Flutter Entertainment plc

Good morning and welcome to the Flutter Entertainment Half Year Results Update call. Peter Jackson, CEO, is joined by Jonathan Hill, CFO. There will be a chance to ask questions later. As you're getting to the queue, please press star and 1 anytime. And 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 colour 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 had positive momentum, with revenue up 9% and AMP growth of 14%. Our US performance was 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 were number one in 13 out of 15 states. And was also achieved despite the fact we've been leaning into customer acquisition in Q2, acquiring over half a million new customers. As we laid out in our presentation, we have a clear line of sight to US 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 remained very confident in our position regarding fair market value. In the group outside of the US, revenue and EBITDA in H1 were in line with expectations, with strong performances in Australia and in our consolidate and invest international markets. And we're excited to welcome the CSAIL team into the Flutter group last week. In the UK and Ireland, our online performance in Q2 improved sequentially on Q1, and we are confident that the proactive measures we are 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. And 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.

So once again, just a reminder, if you wish to ask a question, please press your telephone. And our first question is coming from Michelle. Please go ahead.

Yes, Peter, Jonathan, good morning to you both. Firstly, on the U.S. and just to pick up actually on 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 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? Clearly, it's been well-documented to have been a more benign competitive environment in the second quarter, but 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. So it's question number one around your approach to customer economics and customer acquisition in the US. And then secondly, in UK 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 minus 26% ex-tambola to minus 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.

Thanks, Michael. Look, I mean, I think in the U.S., the major point to make about our performance is that we've maintained our disciplined approach to customer acquisition. Now, we've always been very much focused on looking at the – the ratio of our acquisition costs to lifetime value. And we continue to see advantages around the lifetime value of our customers because of our parlay penetration and other benefits we get from our very strong product. And so we've remained disciplined with our acquisition costs. And whilst other people were pulling back from the market in Q2, we carried on leaning in because we could see that the lifetime values were being maintained. And so we just took as much business as we could. And as I just mentioned, we've acquired more than half a million customers. And so I think we're very pleased with how we've exited the first half. 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 is as good as it has been in the past. So the business is very well positioned in that regard. And that's what's driving the very strong revenues that you see.

Jonathan, I think that's the critical point here is that, you know, we're building the embedded base and as it pertains to the slide showing the, you know, existing customers versus new customers. What we want to do is enter 2023 with as big an embedded base as possible. And we obviously explained the sort of the one-year economics to you of customers. We obviously don't make money off customers. the customers in aggregate with acquisition costs in year one. So, you know, you can understand why, therefore, we can, you know, move the revenues up, but aren't moving this sort of EBITDA guidance up. Because actually, you know, some of that high performance is being driven by that incremental investment in year. But obviously, that gives us an even bigger base going into 2023. which gives us greater confidence as we cast forward into looking forward to hopefully getting to that EBITDA positive position in 2023.

And Michael, regarding your second question around UKI performance, I'm sure Jonathan will have something to add to this as well, but you're right in terms of the improvements we've seen from a sequential perspective. And I think that it's important to recognise that There's a few things going on. First of all, when you look at the comparative period last year in lockdowns, we know that our customers were more engaged with our products than they were pre-COVID and that has reverted. And so that's one factor. Secondly, you know, we did move, you know, early, you know, and make a number of changes from a sort of safer gambling perspective and we're starting to annualise those. And thirdly, I think, you know, I'd point to a number of the sort of product improvements we've started posting across the business. John, I don't know whether you want to sort of talk specifically about those.

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 the GC data on a pro forma basis and feel, you know, as though we've got some good momentum in the business. You know, when we see the product improvements coming through, which you'll have seen in the presentation, hopefully been able to listen to, you know, that's clearly driving the performance both in, you know, getting Skybet back on track in terms of that Build-A-Bet product and the high engagement levels we've seen at the start of the, at the end of the last EPL season. And then obviously some product improvements also on the gaming side on Paddy. So really, really positive on that. And seeing gaming going back into growth in June year on year gives us real confidence as we go into H2. And also it also informs the comment we made around not seeing at this point any impact in the UK and I certainly from sort of the cost of living question that clearly is exercising people in many industries but we haven't seen that as yet and gaming is obviously a pretty key indicator of activity levels and 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, but we are keeping a pretty eagle eye on what's going on in the weekly data.

Super. Very helpful. Thank you.

Our next question is coming from Clark Lampin. 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 cost could end up being a little bit less extreme also? And then the second question is on product. 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 over the balance of the year. Thanks a lot.

Hi, Clark. And I don't know whether to say good morning or good evening. I'd rather think what time it is where you are. So thank you very much for joining the call. Regarding the US and the competitive dynamics, it's very hard to talk about what our competitors are doing because we don't have visibility as to... as to what's motivating them. I think from our perspective, we're very focused on acquiring as much business as we can whilst ever we're seeing the returns and paybacks that we're seeing at the moment. And that's why in Q2 we continue to lean in hard because we saw so abundant opportunities. It's worth remembering, and if you look at the statement and the presentation, a lot of our acquisition was coming from some of our earlier states. So 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, and clearly a state launch also has an impact as well. But I think that it does appear to me that we're seeing our competitors acting with more discipline, which I think is a good thing for the industry. We have always been very disciplined, and we're starting to see, I think, people coming closer to the position that we're taking. 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, your second question, I think we do have the number one sportsbook app in the App Store. We have the benefit of our global organization helping push and develop and provide ideas to support the US team. And slide seven of the presentation shows a lot of the group benefits that Fangio has access to. We have around more than 80% of our handles priced in-house at the moment. It's going to go to 90% in due course. And there's a lot of innovation around the product. The popular parlays, the same prop parlays. More than 80% of our customers play the parlay product in Q2. We've only just launched Search. There's lots of one percentage point differences that we're making across the product. And actually, when I look in places like Australia, where we 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 the situation will remain the same in America with lots of innovation to come and I was able to benefit from the expertise and innovation that the Fangio team see from their colleagues across the world.

Just going back to your first question, I think the start of the NFL season is such a customer acquisition point in the year for U.S. sports betting that we still expect there to be a very competitive start of season. And while people may have pulled back to an extent in Q2, we certainly expect and are planning that it will be a highly competitive season. start the NFL season again and I think it will be every single year and we have to be very clear we've got a win again And we've got to earn the right to win. So we shouldn't be in any way complacent by a very strong Q2 performance. And we've got to be really focused on winning again at the start of season in NFL because I'm sure everybody will come out with guns blazing again. So we need to stay pretty focused on that at this point. And the team have got a great plan for the start of NFL.

And look, it's against the context where there's the elections in November as well. So we know that there's going to be a lot of noise from a media and advertising perspective. So I think Jonathan's absolutely right. It is the most competitive period and there's going to 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're 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 US. On slide 23, you've given very helpfully a breakdown or an estimated breakdown to some extent of the P&L in New Jersey. I appreciate you're doing that to try and give an indication that mature states are significantly profitable but 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 going to get some more operating leverage. So I guess what I'm asking is, is that a kind of implicit sphere or guide to how we should think about Fangio'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 UK. One of your peers had a comment on recreational customers yesterday in 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 1, Tier 2, and Tier 3 so we can think about to what extent it's possible, a like-for-like comparison. Thanks.

Hi, Ed. Well, let me just deal quickly with the U.K. and then we can come on and talk about the U.S., So we don't put a, you know, we won't provide you with the details of what a tier one, tier two, tier three customer is. But I can tell you that the base that we have in the UK is now very representative of what the UK looks like, whether you take slices of income, wealth, income tax or whatever. So we think that we've set the business up very well to be sustainable customers. Jonathan, I don't know whether you want to talk to Ed's points around the EBITDA breakdown for New Jersey.

What we're trying to do here, Ed, is just is 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 EBIT trajectory on the states from when they started through to year four? And do we judge on a sort of, on the basis of, you know, trying to work out, well, how we could, you know, It's not 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 profitable in that state. Clearly, this will evolve further over time. And you're right, we do expect the P&L to alter over time, and particularly, certainly on the marketing line. But at the end of the day, this state is still growing. And 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, and you can see it's still going up steeply. You know, you've always got this issue of, you know, how much top line growth do you end up driving by investing in marketing and promo spend. But, 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. So, yeah, don't try and read too much into it. I think we're just giving, trying to help people see that the track we're on at this point you know, with further opportunities for the P&L to evolve over the next few years. But obviously, we're doing a capital market today in November, and we can maybe touch a bit more on that at that stage. We're not going to sort of extrapolate any more at this point.

Very clear. Thanks both for the answers.

Thanks, Ed.

Our next question is coming from James Lowland-Crock. You're now live, sir.

Good morning, everyone. A couple of questions, please. A slightly different way of asking Ed's last question is on slide 23 on the left-hand side, he's got the a sort of chart indicating the operating leverage that you have in the U.S. with revenue growing at two times the operating cost base since H1-19. 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? And then secondly, again on the U.S., you've delivered an EBITDA profit of $22 million in Q2 2020. Could you just help us with how that looks for Fangio versus Fox Specs? You have in the past split out the two businesses. Thank you.

Morning, James. I'll let Jonathan give us the details on that. I think the profit that we made in Q2 is worth noting. Not only is it all of our U.S. business, but it also includes the costs involved. of the investments we've been making to launch FanDuel into Canada. So, you know, the gross number for FanDuel is much greater than the one that you see on the front of the presentation. John?

I mean, you'll see, James, in the introduction, we referred to the fact that Foxdebt was, I think, 3% of revenues and 20% of the EBITDA loss and a half. So 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. So, therefore, you can probably gross up to 22 and get a number closer to 40x Fox Bet. And then, obviously, we've got, as Peter said, you know, within that, the investment of FanDuel in Canada. And we've got the step up and the lean in. We did benefit from some positive sports results. But even without those, we feel as if Fanjul was in a very strong position in Q2. And on the other point on slide 23, I don't like guiding on very short term because actually, if you had looked at this graph a year ago, you would have seen a different story, which would have 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 off X growth and we pulled back quite strongly. Then we stepped up in 2021. Then we get the annualization of that into 22. So 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 22 to 21, we'd have 71% revenue growth there. And we would have had a 46% growth in OpEx. So it's not quite the two to one ratio, but it's not a million miles away. But, 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 we've scaled the teams, but it's not a bad framework within which to think about the business going forwards rather than necessarily the specific two-to-one ratio. It's just a reasonable directional framework.

Great. Thank you very much. Thanks, James.

Our next question is coming from Kieran Dr. Wall, UNLI.

Hey, morning, guys. Just a couple of questions from me. I think in the U.S., you know, you've been talking a lot about being opportunistic 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. I mean, could it not be opportunistic to maybe spend more, even going further, on acquiring customers? So that's one question. And 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., to try to get a sense of the customers while in Q2 situation? how much of that you'll retain as maybe marketing spend goes up by competitive. Thank you.

Hi, morning, Kim and John. Look, in terms of the two broad questions, we did spend a lot more than we had originally planned to in the first half of the year, particularly actually around Q2. And so we ended up, Jonathan and I, together with the team, we saw a lot of opportunities in the US, and so we pushed hard. I'm not sure that we could have spent a lot more in the discipline way that we've always tried to do. I'm sure that there would have been some further opportunities, but it may not have delivered the returns that we wanted. We have been pushing very hard, and 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 earlier this year that we haven't seen. And irrespective of that, we went ahead and spent the money.

In terms of 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. And 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 build this business on a really clear, disciplined, and focused way. We think we took some great opportunities in Q2 to bring in some customers, particularly around our MBA 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 best refer you to slide 21, where we show the cohort performance of some of our customers. Now, it's quite hard to identify a cohort where we can look at this on a clean basis because of COVID. But if you remember... Last time we talked about the year two on year one performance where we were seeing an 11% growth in the revenue performance from our co-order customers. On slide 21, you can see that we're now, we've seen that accelerate somewhat. If we look at the customers in year three and look at the revenues from them compared to last year, This is the same customer cohort that we had from year one, obviously. We've now seen an acceleration of that revenue growth, and so there's now 22% CAGR performance. And if you think about the way in which we've presented some of our other businesses over the years to you, whether that's sports bet or some of the stuff that I know that the Skybet team have shown in the past, we've seen a number of our other businesses where you can see that just year on year, even if you see a traditional 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.

But overall, when you look back at the cohort charts for Skybet, for Sportsbet, the cohort charts for the U.S. look great as well. Very similar. Yeah.

Super. Thank you.

Our next question is coming from Monique Paulward here in LA.

Hi. Morning, everyone. Just a couple of questions from me, if I can. The first is just on the UK and I 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 UK Gambling Commission data, which was down 23.5% and 22% in the 2Q. So 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 2H versus 1H. And then the second question, just on the US, so thanks very much for giving that New Jersey EBITDA margin. Super helpful just in terms of getting some sense of profitability in some of the more 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. In terms of the UK eye online performance, I think you're right to highlight the failed performance of our business in Q2 compared to the market, and definitely 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. When you think about our portfolio brands in the UK, you know, Tombola, Skybet, Paddy Power positions us very well compared to the market. I think secondly, we have always been at the forefront of trying to lead the market around safer gambling and I think we've taken a number of very proactive measures some time ago and it appears other people are beginning to catch up with us. As I've stated in the past, I always thought that if the The white paper would provide some finality to some of these questions, but I did think that the Gambling Commission, who we appreciate their support in terms of going in and encouraging operators to be more responsible, they have been raising the bar for us all, and I think you're beginning to see that impact. a number of operators. And I think the third thing I'd highlight is that we are continuing to invest in developing our products. There were a few areas where we thought we'd slipped a bit behind and I think we've continued to focus on delivering good products. And actually when I look at the performance of our business 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, at the end of the day, if you think about it, 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, 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. And actually, when we look across other states, we can see them on a similar basis moving into 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. So we've got other states that fall into this profitable EBITDA basis when we do exactly this allocation across all of the states.

Okay. Okay, perfect. And some of those states, presumably, are just sports betting-only states.

Exactly, yeah. Yeah, yeah. Very much so.

Wonderful. Thank you.

Thanks, Monique.

Thanks. Our next question is coming from Joe Staff. You're on our 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. And 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 costs necessary to add to the U.S. group, again, if it weren't sitting within the total group structure. in terms of the flooded group, obviously.

Hi, Joe. Morning. Look, in terms of the... dynamic around customer acquisition. I mean, I think the best chart to look at is probably slide 20. And if you look at that, you can see this is all of our states on there, and you can see the penetration rates. But they're all following a very similar trajectory. They're all moving up. So none of the states have reached a point where the growth rates are plateauing. And you can, based on the dates of launch, you can therefore infer which is New Jersey because it's the longest line. And you can see it's continuing to follow very similar trajectories to what it followed in the past. And that's even whilst New York has launched. So I think we're seeing very good growth rates. and customer acquisition volumes from the more historical states. And I say more historical rather than mature because the growth rates are not slowing down in them. And I think that is important. And we are continuing to acquire business. And I think that was the point Jonathan was making in the conversation we were having earlier in terms of the EBITDA margins we're seeing in New Jersey. Even whilst we're seeing big acquisition volumes, Jersey, we're still seeing those EBITDA margins. And obviously, 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, Matt, just on the, I think a third of our acquisitions in the half were on pre-2021 states. So that tells you, you know, we acquired 1.2 million in the first quarter, half a million in the second quarter. So, you know, over a third of those came from pre-2021 states. So you can see there's still huge growth there in the early states. And that's borne out on exactly on Peter's point on the slide 20 with those, you can see fan dual penetration in each of these states and those lines still going up. So it's really exciting for us seeing, you know, growth across new and old. I was going to say more mature, but I don't even like using the word mature relating to these states, historical, because they're still growing, you know, it's fantastic.

And in terms of the second part of your question, Joe, I think it felt to me like what you were getting at was just wanting to understand what the benefits were for Fangio for being part of Flutter. And they're significant, right? If you look on slide seven, you can see we've highlighted some of the benefits that they get, the risk and trading capabilities, which are significant. 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. The fact that our parlay products 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. Obviously, the group technology, the global vesting platform is something which helps the team at Fanjul. We have the best casino product in the world with our poker sales business. And we'll increasingly be bringing more of that product and capability into Fanjul as well. And that's something that you'll start to see us accelerate further. in the future. So there's a lot of benefits.

I just wouldn't underestimate 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 games most effectively to consumers, all these different areas, the insight we've got from all of our global markets. is huge, and we've got so many people in the U.S. who've brought fantastic expertise from elsewhere in the group, but also the teams who link up to make sure that the best practice that 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, James.

Our next question is coming from Richard Stubber. You're now live.

Hi, good morning. Thanks for taking my questions. Three first. The guidance for 225 to 275 million loss in the US, I think for the full year, implies about 100 to 150 million of losses in the second half, which is actually similar to what you did in the second half of 21. 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 season? or are there other costs in the second half which we should be aware of? And the second question is, I think in your presentation you discussed things like personalised generosity in reference to sports bet. Is this something that you've rolled out across your other regions, and I'm thinking in particular in the US? Thank you.

Hi, Richard. You answered your own first question.

I was going to say the answer is a one-word answer, yes. Look, we expect that we've got more states live. We've got more states live for the first time with NFL, which will be really exciting. We're going to be investing positively, aggressively with our usual level of discipline through both Q3 and the run-up to NFL and through Q4. And we obviously have Kansas coming live, we hope and believe, in Q4. So that will give us another state. So, 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.

And, Richard, in terms of your – Question around personalized generosity. I mean, this is a journey, right? So 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 continue to improve And we've also been doing this and we've got a lot of opportunities to benefit from this in the UK 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 US, when we launched the global betting platform into the market, we were able to bring across some of the tools and capabilities that allow us to apply the personalized generosity into the customers. We have a platform that we internally call the CPP, which is our cross-promotional platform that allows us to personalize that generosity. So it is something we're doing. There are always opportunities to improve it and enhance it. And, of course, it's something that we can do with reference to local taxes and also think about cross-selling with different sports and things as well. Great. Thank you.

Our next question is coming from Joe Thomas. You're now live, sir.

Good morning, both. So my question is, first of all, please, I just wonder, you mentioned in the presentation that you're thinking about optimizing marketing spend in the UK. I just wondered if you could clarify exactly what that means, please. I'm guessing that means reducing it. And I'm just wondering how, also, if you can tack this onto it, how the news that you're getting rid of the best odds guaranteed offer at times in the UK feeds into that. Is it all part of the same thing? That would be 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 and what is it that you think can be working better? I'm sort of wondering why they're being done. Thank you.

Hi, Joe. Look, it's worth remembering that the UK division is made up of the historicals of Paddy Power and Betfair businesses together with Sky Betting and Gaming. And we always said at the time of the merger with the SARS group that we weren't going to rush into the integration, but we'd take our time and do it carefully because we wanted to maintain momentum in the business. Frankly, the changes that you're seeing coming through at the moment are really just a reflection of that. There were going to 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 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 say for gambling and stuff. So all those things are being reflected in what you're seeing in the UK division. And so the work we're doing around tech platform, the work we're doing from a people perspective and the optimization we're doing around marketing in general are all a function of that. The best odds guarantee changes we're making, look, we continue to review the approach we take to the generosity, making sure we're applying it to the right customers and to the right sort of products. And so it's just a standard part of the way in which we assess and reassess what we do in the market.

And then 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 as to how much of that do we want to reinvest if we can find, you know, effective ways to invest to drive growth. So there's sort of two different steps there. So, 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, James.

Our next question is coming from Simon Davies. Please go ahead.

Yeah, morning all. Two from me, please. Firstly, the CESAL 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 its digital development? Or is that possibly something you might exit later? And second question, just returning to the US, what are your thoughts in terms of timing of the launch in Massachusetts and how material would that be in terms of startup losses? And 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 questions, we've only just closed the deal with CESAO. I mean, clearly the international lotteries operation they have there, which is for those on the call who haven't followed, you know, is in Morocco and Turkey, as well as Italy. We think it's an exciting business, and we're looking forward to getting in the skin of it and understanding more about the opportunities that the team have been pursuing. And 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 going to be 23. I wouldn't guide specifically around the loss of Massachusetts. What we've said is we've got a view on 2023 on the states that are going to launch But 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 that profitable in 2023.

It'll add another two percentage points to the population that are covered by sports betting in America. Clearly, the big one is California. Look, it's worth fighting for the fifth largest economy in the world, but it's going to be a tough fight. Ask me on the 9th of November how we're feeling about it, and I'll tell you. OK, thanks.

Next question is coming from Daniel Pulitzer. You're on our live.

Hey, good morning, Peter and Jonathan. Congrats on the US profitability. Just to clarify a point on that, it sounded like you spent more in the second quarter on sales and marketing than you'd previously planned, but you've seen the flywheel continue to work. So, you know, as you go into the third quarter, I just want 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 and 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 maybe saved some powder in Q2 and step back from the market. So 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 August and into September. And we'll adjust our spend based on the metrics that we always adjust our spend by, which is CPA to LTV. So 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. Dan, did you have a second question?

Yeah, yeah, so 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 teams, I guess, that you're currently at? And 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 substantial improvements that we can make. You know, around half our customers have come direct, which I think is, you know, testament to the strength of the Fangio brand and its potential. We have started scaling up the resources we're applying to the Fangio business in the U.S. So we brought across Asaf to lead the casino business. He started in May, so it's starting to have an impact now. We brought other folks over from Paddy Val Betfair and other people from Pocasars as well. The focus now is getting the basics in place. We've got a new casino strategy we're very excited about. We're very excited about the opportunities of bringing some of the expertise we have elsewhere in the group over to the financial business. And 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 Tan. Please go ahead.

Hi, Andrew Tan from Redburn. Thanks for taking my question. Just staying with the US for a minute, just in terms of the two-to-one 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, state launches are ongoing? I suppose that's the first one.

And the second part to that, just in terms of leaning into, you know, the customer acquisition standard you spoke about earlier, how do we think about that or reconcile that versus, say, some of your comments some of the key comments just in terms of New York and deep prioritizing spend in states like New York. How should investors think about that?

So if I take the op leverage question, you know, some costs just move with scale. So customer ops costs will move with scale. As we do a 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. So 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... we're comfortable with that as a current sort of framework to give to people to think about. And if we can find a way to make that ratio improve over time, we'll clearly be looking at it. But at the minute, I think it's a sensible way to just think about it.

And in terms of your second question around the fact that we're 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 very thoughtful about application of generosity to customers. Free bets and things like that carry the same tax. levels that, you know, the rest of the businesses in New York. And so we're very thoughtful about how, you know, the application of generosity in places like New York. More generally, the point of our leaning in was, you know, look, we just, we continue to see very robust lifetime values and we saw opportunities to pick up additional business. As John 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. And then how should we think about just in terms of the focus has been on customer acquisition spend. I mean, how does that compare to your spending or marketing spend on retention?

I think that it's a slightly bigger question. topic to cover, Andrew, and we can talk about it more in November at the investor day, because I'm slightly conscious of time. But look, we are investing in retaining our customers. It's something we just referenced earlier on the call, and we're talking about the spend on generosity and the personalized generosity and the ability we have to utilize some of the great tools we have from across the group. But look, we'll talk to you more about that in November.

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 CISAL a nice growth business or is there a step change coming as it becomes part of the group and you integrate the other brands? And the narrower question is, So sales 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. Look, we're very pleased with the performance of CSAO. I mean, the business only closed last week. So in terms of how we think about that moving forward, 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 to online are staying with the product, but we have seen a big bounce back in the first half as customers 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. We will be able to utilize our risk and trading capability in CSAIL, 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 C-cell base as well.

And then the gaming content is the third big element. And, you know, we're pretty excited about that. And because of the time it's taken to get all the approvals done, we've been able to get ourselves lined up for hopefully, you know, getting on with the integration as in, 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, so thank you. Thanks all very much.