Good morning and good evening, and welcome to the Sportsbet Investor Day question- and- answer session with the Sportsbet leadership team joining us live from Melbourne. I will now hand over to your host, Barni Evans, Sportsbet's CEO, to begin. Barni, please go ahead.
Thanks, Sean. Good morning, everybody. Thank you for joining us. It's great to have you with us. Firstly, I recognize today's a really busy day given the breaking news overnight. We appreciate you making the time. Thank you. I'm joined by the leadership team of Sportsbet. Those of you that have seen the video will know this. To do the formalities, I'll go around my screen. I'll start with Ben Chan, who's our Chief Betting Product and Data Officer. Tania Abbotto is Chief Customer, People and Sustainability Officer. Doug Brown, Chief Growth Officer. Nathan Arundell, CFO. Simon Noonan I've deliberately left to last because it's his birthday today. He's our CTO. I'd welcome the most difficult, complex, and intricate technology questions in the session if that's possible. That would really make his day. Sorry, Si.
As I mentioned, hopefully you've seen the video that's been available to you. If you haven't seen it yet, if you can find the time at the appropriate moment, I'd encourage you to take a look. It gives you quite a thorough inside look on our strategy. It talks about the areas in which we seek to win in terms of product value and our brand. It talks about the enablers behind the business that enable those things to come to life, so our people and culture, our approach to responsible gambling and sustainability, and obviously technology too. It also gives a fair amount of detail on our relationship with Flutter and how we're leveraging our position within the Flutter family. Well worth a look if you can get to it and if you haven't done so already. I think we should probably get into it.
We're keen to get as many questions from you today as possible and give you as much insight as we possibly can. Normal rules of engagement. We're here to talk about Sportsbet and the Australian market, so if you have inevitable questions about the rest of the Flutter group or other jurisdictions, and I suspect America might be top of mind at the moment, unfortunately, we won't deal with those. As usual, the Investor Relations teams will take those offline and deliver the usual feedback loop for you on those. I think without further ado then, my job now is to hand back to Sean who'll introduce our first questioner.
Thank you, Barni. Our first question today comes from Michael Mitchell from Davy. Michael, I'm promoting you to panelist now. Please be sure to unmute yourself and start your video using the buttons at the bottom left corner of your Zoom window.
Barni, hi. Good morning. Good evening. Hope you can hear me. Thanks for the detailed presentation. Very helpful, and for your time to take some questions. Three if I could, given group management and IR haven't set the number at two as they typically do. I'll go for three if that's all right. The first, Barni, on your structural revenue margin advantage, just interested in how you think that compares to the online market average at present, and maybe how your own win margin versus that market average has trended in recent years. Second of all, you made the point in the presentation a couple of times about how staking per active increases as the cohorts age, if you like.
Is there any meaningful kind of change from either a product perspective or a marketing perspective that you think about in terms of being able to retain those customers as they become more valuable going forward? Thirdly, just in terms of the current capacity of the tech platform, and I think you made the point very well in terms of how it's scaled higher to support what's been very strong growth. Just in terms of thinking about that going forward, is there any kind of significant investment we should think about in terms of your own tech cost line, if you like, in terms of supporting what looks to be a strong growth opportunity over the coming years? Thank you.
Cool. Thanks, Michael. I was desperately scribbling those down. You're a faster talker than I am writer. We'll deal with them one at a time.
Sure
clarification before we come back to the second and third. Structural margin advantage. In that space, we're talking about really two things, aren't we? We're talking about both gross win and we're talking about net revenue as well, and it's important that we deal with both of those at the same time in the same conversation because they're really two sides of the same coin. In that vein, I'll hand shortly to firstly Ben Chan, who'll talk about the gross win element. What I hope, Ben, you'll be able to do is talk about the drivers and the levers that you and the teams have available to you. You heard a lot from Raf Lewicki and the global team, and that's one. Ben will expand on that.
Really important that we follow quickly on with Doug, who'll talk about generosity, and ultimately then we'll convert through to net revenue. As you heard from Nathan at the beginning, whilst gross win revenues have increased over time, we've kept net revenue much more stable. Doug, I think, will talk a bit about generosity, but then also hopefully wrap up with what the overall value proposition is that we take to market through his marketing teams. That's really important, isn't it? Less about what we see behind the scenes and more about what customers see, feel, and experience. Is that all right on your first question if we approach it in that way? Great. Over to you then.
Yep. Thanks, Barni.
Great. I'll kick off by talking about gross win margin, as Barni mentioned. Gross win margin's really driven from our side by four things, and I discussed this in my presentation, I believe on slide 27. Those four things are, number one, customer mix. Right? We're currently continuing to grow our recreational customer base. Number two, our product mix. Through our innovation of products that customers love, this is a big driver. Number three, pricing accuracy. Through our proprietary pricing models that we own. We've talked through in our presentation how that generates value for us. Lastly, our sophisticated risk tooling that we operate 24/7. We're constantly improving all of these drivers, and it helps us keep that flywheel going, creating the means to invest further into product development, generosity, and marketing. I might hand over to Doug to talk about generosity and marketing.
Thanks, Ben, and thanks for the question, Michael. I think, and hopefully it would've come through quite clearly in the presentation, our approach to generosity has changed significantly over the last few years. I think when we layer in generosity post-gross-win, we're thinking about a few things. The broad range of generosity mechanics we have means we can actually put generosity in front of customers that suits their unique needs at a cohort level, and that's the benefit of scale and the sophistication and broad range of generosity mechanics. The second thing is personalizing them gives us the ability to manage those sustainable net revenue margins, especially to our most loyal customers. It's really important that we use generosity to help manage sustainable net revenue margins. Personalized generosity allocation lets us do that very efficiently, but also sustainably for customers.
Finally, which was sort of my segue into Simon later on, is just this point around our technology platforms. Doing what we do, which is a broad range, above the line, below the line, sophisticated, to have the technology to be able to do that in an automated, scalable fashion, but have the confidence to know that our customers are always going to get a great experience. That is genuinely leveraging a scale advantage. That's a complex system that takes great investment. Combining those all together brings together a brilliant generosity experience, but does the job of also managing sustainable net revenue margins.
Sort of touching on what Barni was saying, it's the combined element of we've got an exceptional product range, we've got an exceptional generosity machine and capability, but then overlay that on a healthy brand, reaching mass audiences across different channels, being able to communicate those. It's a really effective formula, and we think it's a formula our customers love, and it's incredibly difficult to replicate.
Thanks, Doug. Thanks, Ben. Michael, on your second question, as I understood it was talking about the really great penetration we have in the younger adult population, and your question was, what is it that we need to do to be able to sustain those so that we've still got them as they approach their financial maturity? Did I get the right end of?
Yeah, exactly. Specifically wit relation to product and marketing in terms of your approach there as the cohort of the business changes in shape.
Yeah. Cool. Yeah, no. Well, I think the starting point is recognizing that just because we have them now, we don't get to keep them by rights, and we've got to keep working really hard at retaining and reengaging them. One thing that's true about as you go younger down in the age spectrum, customers become more fickle. They're less set in their ways. You have to work harder to retain a younger customer than you do an older customer. You sort of answered the question for yourself there. It really goes to how you approach product and how you approach marketing, how you approach brand. We've got to keep innovating. When you heard Tania speak on the video, you heard her talk about us being a purpose-led and very culturally aligned company. The number one value in our business is customer first and last.
We're customer obsessed, so we have to keep understanding them, which means we've got to have the right levels of insight, the right levels of engagement to understand how their needs are changing. If you do all that well, then what gets spit out the other end of the spectrum is really great product that keeps engaging them. Great example for that would be, you're probably sick of hearing us talk about Same Game Multi, but over the last couple of years, we've transposed that into racing and talked about Same Race Multi, and that's attracting a much younger demographic to the racing product than would typically be the case because we're using sort of sport metaphors to apply to a more mature product set. Younger customers are loving that, particularly in greyhounds, funnily enough. That's going really well. That's just one example, though.
Doug or Ben, are there anything that you would add to that in terms of innovations that you're sort of passionate about that would keep these customers coming back?
Yeah, absolutely. You mentioned Same Game Multi. I think another great innovation that we've seen, you would've seen in the presentation, is Bet With Mates. It's just an outstanding product that really does attract the younger customer base as well, that makes the customer experience just even more enjoyable. Taps into the social network phenomenon. Makes sport just even more exciting for our customers, and customers just absolutely love it. You would've seen from the quotes on the right-hand side of slide 26, it's just another way that we continue to innovate. As Barni mentioned, we're really customer obsessed, right? Customer first and last is our number one value, and we treat it that way. That closeness delivers the insight that we then innovate for our customers.
Maybe one thing I'd add is we've spoken about innovation in certainly products, and we've touched on generosity, but I think innovating how we reach customers at scale. Great content that's original, it's unique, it's in channels that's contextually relevant, that engages and then reconnects customers back into our brand and our platform. I think the work that the proven track record, especially in the last few years around digital and social, examples like Snapchat, being able to dominate share of engagements is a really important metric that says that our brand is healthy and we're engaging customers in a way that brings them back. To that point that Barni made, is winning them back in every betting occasion that they choose us, is innovating how we reach customers is really important to us.
The final thing I'd say is not to listen to has-been CMOs like me who think that they know what this audience want, and actually go straight to the audience and listen to them. That's probably the watch-out that these guys keep me honest on, I'd say. Your final one was about technology and whether you should expect any significant investment in that space over time. I might answer that or ask Simon to answer that question a bit more broadly. As you probably know, we don't provide a sort of divisional CapEx guidelines. We won't talk to that. If we did, we'd start a pre-budget negotiation between Simon and Nathan. We'll avoid that at all costs.
Si, you might talk to the constant need to resource for scale to meet customer needs, but I think also probably talking about the opportunity within the Flutter group as well is a useful angle for Michael here.
Good morning, Michael. Really great question. I think the way I think about scale for the Sportsbet business is we've got this mantra around speed and ease, and speed and ease for the customer. Underpinning that speed and ease is the scale of our platforms. Over the last two years, we've moved all our platforms to cloud, and that essentially enables us to auto-scale with the demands of the customer. It gives us greater resilience so that when we do have some issues, we can auto-heal. From an availability point of view, we've got the highest availability infrastructure in place now with AWS.
I think, with those three components gives us great scale and being in the cloud also allows us to innovate, and that's a really important ingredient as we think about how do we support Sportsbet but deliver those great customer experiences. Moving to what Barni sort of alluded to around Flutter and Flutter technology. Sportsbet works really closely with our colleagues in the Flutter technology group, and we're always collaborating around how do we collectively think about scaling our platforms. One classic example is our pricing and risk management platforms. We've got people from across the globe thinking about how do we innovate this space but also scale it because our goal is to cut the price once but deliver it to all destinations.
We've been able to do that over the last two years, and it was in the presentation I mentioned around pricing risk management, how we've got now a repeatable platform for sports models and for auto trading. By enabling that, we give our prices to the various brands across the group, and that allows us to have scale fit for purpose platforms, but also accurate pricing, which is automated. For me, that's how I think about scale, but I always think about it from a customer lens. From a team point of view, I can say our engineers, they are always focusing on performance volume because they're the things that matter. Because if our platforms aren't up, our customers can't interact.
That's great.
I think you're on mute now. There is Michael.
Thanks for your questions, Michael. They're really interesting.
Thanks for the detail. Thanks a lot.
Cool.
Thank you very much, Michael. Our next question today comes from Ed Young from Morgan Stanley. Ed, I am promoting you to panelist now. Please ensure that you have unmuted yourself and started your video using the buttons in the bottom left corner.
Hi, Ed.
Hello. Hi there, thanks for taking my questions. The first one, you mentioned about becoming more recreational. There were some pretty clear KPIs you gave around gross win margin being one of those factors in the presentation. If I look at revenue per AMP, it's about double in Australia what it is versus, say, U.K. and Ireland or international. It's even above the U.S. How do you think about recreational? Do you think you have a recreational base, or do you have a base that's becoming more recreational? You must discuss that within the group. How do you think about that sort of issue, or that sort of theme going forward? The second one is a tech stack question. You invited it, I think it's only fair to ask one.
Right.
A very clear journey there away from third parties towards in-house. I think that was a very clear slide in terms of where you're going. I just wondered if you could describe what it is in the sportsbook and account that is still third party, and is that something that will also go in-house over time, or is it a sort of a small, low value, low ROI part of the food chain to actually bother with changing? Do you basically control everything you need, or is there further gains to be made there perhaps? The third one is sort of a relative question. Very clear about the overall marketing generosity spend increasing. That message is well received. The marketing efficiency, as you said, is now very high at what, 12% of revenue. Elsewhere in the rest of the group, it's been raised internationally.
It sits at much higher levels in Europe. Appreciate your answer from an Australia perspective, I get that. Do you think it's replicable across the rest of the group to do something similar, or are there structural reasons around where you can put marketing in terms of the media assets, or are there any other kind of reasons why marketing might sit structurally lower in Australia given how you're approaching the market? Thanks.
Cool. Great. On the recreational customer base and the revenue per AMP, I'll handle that, Ed. On the tech stack, I'll hand back to Simon as well, who will delight in regaling you with his views on that. Marketing and generosity, we'll speak, Doug as the practitioner, then Nathan as the owner of the purse strings, because between the two of them, they'll get you the answer that you need. On the revenue per AMP, we've spent a lot of time talking about this across the group, and there's a lot of reasons why direct comparisons from country to country are really difficult. GDP per capita, for example, just one, and I'm sure you would list out a much longer list. For me, it's actually relatively straightforward in Australia, and that's just Aussies love sport. There is just such an ingrained culture of appreciation of sport.
As an Englishman coming to this country 10 years ago, I thought, well, they won't be more passionate about sport than we Londoners were or are. Geez, the Aussies take it to a new level. Of course, that translates into just a sort of cultural affinity for betting, which I haven't seen elsewhere. That would be my answer to that question. On the tech stack side, do you want to talk about the sort of the direction of travel there?
Yeah. Certainly, Barni, and thank you, Ed. Look, from our point of view, what's really important for Sportsbet is the customer experience. You're getting that right, owning it, owning the tech stack, owning the knowledge. I think we've progressively done that, as you saw in the presentation today, and we'll continue to do that. I think by owning personalization and generosity, the risk platforms, the trading platforms, the pricing platforms, and our front-end channels, that really allows us control and being in control of our own destiny. It also then allows us to innovate, and innovate very rapidly and create some really terrific products. Ben mentioned in the presentation things like Bet With Mates and Same Game Multi a couple of times. Those products are a by-product of us owning parts of the tech stack we do today.
I think that will continue, and we'll progressively look at other items to the build-out as well.
Thanks, Si.
Could I-
Doug and Nath.
Sorry. Could I perhaps just follow up on that one while we're on the subject? I understood there's a direction now, I think the innovation side of it's clear in terms of how you've built that, but what is it that's not in-house? I imagine there must be some live odds provision stuff in Sportsbet. That was my guess there. In the account, for instance, what are you reliant on third parties? Again, is it something that's meaningful? Is it blocking you from doing innovation you'd otherwise like to do?
Yeah
Small fish in the big scheme of things right now?
I think, Ed, what we look at is, we make decisions on what parts of the tech stack make commercial sense. There's no limitations today, and I think that's the great thing. As I mentioned to Michael before, the fact that we've been able to take all parts of our stack to the cloud is a great example of that.
Okay. Thanks.
Thanks, Si. On your marketing ratios, Ed, I'll hand over to Doug and Nath. I think it's worth pointing out that revenue has grown faster than we expected it to over the last reported period, which obviously pushes that percentage down a bit. There's a bit of a false positive there. Doug, I think, will talk about considering the totality of both marketing and generosity, because you have to consider them together. Nath, you might just talk about how we think about that from a financial planning point of view. That's a really long-winded way of saying it, that we won't come back to answer your final question about what you can expect elsewhere in the group. A, that's not my job, and B, I don't think that's something that we would guide on even if we could.
I think you'll find good insight in what the guys have to say.
Thanks.
Thanks, Barni. Thanks, Ed. Again, I won't comment on the specifics as Barni mentioned. Ed, the first point I'll make is, as you can imagine, we absolutely sweat sort of the performance of CPA and how that correlates to lifetime value. We look at that very closely. I think our track record of acquiring customers in the Australian market, hopefully that would have come through really strongly in the presentation. That gives us the scale advantage we now have is those investments are also engaging and driving momentum of more than 2 million customers. We get that benefit. It also serves to help reactivate customers. We're getting a number of advantages from scale. I think the other point I'd make to Barni's point is that we've got a very strong generosity position.
The combined formula where our brand is healthy, we've got great partnerships that enable us to reach through things like broadcast partnership with media and sporting and racing partners. On top of that, we're also investing in technology which enables us to reach efficiently and put great content in front of customers in the right context. Marketing is in good health. Our generosity, as we said, we're broad range, highly personalized, which drives efficiency. Again, investing in technology, which gives us the confidence of a great experience, combined with then great product. That whole formula we think is a really winning formula. Again, customers are loving it, and it's very difficult to replicate. I think looking at it in totality gives you a good sense around how we're thinking about it.
Thanks, Doug. Ed, look, thanks for your question. I'll just quickly round off by saying, look, Barni's quite right. Our revenue has grown substantially over the last 18 months. Some of those cost efficiencies, they are sort of flattering. We have, and hopefully this comes throughout the presentation, we really do focus on return on investment right across the P&L, not just marketing. To take Doug's point, we don't look at that marketing percentage in isolation. We look at marketing and generosity together, and we move budgets between the two when we need to. It's worth saying that it's really not a set-and-forget ratio. We're not setting a marketing ratio and then forgetting about it. We remain really focused on growing the business.
If we find opportunities to invest in marketing, to engage with a broader new set of customers, we absolutely will take that opportunity. That probably, hopefully, gives a little bit of color on the marketing ratio.
Yeah, that's very useful. Thanks for all the answers, guys. Appreciate it.
Cheers, Ed.
Thank you very much, Ed. Our next question today comes from Gavin Kelleher from Goodbody. Gavin, I'll promote you to panelist now. Please go ahead and please remember to unmute yourself and start your video using the buttons in the bottom left corner of your Zoom window.
Hi, can you hear me, guys?
I can, Gavin. Good to see you.
You too, Barni. Thanks a mill. Really good presentation. Just a few questions from me. On the market opportunity that you've laid out in the presentation this morning. Obviously, you've given your percentage market share, I think it was 42% of the Australian betting market. Is there an idea of the size of the market you can go for? What I mean by that is there a cohort of the Australian betting market that's VIP or very high-value customers that you just will never go near given your kind of increased recreational focus? That's my first question on the market opportunity. The second thing as well I picked up in the presentation was your view that you can take share from the wider gambling market in Australia, i.e., lotteries, casinos, and other forms of gambling. What gives you that confidence that sports betting is doing that?
Is it a COVID-related issue, or is there new products you'll introduce? I know there's regulatory kind of restrictions on you doing any gaming products, but how are you confident that you can continue to take share from the overall gambling market? That's on the market opportunity. Just a follow-on question on regulation. It's been quite negative for the last few years, regulatory change in Australia. Is there anything on the potential positive front, i.e. live betting coming in and online or maybe someday in the long-term future when you could see poker or other products? I have one more follow-on question, but those two to start.
I made that three for the record.
Okay
That's cool. I'll give you that. Let's work backwards through those. On the reg change, I'll call on Tania to talk about. I want to qualify the use of the word negative there because we actually think good regulatory evolution is a positive for a maturing market. We might talk a little bit about that in addition to answering your question. I'll work through the other two, though, and then guys just chip in if you want to add anything. On the market opportunity, is there any cohort that we wouldn't go for? We're a mass market brand, so we don't play in the super VIP space. What we've observed over the last 18 months is even cohorts that we thought might be quite resistant to a dynamic young brand like Sportsbet, actually are really open-minded. What I'm talking about there are the retail customers.
These are customers that have known about Sportsbet for many, many years but chosen not to come on board. It took the closure of a retail outlet to catalyze their behavior, and the evidence is that they are loving the product. We know that objectively through surveys that we take, we observe their behavior. Anecdotally from a customer service point of view in Tania's teams. Midway through last year, Tania's teams were overrun with retail customers coming online for the first time and not being that au fait with basic e-commerce that the younger cohorts have. They've got used to it now, and they're really loving it. What that tells me is that the brand can stretch to many, many parts of the market, young and old, racing and sport, highly studied versus more casual.
We're especially strong in the recreational space, but that doesn't mean we don't penetrate the others, too. I'm pretty bullish about that with the exception of that super VIP area that is not really part of our DNA. Before I move on, does that give you enough answer on that part of your question?
How big is the super VIP market? Any idea? Is it 5%? Is it 10% of possible?
It's really difficult to measure. If it was really meaningful, then we'd have found a way.
Perfect
Get to it. It's also really volatile as well, as you know. What gives us the hope or the expectation that we can penetrate beyond that, first thing I'd say is that stepping or penetrating that wider gambling market is not the only source of growth that we see. There are others. To answer your question directly, what makes us think we can take sports betting beyond the 17% that it penetrates or the share that it takes at the moment? I think the answer lies in sport, and like with most markets in which we operate, sport is the dominant facet of young adult culture. People navigate their weekly routines around sport. They wake up thinking about sport, they go to bed thinking about sport, and they talk about it pretty much with all of their discretionary time in between.
What we're doing is making sport more interesting and more engaging. Let's think about the 25-year-old whose father might have really engaged with a club or a team, but this 25-year-old cares more about the players in the team and doesn't want to bet on that team winning, but wants to bet on that player scoring the first basket in a game. Through the player props that are enabled by the great data coming out of Ben's team, the platforms coming out of Simon's team, and the data capabilities that we have part of the group, we get to reinvent new forms of betting that appeal to those sports fans. That takes me back to Nathan's funnel that we talked about. 15 million sports fans, of which 10 million pay to sate their passion for sport.
Of which only 6.8 bet, of which only 2.1 bet with us in the last 12 months. I've sort of sidetracked your question, but the two worlds overlap, don't they, between that gambling world and the 15 million population who are sports fans. Long-winded way of saying I think we've got an absolute right to play in that space, and the way we get in is through sport and through innovating the consumption of sport experience.
Perfect. Thanks
Make sense?
Yeah .
Cool
that helps. Thank you, Barni.
Great. Let's finish up on your regulation question. We will come to you. In fact, let me get rid of the positive side of it to begin with. We don't anticipate in the short term any positive change to regulation. We won't anticipate any liberalization of any form of gambling in Australia that's currently prohibited. We're fine with that. We're really bullish about everything else that we have to do and the opportunities ahead of us. I want to pick up on what you talked about as the negative regulation there. If I'm really honest, we don't think of it as negative. We welcome good regulation. If it raises the bar in terms of customer protection, and if it broadens the bar, so makes customer protection more consistent across all operators in the market, then we welcome it.
With that in mind, we've got a really good track record of, A, acting unilaterally ahead of regulatory requirements just because it's the right thing to do, or B, working with regulators and advocating for the right type of legislation that makes customers safer. With that in mind, Tania, do you want to just give a couple of examples to Gavin as to how we've been working in that space?
Yeah, sure thing. Look, I'd echo everything that you've said, Barni, both in terms of product expansion, in terms of our perspectives on the consumer protection environment that we're in and the benefits of that. I think that's absolutely the case. I think the way that that plays out for us in terms of examples and the way that we have both supported and advocated for regulation and change is in the example that Nathan Arundell shared in the deck around the National Consumer Protection Framework. Then more recently with respect to credit card bans, we think that they're really positive steps that will create industry standards that means that we're delivering really advanced consumer protection measures. Pleased with that, very proud of it.
I think to go one step further to Barni's point about the areas where actually we're not waiting for regulatory change, but rather setting the standard and hope that our peers across the industry will follow and come with us. Two examples. Right back to 2016, when we introduced our Take a Break toolkit, as recently as the Take a Sec Before You Bet campaign and the investment that we've made there, again, entirely voluntary, that we think sets the standard for the industry and moves us forward in a really sustainable way.
Thanks, T. All good, Gavin. I think you had one more on the end.
Yeah, no, I just wanted to ask about how do you incentivize Sportsbet employees to collaborate with the wider group? We can see it throughout the presentation, the risk and trade and collaboration that's happening. We can see it in product as well. On a kind of an employee level, how do you incentivize people to work and collaborate in something that may be outside their own kind of P&L responsibility?
That's a great question. Tania, I'll have a crack and then you can correct me if I'm wrong. I think it's interesting that you talk about incentivization on the back of the previous question, because I'm not sure if you picked up in the video, we're now incentivizing all staff in Sportsbet to drive our responsible gambling practice higher. That's a form of using incentive to drive behavior. Our senior people do have a component of remuneration based on global outcomes. It's funny, I was having this conversation with Peter last night. The way Sportsbet people behave, and I think this is true of Flutter people in general, is they don't need a lot of carrot or stick to do the right thing for the group, because as a bunch, we're pretty passionate about being part of something bigger.
The case in point I was talking about with Peter last night, I won't talk about the project because it's commercially sensitive, but there were product and tech and data people between FanDuel and Sportsbet, the decision that they got to without any sort of senior management needing to intervene was, well, as we make this decision, as we allocate resource, we need to think about it from a Flutter point of view. The product that we're talking about here might be really important for one jurisdiction, but globally, it could be super important if we look at it through a different lens. I guarantee you that no one in that room, no one in that conversation, thought about their bonus or their rem structure as they engaged in the conversation about what was right for Flutter and what was right for our customers.
Tania, I've rambled on a bit there. Is there anything you'd add to?
No, I think that's absolutely true. You will have seen in the people part of the presentation that I spoke quite a lot about alignment and the power of alignment in Sportsbet for motivating our team towards a common set of goals and how powerful that is. That exists across the Flutter group. The alignment around the key ambitions of the group for our expansion into new territories, for new products, for innovation, is something that really does unify our people, and I think that that has been a real motivator and continues to be for people to say, I'm ambitious and excited to be involved in programs that will move the group forward, beyond the parts that Barni talked about with respect to incentives.
Yeah, that's a really good point.
That's perfect. Thanks a mil.
Thanks, Gavin.
Cheers, Barni.
Thank you very much, Gavin. Our next question today comes from Richard Stuber from Numis. Richard, I'm promoting you to panelist now. Please go ahead and please be sure to unmute yourself and start your video using the buttons in the bottom left corner of your Zoom window.
Hi. Morning, everyone, or afternoon. Thanks a lot for taking my questions. Quite a few have been already asked, just a couple from me, please. The first one, obviously, the improvement in gross win margin has been very impressive. I was wondering sort of how relevant is a change in product because of it? What I mean by that is any sort of indication in terms of the relative growth in sports versus racing, and has this mix now matured? The second question is, do you have any sort of idea of the size of the offshore market, sort of the unregulated offshore market, and how this has changed over, say, the last sort of five years? I know you mentioned in response to Gavin's questions about no change in liberalization on the near-term horizon regarding sort of online in-play betting or online gaming.
Are you seeing any sort of regulatory changes potentially on the land-based sector, in particular things like pokies, which may help you increase that 17% market share in sports betting? Thank you.
Thanks, Richard. On improvement gross win margin, we'll go to Ben. Ben, you can talk about the drivers there, and cover off the sport versus racing angle that Richard specifically talked about. On the unregulated market, we might turn to Nathan just briefly on that. It's not something that is particularly topical within the market at the moment. Nathan will just cover that off briefly. On the regulatory change in terms of the opportunity from negative regulation on land-based, I'll answer that quickly so the other guys can crack on to theirs. Not really is the simple answer to your question there. We're not looking at that as something that is about to happen or should happen in any period of time.
To be quite frank, we're fine with that because we've plenty to be getting on with the market that we're operating in. We're pretty focused still. Ben, you okay to talk about the gross win side?
Absolutely. Thanks, Richard, for the question. Gross win margin, as I mentioned earlier, it's really driven by those four drivers. I'll touch upon your racing sport question. Four drivers being customer mix, product mix, pricing accuracy, and sophisticated risk tooling. Each of these drivers, we're just continuing to push forward, which is feeding that flywheel that I've mentioned both today and in the earlier presentation. Regarding racing and sport mix, what I won't do is disclose the mix and where it's headed. We've had really strong growth, as Barni has mentioned, in the sport mix as different customers are attracted to the various parts of our game. It's just overall a very healthy growth in the mix profile.
Obviously, with the influx of retail punters over the last 12 months, they over-indexed quite significantly on the racing side. That's awesome, and it's great because obviously racing has slightly higher margin. It makes forecasting the future pretty difficult, right? Because until we know precisely what proportion of that cohort we retain, we're pretty bullish. They seem to be sticky customers. They're enjoying the product, as I talked about. Until we get 12 months, 18 months down the line, and we go through a period of proper post-COVID normal, we're not going to be able to predict with any great accuracy as to what racing does within the business on the back of those retail customers.
Richard, I think we're okay to give you some sort of feel and estimate of our racing sport mix. Some of the trends that we were seeing pre-COVID have sort of obviously turned around because of racing being the only thing on in town in the last 18 months for good periods of that time. Sort of three quarters of our 2019, 2020 turnover was on racing, simply because there was not as much sport during good chunks of that period. Prior to that, obviously the trends were going the other way.
Great. That's helpful. Thank you.
Yep. Nath, while you have the mic, do you want to talk about unregulated market?
Yeah. On unregulated markets, from what we know and from what the government surveys, et cetera, tell us, there hasn't been a great deal of change over the last few years. There's probably two things to talk about there is firstly, there's a difference, there's the online illegal offshore wagering market, and there's also the illegal offshore gambling market. The offshore wagering market, we believe is very small and really doesn't impact us that much because of our recreational customer base. The online gambling market, which has other forms of gambling, which are not allowable in Australia, things like gaming, et cetera, that is bigger. It hasn't changed dramatically, we don't think, in the recent years. The Australian Communications and Media Authority are continuing to try and crack down on that and prohibit Australians from playing those forms of gambling. It's really difficult.
They're doing a great job, and we're fully supportive of them. That's probably the best answer I can give there.
That's great. Thanks, Nathan.
Thanks, Richard.
Thank you very much, Richard. Our next question today comes from Simon Davies from Deutsche Bank. Simon, I'm promoting you to panelist now. Please make sure that you unmute yourself using the buttons at the bottom left corner of your Zoom window.
Hello, can you hear me?
I can. Hi, Simon.
Perfect. Hi there. Just two from me, please. Firstly, you talked a bit about your responsible gambling initiatives. Can you provide us with some broader context behind that? I don't know how you measure this, but what percentage of Australian adults are showing signs of problem gambling, and what are the trends you're seeing in the broader Australian market? Do you now think that your responsible gambling tools and controls are as robust as those of Flutter Entertainment in Europe? The second question was just whether you can provide any color around Q3 trading and the trends that you're seeing most significantly. Is there any evidence of a recovery in retail, and what percentage of that previous retail revenue number do you think has permanently shifted to online?
Okay. Thanks, Simon. Nath, we'll come to you because you know what we're allowed to talk about in terms of Q3 and not, so you can be the rule master on Simon's second question. On your first one, we'll come to Tania and talk about the differences or similarities between Sportsbet and other parts of Flutter and where we are in our journey. I think that to cut to the chase, we think we do a good job, but we can always do more. Tania, do you want to pick up the lead on that one?
Sure. I might start by answering your question, Simon, sort of backwards in terms of where we are today from a Sportsbet perspective and where we feel we're going. You will have heard me say in the presentation that we think this space is an area of perpetual responsibility, and that means that we don't think we're done. We know that this is an area that will continue to evolve from an evidence perspective. We understand that we'll continue to learn more. We do have a strong strategy in place, that four-pillar strategy that I shared, and we think that that sets very strong foundations for the direction of travel for us. It allows us to both understand the needs of our customers, deploy our innovative technology and data, and also raise awareness and think about how our customers enjoy our products safely.
With that in mind, we are continuing to leverage the different initiatives that are being deployed across the Flutter Group to understand how we might bring them to bear and learn from the best practices that exist. Clearly, the characteristics of those markets are different. What we do have across the Flutter Group is a genuine commitment to our customers, the safe enjoyment of our products, and making sure that we continue to advance our safer gambling practices. We use that as a key opportunity. Whilst that might play out somewhat differently across the different divisions, one of the things that we are very proud of is that we're able to take those learnings and continue to evolve the strategy that I shared with respect to Sportsbet. That's something that we do very actively.
One of the things that helps inform how the market is moving, some of the percentages and trends, are our partnerships with external bodies. We work, for example, with the University of New South Wales to fuel their research and support them as they understand what intervention practices and communication protocols work best within the Australian context, how different demographics might respond, and also how we might use data and different data insights to continue to deliver best practice safer gambling. Both leveraging Flutter, leveraging our external partnerships with research bodies and also the commitments across the Sportsbet organization, we're able to continue to advance that agenda.
Sorry. Do you have any data in terms of the extent of problem gambling in Australia?
I don't have it to hand. I think that certainly there are percentages that would indicate that up to 10% of customers who participate in the category may experience some form of gambling harm across the gambling harm continuum, and that's very important to note. That is something that we do have regard for, but also regard for the fact that that doesn't always look like customers experiencing the extreme ends of harm, but rather some forms of harm along that continuum.
We're a little bit cagey on that, to be honest, Simon, because you could pick any one of a number of a dozen research sources and they would tell you a very, very different number for that.
Yeah.
None of them are objectively true.
That's right.
objectively untrue. There's a degree of vagary in how this is measured. Let's come back to you offline on that. We'll come back through the IRT, and if there's some numbers that we can reliably use, we'll share those with you.
Great. Thank you.
I think just to build on Tania's point, and you asked the question about are we up to the level of other parts of Flutter. I think a really important thing to recognize, as much as we talk about the power of being part of the Flutter family, and being a great global organization where we can leverage the combined strengths, that doesn't mean we do everything the same everywhere. We talk in the same breath about managing customers locally and making decisions close to customers. What's right for a customer in Australia is not necessarily what's right for a customer in New Jersey or in Dublin or London or Prague. Therefore, that variety that you see in different approaches at different times across the group is really useful for us in terms of learning.
I wouldn't expect just because we've run a AUD 15 million advertising campaign urging customers to set deposit limits in Australia, that immediately that gets transposed into the U.S. market. We'd need to behave really appropriately according to stage of market evolution, and the dynamics at any point in time.
Yeah.
Nath.
Yeah.
Give us all that you can on Q3 trading.
Yeah, look, I better not give you too much, Simon, otherwise some people in Dublin might be listening. I can't obviously say too much, and the Q3 update from the group will be out in early November. I'll just give you a couple of snippets in regards to, and I said this in the presentation. First of all, over the last 18 months, we've obviously benefited greatly from getting a disproportionate amount of those retail customers and increased engagement from our existing customer base. You would've seen that in the first half of 2021, we actually had some really good retention rates, and better than anticipated retention rates. Half one 2021 was a period of when Australia operated under a more normal trading environment. For us, that seems a world ago now that we're back locked down.
Throughout that period, retail betting outlets were open, et cetera. Some really encouraging signs there. pretty happy with momentum on that. I also did say in the presentation that even though we're looking forward to the Spring Racing Carnival, we're looking forward to the footy finals like we do each year, we've got some really tough comparatives because obviously 2020 had a high concentration of those rescheduled sporting events. Like everyone around the world, Simon, we're waiting to see how consumers respond as we get out of this COVID mess and get back into the real world. Then I think we'll be able to get some much better trends.
Can you comment on the relationship with retail, i.e., are you still continuing to benefit and holding onto those retail customers that migrated across?
Yeah, look, I think what I'd say to that, Simon, is that those half one figures that we discussed, in regards to really good retention, we were happy with the amount of retail customers that we retained throughout that period when retail betting shops were back open.
Thank you.
Okay. Thank you very much, Simon. Our next question today comes from Kiranjot Grewal. Kiranjot, I'm promoting you to panelist now. Please make sure you are unmuted and you've started your video using the buttons in the bottom left corner of your Zoom window. As a final reminder, after this question, if you would like to ask a question, please use the raise hand button at the bottom of your Zoom window.
Hi, guys. Can you hear me?
I can, Kiranjot. How are you?
Perfect. I'm good. Sorry, I think my video's not working, but I'll just continue like this. Just a couple of questions from me. You mentioned that you're doing better at attracting recreational customers and it's helping your margins. It seems like a lot of this is maybe being driven by land-based to online shift. In this light, can you do anything to better control that land-based to online shift journey, and would you consider any M&A within that? The second question is around slide 61. That was incredibly helpful sort of outlining the spend by customer based on your acquisition. Just building on that, are you seeing any differences in betting spend or styles for newer cohorts versus older, and how are you positioned to deal with potential changes in demand?
I've heard some of your peers sort of flagging esports as a key opportunity, and is that also a key opportunity for you? Just the last one, what's sort of in your mind the biggest threat to derailing your progress that you've been making in Australia? Thank you.
Great questions. Recreational customers and you're muted, shift from land-based to online and will we consider M&A? I'll handle that one. On the behaviors of new customers and changes in demand, and you cited esports as an example there. I'll pass that to Ben and Doug. They can both talk about that in terms of, Doug, in terms of where he's going in the market and the customers that he's going after, and Ben in terms of the product mix that engages a next generation of punters. I think that there'll be some quite rich insight we can give you there. Then the biggest threat, I'll deal with that quickly. I think the biggest threat to us is complacency. I think we have had a good run. The second that we start believing our own hype, then we are yesterday's management team.
We have a healthy level of paranoia, and we have the bit between the teeth. We want to keep delivering brilliant outcomes for consumers. Within our business, what you see, and the great shame about doing these things virtually is you don't get to come and have a look around the organization and see the culture firsthand. There's a healthy level of dissatisfaction in the business. There's a healthy level of, Yeah, we've done a good job. Last year, we did a good job, but how are we going to go again this year? We could do better. We weren't perfect on that project or that campaign or that time of year. You should be reassured that whilst complacency is a risk, I think we're managing against that. I'll come back to your recreational customers and the shift.
We're getting recreational customers from many different sources, actually. At one end of the spectrum, we've benefited from, as you point out, the land-based and retail closures. On the other hand, we're benefiting from digital natives who love sport, and there's a few other categories in between. Will we consider M&A? Well, typically, we don't talk about M&A. What I would say is the opportunity in front of us organically is very strong. Particularly thanks to the age profile chart that Nathan showed about our high penetration in younger customers. I'll stop there. We'll now go back to your second point, which was about behaviors of incoming newer customers and what we're doing in that space. Ben or Doug, do you want to lead off?
I can lead off. Thank you for the question. If I think about the difference in behavior of incoming newer customers, one recent example is, as Barni's mentioned, we're just absolutely obsessed with our customers, finding out what their drivers are, what they enjoy, what they love to bet on. Increasingly, one of the trends that we've identified is they really love the players, right? Sometimes even more than the teams. We give them an access point for that passion through our offering of player props. We've also developed a player hub where customers can access a hub just dedicated to player info, stats, trends, and they're able to place a bet directly from there with confidence and ease. That's one example. Another example, we've talked about Same Game Multi.
That is certainly a new way that we are engaging our customers, exciting our customers, bringing the customers really to the forefront of the sporting match. That's yet another example of the behavior that we're seeing where customers really love that product. They can touch and feel each part of the game as a player's getting a new disposal or a new basket or a new goal. The third product that I'd talk about is Bet With Mates. As I mentioned in my earlier presentation, Bet With Mates is just a fantastic product that customers love. Really taps into the social phenomenon, the social network effect, and it makes sport just even more exciting for our customers. You would've seen from the quotes on the right-hand side of one of our slides.
It's just another example of our innovation capabilities and how we develop the customer insight to then develop the products that our customers love. I might hand over to Doug to talk about.
Thanks Ben, and thanks Kiranjot . I think a couple things very quickly. Great product innovation, one of the things we then use is generosity and those broad range of mechanics. As an example, tokenized generosity, which gives customers the freedom when and how to use that generosity. That's powerful, because what that does is it encourage customers to trial products as we launch them. It gives them a great opportunity to trial those products. Another example is Power Price. Personalized boosted prices based on a data model that helps identify markets that you'll love. You get a collection of five bespoke prices that are boosted for you. Again, what that does is it helps introduce products like Same Game Multi to customers, encourages adoption and repeat usage, that's really powerful.
I think the other thing we'll talk about, and we've mentioned a couple times and you heard in the presentation, is that the role of complacency when it comes to our brand. We keep reinvigorating our brand. One of the ways we're doing that is content. You'll see that our content constantly evolves. We're looking to make sure that we don't rely on yesterday's campaign. Barni and the team often hold us to account and we're as only as good as that last campaign. For us that means storytelling that's original, unique. It's clearly Sportsbet, but it's not lazy and yesterday. We keep reinvigorating what that looks like. Then making sure that we can tell those stories and make punters laugh and get fans engaged with their code across multiple channels. We touched on the work we've been doing in digital and social.
If we look at our share of impressions and engagement across Facebook, Instagram, Snapchat, I think we're doing a great job of getting to customers in the environments that they enjoy and being able to bring our brand to life, be able to promote the great products we're delivering, but also to be able to make sure that they're aware of and can take advantage of the generosity that we make available to them. Again, it comes back to that winning formula that's difficult to replicate, customers love, and it leverages scale advantage.
Thank you. Thanks a lot.
Okay. Thank you very much, Kiranjot . Our next question today comes from Joe Thomas from HSBC. Joe, I'm promoting you to panelist now. Please make sure that you unmute yourself and start your video using the buttons at the bottom left of your Zoom window.
Hello, everyone. Hopefully you can hear me. Sorry, I think I disconnected briefly there.
You're good.
Thanks very much for the presentation. I thought it was really helpful. Just a couple of questions because I know we're running out of time now. One, just casting my mind back to a competitor of yours presentation a couple of years ago. There was talk about overrounds having gone up quite significantly, in the Australian market in response, I think, to the point of consumption tax. I was just hoping you could give a bit of color as to how that is evolving over time and how you'd expect them to evolve. Secondly, again, just casting my mind back to prior presentations, I thought that there were sort of rules about how value could be returned to customers, especially around free bets, and there were kind of regulatory restrictions. Can you just give an update on that?
The means that you're finding to get around those restrictions, if indeed they still exist.
Sure. Given that we are pressed for time, I won't waffle in advance of handing you to Ben on overrounds, but I'll talk to your second question very briefly first. The rules that you quite rightly looked at, Joe, are around inducements. That varies by state in Australia, the extent to which you are allowed to advertise inducements. There is a national ban on using inducements to elicit or, actually, to use the correct term, induce somebody to open a new account. We don't find ways of getting around them. On a national basis, we don't
Try and induce people to open accounts using those mechanisms. In states where we're not allowed to advertise, we don't. That's really quite straightforward. That doesn't stop us offering a whole suite of value to customers that we already have relationships with through all of the channels that Doug talked about. I think there was one great slide in there that talked about how, in real time, he can take a product from the home screen of the Sportsbet app and put it into Facebook in jurisdictions where it's legal to do so, and using the right proposition that doesn't break any rules. I think that answers your second question, and I might hand to Ben on overrounds quickly.
Absolutely. Thank you, Joe, for the question. Look, overall, we're focused on giving customers just a fantastic experience and great value for money, overrounds is just one contributor to that. It's a really fluid market that's influenced by a lot of things, including competitive dynamics, different elements, including location of the event, the time before the event. We consider the whole equation, which brings in generosity. As Nathan showed, our net revenue has remained quite stable over time.
It's not a tool to offset any potentially higher point of consumption tax in the future, et cetera, and hasn't been so far?
No. That's a good summary. No.
Fine. Thank you.
Thanks, Joe.
Thank you very much, Joe. Our next question today comes from Rohan Sundram from MST. Rohan, I'm promoting you to panelist now. Please be sure to unmute yourself and start your video using the buttons in the bottom left corner.
Hi, guys. Can you hear me?
I can hear you, Rohan.
Good. I was a bit worried there. I thought I dropped out. Thanks for your time. Thanks for the opportunity. Just one from me, and it's regarding slide 13. How are you viewing the outlook for industry fees and taxes, and do you see much movement there? I know we've had a period of increases, then we've had a period of stability. Is there a risk that we might be going again? If so, how much visibility do you have around any of this?
Yeah. Good question. I think Nathan even used the language in his presentation that there is a risk that increases. I think the game here is all about how you prepare for this should it eventuate. Nathan, I'll hand to you in a sec. I expect you'll talk a bit about the scale that we achieve in our business, how we're able to flex, and what our track record is in doing both of those things so that we can absorb this if and when it does happen.
Thanks.
Absolutely. Hi, Rohan. How are you? You good?
Good, Nathan. Good to see you.
That's good. Yeah.
Hope you're well.
Good to see you, too. Yeah, very well. Thanks, mate. Very well. Yeah, look, Barni's right. Look, as you know, we've seen that product fees and point of consumption tax have gone up over the period. As a lot of people would know, that we look at point of consumption tax and product fees as one because they're very similar in the cost to us. We've got a track record of being able to offset these and absorb these taxes, and hopefully, that comes through in the last part of our presentation, especially around the EBITDA margins. We've been able to increase them over a period of time when our cost of sales has materially increased as well. I think the reason for that is pretty simple.
It's our scale, it's the flywheel effect that we've been able to really get motoring and being able to not only absorb those taxes, but also continue to reinvest for growth and making sure that we're growing. It's actually worth pointing out, Rohan, that our EBITDA margin, we've not just sustained that in regards to absorbing those taxes. We've actually also increased our EBITDA margin over the last five years. Hopefully, slide 66 on our deck really shows that. Probably just one other quick thing to your question there is, it's also about product fees increasing, but point of consumption tax, and there's differing passthroughs to the bodies in different states. It comes down to a lot of that passthrough of the point of consumption tax to the racing bodies as well.
Hopefully that gives you a little bit of color on our thoughts on point of consumption tax and product fees.
Yeah, that does, Nathan. Thank you. Thank you.
Yep.
Back to you, Sean.
Okay. Thank you very much, Rohan. Our final question today comes from Larry Gandler from Credit Suisse. Larry, I'm promoting you to panelist now.
Hey, Larry.
Larry, please press star six on your telephone keypad to unmute yourself. Larry, it seems you're currently muted. As you've dialed in over the phone lines, you'll need to press star followed by six on your telephone keypad to unmute yourself.
Sean, I'm conscious the people on the call have got probably a pretty busy morning and day ahead of them. Larry, what we might offer you is if you come back through the IR team, whatever questions you've got, we'll answer as we normally would. Is that all right with you, Sean? Just I don't want to keep people waiting longer when we've already run over. I might wrap up in that case.
I'd express gratitude on behalf of the team for you guys making time. I can imagine you woke up with a fair few emails in your inbox this morning and some answers that needed your attention. Thank you. I hope you've got a really good impression as to what we're about, our appetite for the next phase of Sportsbet's growth. If there's any questions that we haven't been able to answer to your satisfaction, then please do go back through the IR team. With that, I'll let you get on with the very busy days that you have ahead. Thank you.
Thank you very much, everyone, for joining us today. You may now disconnect.