Good morning, and welcome to the Flutter Entertainment half-yearly results update call. Peter Jackson, CEO, is joined by Jonathan Hill, CFO. There will be a chance to ask questions later. As you get into the queue, please press star and one anytime. Now, I will hand over to Peter.
Thank you very much. Good morning, and thank you for joining Jonathan and I for this call. Hopefully, you've all had a chance to watch our presentation this morning, which helps set out extra color on our half-year performance and how well-positioned the group is for growth. Before we go to questions, I'd just like to highlight a few key points. I've been really pleased with our performance in the first half of the year. We have positive momentum with revenue up 9% and ARM growth of 14%. Our U.S. performance is outstanding and continues to exceed all expectations, delivering a profit in Q2. This was driven by phenomenal execution with a sports betting market share of 51% in Q2, where we're number one in 13 out of 15 states.
The result achieved despite the fact we've been leaning into customer acquisition in Q2, acquiring over 500,000 new customers. As we laid out in our presentation, we have clear line of sight to U.S. profitability in 2023 for the full year, including the cost of share-based payments. You'll have seen that we now expect the outcome of the arbitration process with Fox in October. Unfortunately, as this is a live process, we can't provide any further detail. However, as previously stated, we remain very confident in our position regarding fair market value. In the group outside of the U.S., revenue and EBITDA in H1 were in line with expectations, with strong performances in Australia and in our consolidate and invest international markets. We're excited to welcome the Sisal team into the Flutter group last week.
In the U.K. and Ireland, our online performance in Q2 improved sequentially on Q1, and we are confident that the proactive measures we're taking from a safer gambling perspective have set the business up well for the future. Across the whole group, the second half of the year started in line with our expectations. Our advantages in scale and diversification position us extremely well to capitalize on the growth opportunities ahead. With that, I'll now hand you over to Phoebe to handle questions. Could I please ask people to limit their questions to two only at this stage, and then we can come back to you if you have any subsequent questions.
Everyone, so once again, just a reminder, if you wish to ask a question, please press star one on your telephone. Our first question is coming from Michael Mitchell. Please go ahead.
Yes, Peter, Jonathan, good morning to you both. Firstly.
Morning.
Morning. Firstly, on the U.S., and just to pick up actually one of your introductory remarks there, Peter, in terms of your Q2 performance, clearly generating positive EBITDA in Q2 is one thing, but to do it given the step up in share and customer acquisition is something altogether different. I appreciate sometimes you've covered a lot of this in terms of presentation, but can you comment on how your customer economics and your approach to customer acquisition more generally evolved in the period. You know, clearly it's been well documented to have been a more benign competitive environment in the second quarter. If I'm reading the charts correctly on slide 19, you seem to secure the step up in market share with no major change in the ratio of GGR to NGR.
Question number one around your approach to customer economics and customer acquisition in the U.S. And then secondly, in U.K. and Ireland online, I think you referenced it as well in terms of the sequential improvement, Q2 over Q1. If I've read it correctly, I think it improved from -26% ex-Tombola to -11%, sequentially. I wonder if you could just provide some context for that improved performance, and how it positions you heading into the second half of the year. Thank you.
Yeah. Thanks. Thanks, Michael. Look, now, I think in the U.S., the major point to make about our performance is that we've, you know, we've maintained our disciplined approach to customer acquisition. You know, we've always been very much focused on looking at the, you know, the ratio of our acquisition cost to lifetime value, and we continue to see advantages around, you know, the lifetime value of our customers because of our parlay penetration and other benefits we get from our very strong products. You know, we've remained disciplined with our acquisition costs. You know, look, while other people were pulling back from the market in Q2, we carried on leaning in because we could see that the lifetime values were sort of being maintained.
We just took as much business as we could. You know, as I just mentioned, we've you know acquired more than half a million customers. I think there too, you know, we're very pleased with how we've exited the first half. You know, we've got a much bigger business now in terms of customer numbers than we had anticipated. We actually ended up spending a bit more money on that, but we know that the value the customers have been bringing in, you know, is as good as it has been in the past. You know, the business is very well positioned in that regard. You know, that's what's driving you know the very strong revenues that you see. Jonathan Hill, I don't know.
I think that's the critical point here is that, you know, we're building the embedded base and all, and as it pertains to the slide showing the, you know, existing customers versus new customers, what we wanna do is enter 2023 with as big an embedded base as possible. We obviously explained the sort of one-year economics to you of customers. We obviously don't make money off the customers in aggregate with acquisition costs in year one. You know, you can understand why therefore we can, you know, move the revenues up but aren't moving the sort of the EBITDA guidance up.
Because actually, you know, some of that outperformance has been driven by that incremental investment in year, but obviously that gives us an even bigger base going into 2023, you know, which gives us greater confidence as we look forward to hopefully getting to that EBITDA positive position in 2023.
Michael, regarding your second question around UKI performance, you know, I'm sure Jon will have something to add to this as well. You know, you're right in terms of the improvements we've seen from a sequential perspective. I think that, you know, it's important to recognize there's a few things going on.
First of all, when you look at the comparative period last year in lockdowns, you know, we know that our customers were, you know, more engaged with our products than they were for pre-COVID, and that has reverted, you know, and so that's one factor. Secondly, you know, we did move early, you know, and make a number of changes from a sort of safer gambling perspective, and we're starting to annualize those. Thirdly, I think, you know, it points to a number of sort of product improvements we've started posting across the business. Now, Jon, I don't know whether you want to sort of talk specifically about those.
No, I think the other point is, you know, we're looking at the GC data as well, and we think we, you know, really saw a step up in that performance in Q2 relative to the GC data on a pro forma basis. You know, although we've got some good momentum in the business. You know, when we see the product improvements coming through, which you have seen in the presentation, hopefully you've been able to listen to, you know, that's clearly driving the performance, both in, you know, getting Sky Bet back on track in terms of our build of that product and the high engagement levels we've seen at the end of the last EPL season.
Obviously some product improvements also on the gaming side on Paddy. You know, really positive on that. You know, seeing gaming going back into growth in June year on year gives us real confidence as we go into H2. You know, it also informs the comment we made around you know, not seeing at this point any impact in the UKI certainly from sort of the cost of living question that clearly is exercising people in many industries. We haven't seen that as yet. Gaming is obviously a pretty key indicator of activity levels.
When we look at things like our Tombola performance, which is obviously a very pure gaming business, and certainly the gaming across our other brands, we're not seeing anything discernible at this stage. We are, you know, keeping a pretty eagle eye on what's going on in the weekly data. Super helpful. Thank you.
Our next question is coming from Clark Lampen. You are now live.
Hi, good morning, everyone. Thanks for taking the question. I wanted to also ask a question on the U.S., and maybe, you know, sort of on competitive dynamics, realizing that, some of your peers have sort of taken a step back. I'm wondering if this is a dynamic that you think is really going to be related solely to sort of non-launch periods, or do you believe that when, you know, sort of the next queue of states or the next cohort of states comes online, you know, is there a chance that the new launch costs could end up being, a little bit less extreme also? And then the second question is on products.
I wanted to see if you could talk about product evolution, you know, sort of not only to date and your success with same-game parlay adoption, but also product innovation maybe heading into the NFL and NCAA seasons at the back of the year? Thanks a lot.
Hi, Clark, and I don't know whether to say good morning or good evening. I'm just trying to think what time it is where you are. You know, thank you very much for joining the call. Regarding the U.S. and the competitive dynamics, it's very hard to talk about what our competitors are doing because, you know, we don't have visibility as to what's motivating them. You know, I think from our perspective, you know, we're very focused on acquiring as much business as we can, whatever we're seeing the sort of returns and paybacks that we're seeing at the moment. That's why, you know, in Q2, we continue to lean in hard because we saw sort of abundant opportunities.
It's worth remembering, and if you look at the statement and the presentation, you know, a lot of our acquisition was coming from some of our earlier states. This is not just something that's focused around recent state launches. There is a degree of seasonality. You know, obviously in the U.S. around the NFL, it's a big push from a customer acquisition perspective. You know, clearly a state launch also has an impact as well. I think that, you know, it does appear to me that we're seeing our, you know, competitors, you know, acting with more discipline, which I think is a good thing for the industry.
We have always been very disciplined, but, you know, we're starting to see, I think, people coming closer to the position that we're taking. You know, competitors may not have the advantages that we have in terms of being able to monetize customers as effectively and are having to pay high acquisition costs because they don't have our DFS base to cross-sell into. From a product evolution perspective, you know, your second question. Look, you know, I mean, I think, you know, we do have the number one sportsbook app in the App Store. You know, we have the benefit of our, you know, global organization helping push and develop and provide ideas to support the U.S. team.
You know, slide seven of the presentation shows a lot of the group benefits that FanDuel has access to. You know, we have more than 80% of our handles priced in-house at the moment. It's gonna go to 90% in due course. There's a lot of innovation around the product. You know, the Popular Parlays, the Same Game Parlay. You know, more than 80% of our customers play the parlay product in Q2. You know, we've only just launched search.
You know, there's lots of one percentage point differences that we're making across the product. You know, and actually when I look in places like Australia where you know, we actually launched the Multi Revolution, which is what they call the parlay product back in 2016, and here we are six years later, still evolving and developing the product. Now I'm very confident that you know, the situation will remain the same in America with lots of innovation to come and are able to benefit from the expertise and innovation that the FanDuel team see from their colleagues across the world. Just sort of going back to your first question.
I think, you know, the start of the NFL season is such a customer acquisition point in the year for for U,S. Sports betting that, you know, we still expect there to be a very competitive start of season. While people may have pulled back to an extent in Q2, we certainly expect and are planning that it will be a highly competitive start to the NFL season again. I think it will be every single year, and we have to be very clear we've got to win again, and we've got to earn the right to win. We shouldn't be in any way complacent by a very strong Q2 performance.
We've got to be really focused on, you know, winning again at the start of season in NFL, 'cause I'm sure everybody will come out with guns blazing again. We need to stay pretty focused on that at this point. The team have got a, you know, a great plan for the start of NFL. Look, it's again the context where there's elections in November as well. We know that there's gonna be a lot of noise from a media and advertising perspective. You know, I think, you know, Jonathan is absolutely right. It is the most competitive period, and there's gonna be a lot of people out there with messages and attractive offers.
That's great. Thanks a lot.
Our next question is coming from Ed Young, you are now live.
Good morning. Thank you for taking my questions and thanks for the level of transparency and disclosure in the presentation. It's really appreciated. My first question is on the U.S. On slide 23, given very helpfully a breakdown to some extent of the P&L in New Jersey. I appreciate you're going to try and give an indication that the mature states are significantly profitable. I just wondered, in terms of the three buckets there, you've already flagged you think marketing will come down further over time. Cost of sales there is a 59% gross profit margin, but I guess it's also still quite a competitive state, and it's gaming too, where promotions might be a bit higher and then other operating costs, but then presumably we get some more operating leverage.
I guess what I'm asking is that a kind of implicit steer or guide to how we should think about FanDuel's overall profitability and say, when most states are four years in as a blended average? Or is that too much to read into it and it's just really saying this is healthily profitable after that period? My second question is on the U.K. One of your peers had a comment on recreational customers yesterday and a chart around that. You put one in as well on slide 28, which again is useful, showing the direction of travel.
I just wonder if you could help quantify what you mean by tier one, tier two, and tier three so we can think about to what extent it's possible a like-for-like comparison? Thanks.
Hi, Ed. Well, look, let me just deal quickly with the U.K. and then we can move on to the U.S. You know, we don't put out, you know, we won't provide you with the sort of details of what a tier one, tier two, tier three customers. You know, I can tell you that the base that we have in the U.K. is now sort of very representative of what the U.K. looks like, whether you take slices of, you know, income, wealth, income tax or whatever. You know, we think that we've set the business up, you know, very well to be sustainable moving forward. Jonathan, I don't know whether you wanna talk to Ed's point around the EBITDA breakdown for New Jersey.
What we're trying to do here, Ed, is just not try and sort of let you read too much into the forward view on this. What we're trying to do is say, you know, should people have confidence that we're on a profitable EBITDA trajectory in the States from when they've started through to year four? Do we judge on the basis of, you know, trying to work out, well, you know, it's not sort of, you know, rocket science, how we've allocated the OPEX. We've done it in a way that we think makes sense to give you guys a steer on the fact that we are EBITDA profitable in that state. Clearly, this will evolve further over time.
You're right, we do expect the P&L to alter over time and particularly certainly on the marketing line. At the end of the day, this state is still growing. Actually, when you look at some of the penetration curve data that we put in on slide 20, I think you can quite quickly work out which states New Jersey from that penetration curve. You can see it's still going up steeply. You know, you've always got this issue of how much top line growth do you end up driving by investing in marketing and promo spend. You know, the P&L in year four is still driving significant top line growth, and you can see that from the penetration curve on the middle graph on slide 20.
Yeah, don't try and read too much into it. I think we're just trying to help people see the track we're on at this point. You know, with further opportunities to the P&L to evolve over the next few years. Obviously, we're doing Capital Markets Day in November, and we can maybe touch a bit more on that at that stage. We're not gonna sort of extrapolate any more at this point.
Okay. Thanks, mate, for the answers.
Thanks, Ed.
Our next question is coming from James Rowland Clark here on the line, sir.
Hi, good morning. Good morning, everyone. A couple of questions, please. A sort of slightly different way of asking Ed's last question is on slide 23 on the left-hand side. You've got a sort of chart indicating the operating leverage that you have in the U.S. with revenue growing at 2x the operating cost base since H1 2019. Would you mind just giving us a little bit of help on how we should see that evolve over the next six months and into next year? Secondly again, on the U.S., you've delivered an EBITDA profit of $22 million in Q2. Could you just help us with how that looks for FanDuel versus Fox Bet, 'cause you have in the past split out the two businesses? Thank you.
Well, morning, James. I mean, I'll let Jonathan give us the details on it. I mean, I think, you know, the profit that we made in Q2, it's worth noting that not only is it, you know, all of our U.S. business, but also includes the costs of the investments we've been making to launch FanDuel into Canada. So, you know, the sort of gross number for FanDuel is perhaps greater than the one you see on the front of the presentation. Jonathan.
I mean, you'll see, James, in the interim weeks, we referred to the fact that Fox Bet was, I think, 3% of revenues and 20% of the EBITDA loss in the half. You can work out that it's, you know, $30-odd million, of which you can take half in Q2 because it's a pretty flat business. Therefore, you can probably gross up to 22 and get to a number closer to 40 ex Fox Bet. Then obviously we've got, as Peter said, you know, within that the investment of FanDuel in Canada. We've got the step up and the lean in. We did benefit from some positive sports results, but even without those, you know, we feel as if, you know, FanDuel was in a very strong position in Q2.
On the other point on slide 23, look, I don't like guiding on very short-term because actually if you'd looked at this graph a year ago, you would've seen a different story, which would've been even more revenue growth relative to OPEX, because we sort of had a slight hiatus in 2020 as we went into Covid in terms of our OPEX growth, and we pulled back quite strongly. Then we stepped up in 2020, 2021. Then we get the annualization of that into 2022. I think looking at half years is quite difficult. What I would say in H1 this year over H1 a year ago is, you know, if you normalize revenue from H1 2022 to 2021, we'd have 71% revenue growth, and we had about a 46% growth in OPEX.
It's not quite the 2 - 1 ratio, but it's not a million miles away. You know, over the medium term, this is not a bad assumption to sort of think about. You know, we have built a lot of muscle in the business in the U.S., and we've built a lot of areas where the scaling will. You know, we've scaled the teams, but it's not a bad framework within which to think about the business going forward rather than necessarily the specific 2 - 1 ratio. It's just it's a reasonable directional framework.
Great. Thank you very much.
Thanks, James.
Our next question is coming from Kiranjot Grewal. You're on live.
Hey, morning, guys. Just a couple questions from me. I think in the U.S., you know, you've been talking a lot about being optimistic during Q2, reacquiring customers while, you know, others are spending less. You're the biggest group in the U.S., you're the biggest globally, and you have a strong balance sheet. Could it not be optimistic to maybe spend more, even going further on acquiring customers? That's one question. Then secondly is around the customers in the U.S. How sticky is the customer in the U.S. versus those in more mature markets, say the U.K.? Just trying to get a sense of the customers won in Q2. You know, how much of that you'll retain as maybe marketing spend goes up by competitors. Thank you.
Yeah. Hi, morning, Kiranjot Grewal. Look, in terms of the sort of the two broad questions, you know, we did spend, you know, a lot more than we had originally planned to in the first half of the year, particularly actually around Q2. You know, we ended up, you know, Jonathan Hill and I, you know, and together with the team, we saw a lot of opportunities in the U.S., and so we, you know, we pushed hard. I'm not sure that we could have spent, you know, a lot more in the sort of, you know, in the disciplined way that we've always tried to do. I mean, I'm sure that, you know, there would have been some further opportunities, you know, but it may not have delivered the returns that we wanted.
You know, we have been pushing very hard and, you know, you're right, we have been putting all the investment that we can into the business, so we don't feel constrained about that. In fact, there were a number of states that were planned to launch, you know, earlier this year that we haven't seen and, you know, irrespective of that, we went ahead and spent the money. Just to add one point, I mean, we maintain consistent discipline. We did exactly the same thing in the diametrically opposite situation in the run-up to NFL season last year when everybody was going pretty crazy with helicopter money and $5,000 free bets and whatever else. We maintained real clarity and discipline in what we were doing.
When we had the opportunity to lean in, we also kept the same level of discipline and clarity on what we were doing. It served us well in both situations, and we think it's the right way to, you know, build this business on a really clear, disciplined, and focused way. We think, you know, we took some great opportunities in Q2 to bring in some customers, particularly around, you know, our NBA product is fantastic, and it gives us a great opportunity to bring people in, and we think we did that really effectively. In terms of the stickiness of our customers, I'd probably, you know, probably best refer you to slide 21, where we show the, you know, the cohort performance of some of our customers.
Now, you know, it's quite hard to identify a cohort where we can look at this on a clean basis because of COVID. You know, if you remember, you know, last time we talked about, you know, the sort of year two on year one performance where we were seeing an 11% growth in the revenue performance on our cohort of customers. On slide 21, you can see that we're now, we've seen that accelerate somewhat on the, you know, on a sort of, you know. If we look at the customers in year three and look at the revenues and then compare to, you know, with then this is the same customer cohort that we had from year one, obviously.
We're now seeing an acceleration of that revenue growth, and so there's now 22% CAGR performance. If you think about the way in which we've presented some of our other businesses over the years to you, whether that's, you know, Sportsbet or some of the stuff that we've, you know, that I know that the Sky Bet team have shown in the past and, you know, we see it in a number of our other businesses where you can see that it's year-on-year. You know, even if you see us have attrition in the number of customers, actually the revenue pool from those customers can grow on a year-on-year basis, and we are continuing to see that trend in the U.S. market.
Overall, when you look back at the cohort charts for Sky Bet, for Sportsbet, these look great as well. The cohort charts for the U.S. look great as well. Very similar. Yeah.
Okay, thank you.
Our next question is coming from Monique Pollard, you are now live .
Hi, morning, everyone. Just a couple of questions from me, if I can. The first is just on the UKI online performance. Obviously, as you said, the pro forma revenue growth down 19% in the first half, and I think it was down 11% pro forma in the second quarter, much better than the U.K. Gambling Commission data, which was down 23.5% and 22% in the 2 Qs. It seems clear that you're taking a share in that market. I'm just wondering whether you think there's potential for further share gains into the second half, given, you know, if I think about some of your new products, like the Build-A-Bet product, that was only launched relatively recently, so it should have more of an impact to 2H versus 1H.
The second question, just on the U.S. Thanks so much for giving that New Jersey EBITDA margin. It's super helpful just in terms of getting some sense of profitability in some of the mature states. Just wondering to understand whether EBITDA margins generally you see as being higher, lower or relatively consistent in sports betting only states versus sports betting and iGaming states?
Thank you, Monique. You know, look, in terms of the UKI online performance, you know, I think you're right to highlight the favorable performance of our business in Q2 compared with the market, and certainly we're taking share. I think that there's a few factors there. I think firstly, we're seeing the benefits of our more recreational-focused business. You know, when you think about our portfolio of brands in the U.K., you know, Tombola, you know, Sky Bet, you know, Paddy Power, you know, positions us very well compared to the market.
I think secondly, you know, we have always been at the forefront of trying to, you know, lead the market around safer gambling, and I think, you know, we've taken a number of, you know, very proactive measures, you know, some time ago, and it appears other people are beginning to catch up with us. I, you know, as I stated in the past, I, you know, I always thought that if the, you know, the White Paper, you know, would provide some finality to some of these questions. I did think that the Gambling Commission, who, you know, we appreciate their support in terms of going in and encouraging operators to be more responsible, you know, they have been raising the bar for us all.
I think, you know, you're beginning to see that impact, you know, a number of operators. I think the third thing I'd highlight is that, you know, we are continuing to invest in developing our products. You know, there are a few areas where we thought we'd slipped a bit behind, and I think we've, you know, we've continued to focus on delivering good products. Actually, you know, when I look at the performance of our business, you know, in June to see gaming up year on year, I think is great validation of the work that the teams are doing.
Look, Monique, in terms of your other question, yeah, at the end of the day, if you think about it doesn't matter whether it's single product, multi-product, triple product. If we're still investing on a CPA to LTV basis that makes sense, we should still be delivering something. Yeah, not an inconsistent profit between the different states overall, because the overall economics should still work through on that basis. I mean, there may be slight divergences between the stage we are in the investment strategy. There will be a small impact probably from, you know, multiple products over single product, but I don't see it being a massive divergence.
Actually, when we look across other states, you know, we can see them on a similar basis moving into, you know, the EBITDA profitability that we're seeing in New Jersey. It's just they're further behind at this point in terms of their evolution.
Got it. That's very helpful. Thank you.
We've got other states that fall into this profitable EBITDA basis when we do exactly, you know, this allocation across all of the states.
Okay, perfect. Some of those states presumably are just stepping any states into-
Exactly, yes. Yeah, yeah.
Yeah.
Very much so.
Wonderful. Thank you.
Thanks, Monique. Thanks.
Our next question is coming from Joseph Stauff, you are now live.
Thank you. Good morning, Peter. Good morning, Jonathan. Two questions, if I could, on the U.S. I wanted to ask, you know, around the dynamic, especially user growth, New York versus New Jersey and Pennsylvania, obviously a big new state that's exploding, you're doing well in, and then, you know, say the two largest states. You know, were you able to grow users, say, in the second quarter, you know, in New Jersey and Pennsylvania? Is really kind of like the first question.
The second question is, as we kind of think about sort of the U.S. group, and kind of waiting for the arbitration and so forth to be settled, I'm wondering if you've ever kind of framed out, maybe the margin kind of benefit or the additional cost necessary to add to the U.S. group, again, if it weren't sitting within, you know, the total group, in terms of the Flutter group, obviously.
Hi, Joe. Morning. Look, in terms of the dynamic around sort of customer acquisition, I mean, I think the best chart to look at is probably slide 20. If you look at that, you can see, you know, this is, you know, all of our states on there, and you can see the sort of penetration rates. You know, they're all following a very similar sort of trajectory. They're all moving up, right? None of the states have reached sort of now a point where, you know, the growth rates are plateauing.
You can, you know, based on the dates of launch, you can therefore infer, you know, which is New Jersey because it's the longest line, and you can see it's continuing to, you know, follow a very similar trajectory to the one it followed in the past. That's even while, you know, New York has launched. You know, I think we're seeing very good growth rates and customer acquisition volumes in more historical states. I say more historical rather than mature because their growth rates are not slowing down in them. I think that is important, and we are continuing to acquire business.
I think, you know, that was the point Jonathan was making with it in the conversation we were having earlier in terms of the sort of, you know, the EBITDA margins we're seeing in New Jersey. You know, even while we're seeing, you know, big acquisition volumes in Jersey, we're still seeing those EBITDA margins. Obviously, you know, if we ever get to the point where Jersey slows down, then of course the marketing investment will drop off.
In terms of your second question, though, just on the. I think a third of our acquisitions in the half were on pre-2021 states. That tells me, you know, we acquired $1.2 million in the first quarter, $0.5 million in the second quarter. You know, over a third of those came from pre-2021 states. You can see there's still huge growth there in the early states. That's borne out exactly on Peter's point on the slide 20 with those. You can see FanDuel penetration in each of these states and those lines still going up. It's really exciting for us seeing, you know, growth across new and I was gonna say more mature, but I don't even like using the word mature relating to these states, historically because they're still growing. You know? It's fantastic.
Look, in terms of the second part of your question, Joe, you know, I think, you know, what it sounds to me like what you're getting at is just wanting to understand what the benefits were for FanDuel for being, you know, part of, you know, of Flutter. The they're significant, right? You know, if you look on slide seven, you can see we've, you know, we've highlighted some of the benefits that they get, you know, the risk and trading capabilities, which are very significant. I mean, I think when you think about the superior economics that we see around monetizing handle, a lot of that comes from the group's risk and trading capabilities, where, you know, we have so much more of that done in-house.
You know, the fact that our parlay products are, have been developed in-house and are priced in-house means we keep all of that incremental margin and we have a far superior customer proposition as a result. You know, obviously the group technology, you know, the Global Betting Platform is something which you know helps the team at FanDuel. We have the best casino product, you know, in the world with our, you know, PokerStars business and, you know, we'll increasingly be bringing more of that product and capability into FanDuel as well. That's something that you'll start to see us accelerate in the future. There's a lot of benefits.
I just wouldn't underestimate the.
The benefits of being able to bring in and connect people across the group who are experts in the application of generosity, the how to present gains most effectively to consumers, all these different areas, the insight we've got from all of our global markets is huge. You know, we've got so many people in the U.S. who've brought fantastic expertise from elsewhere in the group, but also, you know, sort of the teams who link up to make sure that the best practices we've got in different markets and the learnings we've got in different markets can be transferred across markets really efficiently and really quickly. Thanks very much, guys. Thanks, Joe.
Our next question is coming from Richard Stuber. You're now live.
Hi. Good morning. Thanks for taking my questions. Two first. The guidance for $225 million-$275 million loss in the U.S., I think the full year implies about $100 million-$150 million of losses in the second half, which would actually look similar to what you did in the second half of 2021. To me, that seems pretty conservative, especially given the $16 million of profit you made in the second quarter. Is this purely a function of ramping up the customer acquisition ahead of the NFL, or are there other costs in the second half which we should be aware of? The second question is, I think in your presentation you discussed some things like personalized generosity in reference to sports bet.
Is this something that you've rolled out across your other regions? I'm thinking in particular in the U.S. Thank you.
Hi, Richard. I mean, you answered your own first question. You know, I was gonna say the answer is one word answer, yes. Look, we expect that, you know, we've got more states live for the first time with NFL, which would be really exciting. We're gonna be investing, you know, positively, aggressively with our usual level of discipline through both Q3 and the run up to NFL and through Q4. We obviously have Kansas coming live, we hope and believe in Q4, so that'll give us another state. You know, it's really just that investment and scaling up the business and making sure we're taking the opportunities that we see before us in the market.
Richard, look, in terms of your question around personalized generosity, I mean, this is a journey, right? You know, we've been making significant strides to improve the performance of an application of our generosity in Australia for a number of years now. It's something that we, you know, continue to improve. We're also, you know, been doing this. We've got a lot of, you know, opportunities to benefit from this in the U.K. market as well. It's one of the areas where when we think about some of the stuff that we'll be doing over the back end of the year to integrate the businesses more closely, we'll be taking the best practices from a generosity perspective.
In the U.S., you know, when we launched the Global Betting Platform into the market, we're able to bring across some of the tools and capabilities that allow us to apply sort of personalized generosity to the customers. You know, we have a platform that we internally call the CPP, which is our cross-promotional platform that allows us to personalize that generosity. It is something we're doing. It's, you know, there are always opportunities to improve it and enhance it. Of course, it's something that we can do with reference to, you know, local taxes, you know, and also think about sort of, you know, cross selling with different sports and things as well.
Okay, thank you.
Our next question is coming from Joe Thomas. You're now live, sir.
Good morning, both. My questions. First of all, please, I just wonder, you mentioned in the presentation that you're thinking about optimizing marketing spend in the U.K.. I just wondered if you'd clarify exactly what that means, please. I'm getting that means reducing it, and I'm just wondering how also to tack this onto it, how it means that you're getting rid of the Best Odds Guaranteed offer at times in the U.K. feeds into that. Is it part of the same thing? That was question one. The second thing is, the press has had a variety of management changes that you've been making and there have been some job losses as well at Flutter.
Are these changes that had always been planned? What is it that you think can be working better? I'm sort of wondering kind of why they're being done. Thank you.
Hi, Joe. Look, you know, it's worth remembering, you know, that the U.K. division is made up of, you know, the historical two Paddy Power Betfair businesses together with Sky Betting & Gaming. You know, we always said at the time of the merger of the Stars Group that we weren't gonna rush into the integration, but we'd take our time and do it, you know, carefully because we wanted to maintain momentum in the business. Frankly, you know, the changes that you're seeing coming through at the moment are really just a reflection of that. So, you know, there was gonna be some job losses associated with some of the integration, and we're seeing that now.
There are opportunities for us to share best practices around, you know, marketing and generosity. We need to reflect some of the changes that we're seeing in the market dynamics and some of the changes to some of the lifetime values as a result of some of the changes we've made to safer gambling and stuff. All those things are being reflected in the U.K. division.
You know, look, the work we're doing around tech platform, the work we're doing from a sort of a people perspective and the sort of optimization we're doing around marketing generosity are all a function of that. The Best Odds Guaranteed changes we're making, look, we continually review the approach we take to generosity, making sure we're applying it to the right customers and to the right sort of products. Just building on your other point, which was, is this just about reducing spend? No, it's about firstly trying to optimize and find areas where we think some of our spend is suboptimal.
There's then a secondary question, is just how much of that do we want to reinvest if we can find, you know, effective ways to invest it to drive growth. There's sort of two different steps there. Yeah, the first step is, as you say, identify, you know, and therefore reduce, but we may reinvest if we can see the opportunities to do so.
Sure. Thank you.
Thanks, Joe.
Our next question is coming from Simon Davies. Please go ahead.
Yeah. Morning, all. Two from me, please. Firstly, the Sisal deal takes you into the international lotteries market. Do you see that as a strategic opportunity for the group, and something you want to invest in more broadly, given that it's a relatively early stage of this digital development, or is that possibly something you might exit? Second question, just returning to the U.S. What are your thoughts in terms of timing of the launch in Massachusetts and how material would that be in terms of startup losses? Do you have any thoughts also on the likelihood of California opening up over the next 12 months?
Hi, Simon. Look, in terms of your sort of questions, look, you know, we've only just closed the deal with Sisal. I mean, clearly, you know, the international lotteries operation they have there, which is, you know, for those on the call who haven't sort of followed, you know, Zim-Zimroca in Turkey, yeah, as well as Italy. You know, we think it's an exciting business and we're looking forward to getting under the skin of it and understanding it, you know, more about the, you know, the opportunities that the team have been pursuing.
It's exciting both on a standalone basis, but also as a way of sort of, you know, getting into new markets that we may not be able to have sports betting in, but could also subsequently use as an opportunity to follow up with sports betting. In terms of your second question, I don't think we have the specific details yet of when Massachusetts is going to go live. We think it's probably gonna be 2023. I wouldn't guide specifically around, you know, the launch in Massachusetts.
What we've said is, you know, we've got a view on 2023 and the states that are gonna launch, but, you know, the overall mathematics of the size of the retained base versus the new base still means that even with the launches that we might expect in 2023, we expect, subject to California to be either, you know, profitable in 2023. Yeah. It'll add another 2 percentage points to the population that are covered by sports betting in America. Clearly, the big one is California. Look, it's worth $90 billion, fifth largest economy in the world, but it's gonna be a tough fight. You know, ask me on the ninth of November how we're feeling about it, and I'll tell you.
Okay, thanks.
Next question is coming from Daniel Politzer, Wells Fargo.
Hey, good morning, Peter and Jonathan. Congrats on the U.S. profitability. Just to clarify a point on that, it sounded like you spent more in the second quarter on sales and marketing than you previously planned, but you've seen the flywheel continue to work. You know, as you go into the third quarter, I just wanted to confirm, you're, I guess, now planning to spend more on sales and marketing than you previously had. Is that a fair characterization?
No, I wouldn't necessarily say that is. I'd say, you know, we remain very agile in making decisions based on what we see before us. What we saw before us post-Super Bowl and into Q2 was an opportunity to invest. We have plans which, you know, we still expect the competitive market to be pretty similar to what we had probably expected. We expect people to step in again, having, you know, maybe saved some powder in Q2 and step back from the market. I wouldn't necessarily extrapolate what's happened in Q2 into Q3. We will judge the competitive market and the competitive dynamics and our paybacks as we go through, you know, August and into September, and we'll adjust our spend based on, you know, the metrics that we always adjust our spend by, which is CPA to LTV.
We expect it to be probably as competitive as we previously expected it to be. It's just we saw, I think, a bit of a step back in Q2. Daniel, did you have a
Mm-hmm.
Did you have a second question?
Yeah. Just as a quick follow-up, in terms of iGaming and M&A, and I guess they're kind of interrelated, how do you think about growing the iGaming business? Do you have a target share versus the high teens, I guess, that you're currently at? If you think about growing it, how do you weigh organic growth and product improvements versus, you know, maybe doing something inorganic via M&A? Thanks.
Yeah. Look, I mean, I think our share is around 20%, which, you know, we think is pretty impressive because we know that there's some, you know, some substantial improvements that we can make. You know, around half our customers have come direct, and, you know, which I think is, you know, testament to the strength of the FanDuel brand and its potential. Yeah, we have started scaling up the resources we're applying to the FanDuel business in the US. We've brought across Asaf to lead the casino business. He started in May, so, you know, it's starting to have an impact now. We brought other folks over from, you know, from Paddy Power Betfair and from, you know, other people from PokerStars as well.
You know, the focus now is getting the basics in place, you know, and we've got a new casino strategy. We're very excited about it. We're very excited about the opportunity to bring in, you know, some of the expertise we have elsewhere in the group over to the FanDuel business. We can talk to you all more about that at our investor day that we'll have in November.
Great. Thank you.
Thanks, Daniel.
Our next question is coming from Andrew Tam. Please go ahead.
Hi, Andrew Tam from Redburn. Thanks for taking my question. Just staying with the U.S. for a minute, just in terms of the 2 - 1 operating leverage, it sounds like that's a little bit of a rule of thumb in terms of that operating leverage ratio. I mean, to what extent does that improve going forward as I suppose you know new state launches happen and start to fall away? Should that not improve over time or is that sort of the rule of thumb, as you know, ongoing state launches? I suppose that's the first one.
The second part of that, just in terms of leaning into, you know, the customer acquisition spend that you spoke about earlier, how do we think about that or reconcile that versus, say, some of your key comments, just in terms of New York and deprioritizing spend states like New York? How should investors think about that?
If I take the op leverage question, you know, some costs just move with scale. Customer ops costs will move with scale. As we do with new state launch, we need to have the regulatory and compliance folks associated with each of those states. Some things are just volume related, either volume of states or volume of customers. We'll naturally have an element of the cost base, which is variable and activity dependent. Look, this is a historic rule of thumb, it's a reasonable framework within which to think about it and, you know, but, you know, we're comfortable with that as a current sort of framework to give to people to think about. You know, if we can find a way to make that ratio improve over time, we'll clearly be looking at it.
At the minute, I think it's a sensible way to just think about it. In terms of your sort of second question around, you know, the fact that we're sort of, you know, leaning in around customer acquisition in Q2 at the same time as deprioritizing New York. I think the important point about New York is that we've been, you know, very thoughtful about, you know, application of generosity to customers, you know, free bets and things like that, you know, carry the same tax levels that, you know, the rest of the business in New York. We're very thoughtful about how, you know, the application of sort of generosity in places like New York.
More generally, the sort of point of our leaning in was, you know, look, we just continue to see very robust lifetime values, and we saw opportunities to pick up additional business. As Jonathan said, we're very agile with our marketing spend and we chose to sort of up it in Q2 and spend more money.
Got it. How should we think about just in terms of, you know, the focus has been on, you know, customer acquisition spend. I mean, how does that compare to, you know, your spending or marketing spend on retention?
It's a slightly bigger topic to cover, Andrew, and we can talk about it more in November at the Investor Day, 'cause I'm slightly conscious of time. Look, we are investing in retaining our customers. It's something you know we just referenced earlier on the call when we're talking about the spend on sort of generosity and the sort of personalized generosity and the ability we have to utilize some of the great tools we have from across the group. Look, we'll talk to you more about that in November.
Thank you.
Our last question from the queue is coming from Ivor Jones. Please go ahead.
Good morning. Can I ask two things about Italy? Longer term, is Sisal a nice growth business or is there a step change coming as it becomes part of the group and you integrate the other brands? The narrower question is, Sisal's performing well, is that because retailers recovered more quickly than you expected to get to the expected level? Or is it outperforming your expectations even as we get into July and August? Thank you very much.
Morning, Ivor. We're very pleased with the performance of Sisal. I mean, you know, the business only closed last week. In terms of how we think about that moving forward, you know, online penetration is very low in Italy, and we do expect it to continue to grow. There was a step change in online penetration with COVID. What we have, you know, it does look like a lot of those customers who switched online are staying with Sisal. We have seen a big bounce back in the first half as customers, you know, are able to use retail this year in comparison with the lockdown last year.
There are synergies we're expecting to deliver off the back of the transaction. You know, we will be able to utilize our risk and trading capability in Sisal, which will obviously save them some costs, but I think help improve the product. You know, our poker business will be able to utilize the network of retail points for deposits, which is going to be important, and we'll also be able to think about cross-selling poker into the Sisal base as well. The gaming content is the third big element and, you know, we're pretty excited about that.
Because of the time it's taken to get all the approvals done, we, you know, have been able to get ourselves lined up for hopefully, you know, getting on with the integration as and, you know, now that we've brought the business together, we're very excited about it. Okay. Well, look, thank you very much, everybody. Appreciate all of your time. Sorry we've nearly used the entire hour, but some great questions, thank you.
Thanks all very much.
Everyone, that does conclude your conference call for today. You may now disconnect. Thank you so much for joining, and enjoy the rest of your day.