Our margins. If, you know, we're able to maintain, if not decrease, the promotional reinvestment, it puts us in a really strong position to deliver those improved Net Win Margins and have the confidence to be 4% or more for H2 of this year.
Okay. Got it. Thank you.
Thank you. Your next question comes from Larry Gandler from Credit Suisse. Please go ahead.
Hi, team. Thanks for taking the question. I had a question on the NBC arrangement, the modified arrangement. I don't really understand the last sentence in that paragraph, which says the balance to be covered by the remaining value of the shares previously issued to NBCUniversal. Is that the options that backs the AUD 105 million when you refer to shares, or is there some other set of shares?
G'day, Larry. Yeah, when we cut the original agreement with NBC, you might recall there were three components to the marketing value that we were to receive from NBC. There was a cash component, and then there was value for the options, but there was also some equity issued to NBC at the time, and that has some value. That's what we're referring to.
That equity's been issued already, right? It's, NBC owns the 5%, whatever it is, they have those shares already.
That's it. Yeah, we have marketing value still to be recouped from that equity. We've still got.
Oh, right. Okay. I see.
Yeah.
I see. Yep.
Yeah.
that-
We're twenty-
Okay.
It's AUD 24 million. There's AUD 24 million of equity still for us to spend on marketing as part of the remaining amount.
That will deflect cash outflow, as you refer to in this paragraph.
Yeah.
Okay.
Let me just walk through so it's clear for everyone. Sorry to interrupt, Larry. There's AUD 294 million of marketing value remaining.
Mm-hmm.
That's now being split over five years instead of three. Okay, there's $294.
Yeah.
If the options aren't exercised, and we just think of the option value as cash, there's AUD 270 million of cash to be paid over the next five years, less the AUD 25 million we've already paid till the 31st of December. So there's AUD 245 million of cash remaining over the five years as part of the NBC agreement, assuming, and this is, it's kind of assuming that they don't exercise those options, which obviously are out of the money at the moment.
Yep. Okay. Got it. That makes sense. Okay. I know you're not specifically wanting to comment on the notice about the Australian business. Sam, maybe you could just talk to how today are the Australian and US businesses integrated, and maybe that's changed over the years. If you could talk to, from a bookmaking and, you know, tech stack perspective, how the Australian and U.S businesses are or not, or are not integrated.
Certainly. The main way we get the global scale for the business is through the technology team. At a marketing level, at a product level, at a focus level, you know, we have the local teams with their local CEOs, but we have a global tech function that supports the global platform. We're live in 16 jurisdictions. They have differences between each jurisdiction. Obviously, even the states of America have differences, but it's a common code base. That's being done obviously for maximum efficiency and synergy. Having said that, there are local teams within that tech organization who focus, you know, on local initiatives.
There's sort of global initiatives as an example, the OddsFactory work on NBA and NFL, as Andrew Catterall referenced, has had benefits for Australia and flows through to Australia, the U.S, and Canada. For example, if we're doing something related to fixed odds racing in Australia, well, that's gonna be worked on by a localized tech team. It's predominantly global, but there are some local elements to it. Trading, as you referenced, is probably the other one that has an element of global sort of follow the sun attached to it. We have trading teams in the U.S, Australia, and Ireland. That's where Banach Technology were originally located in Ireland.
That office where some of the Banach team are also includes some traders who work closely with our clients team and our technology team. Yeah, we do have like a follow the sun. Every, you know, the U.S. has a, you know, has a substantial trading team. Australia has a substantial trading team and Ireland has a sort of a, you know, a slightly smaller trading team.
The tech stack, you mentioned it's sort of, all using the same code. What about sort of, the software and the hardware? Is that distributed? Is the software owned by a particular entity?
Well, we have five corporate entities inside under the PointsBet Holdings group. We have the Australian trading business, the US trading business, the Canadian trading business, the technology business, and the corporate business. They're the P&Ls. It's its own P&L, and it charges each of the trading groups for its services. Within our cost of goods sold, there is a charge from the trading business.
Got it.
Sorry, from the technology business to each of the trading businesses. It's owned by us. It's, like it's every jurisdiction has to have its own instance of the platform. That's a regulatory requirement. There's an Australian instance, a Canadian instance, and 14 instances in the U.S. Yeah, there's differences. Obviously, again, Australia has fixed odds racing. Most U.S. jurisdictions don't have online casino as an example. There's definitely differences between, you know, the end product and the end user experience that the client sees. We try and gain efficiencies on a back-end perspective.
Yep, got it. Okay, that's very clear. Thanks, Sam. Appreciate it.
Thank you. There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.