Flutter Entertainment plc

Good afternoon and welcome to the Flutter Q2 results call hosted by CEO Peter Jackson and CFO Rob Koldrake. There will be a chance to ask questions later, but I will now hand the call over to Paul Thames, Group Director of Investor Relations. Please go ahead.

Hi, everyone, and welcome to Flutter's Q2 results call. With me this afternoon in New York are Flutter CEO Peter Jackson and CFO Rob Koldrake. To this short intro, Peter will open up with a brief summary of our operational progress during the quarter. and then Rob will run through the Q2 financials and updated 2024 guidance. He will then open up the lines for Q&A. Some of the information we are providing today, including our 2024 guidance, constitutes forward-looking statements that involves risks, uncertainties, and other factors that could cause actual outcomes or results to differ materially from those indicated in these statements. These factors are detailed in our earnings press release of our SEC filings. In addition, all forward-looking statements are based on current expectations and we undertake no obligation to update any forward-looking statement except as required by law. Also, in our remarks or responses to questions, we will discuss non-GAAP financial measures. Reconciliations are included in the results materials we have released today, available in the Investors section of our website. And I will now hand you over to Peter.

Thank you, Paul. I'm delighted to be joining you today from New York, the home of our new operational headquarters, following our primary listing move back in May. With me is Rob Coldrick, Flutter CFO. This is obviously Rob's first call since he started as CFO on May 31st. It certainly hit the ground running, given his experience within the group, and I know he's looking forward to meeting you all in due course. It's also appropriate to acknowledge that in recent weeks, one of the group's founders, David Power, passed away. He was a longstanding supporter of this business and a great sounding board for me, a generation of Flutter leaders. May he rest in peace. I'll now turn business in Q2. It was a very strong quarter for the group and ahead of market expectations. We delivered amp growth of 17% and revenue growth of 20%, reflecting excellent execution against our strategic priorities and positive sports results. We have outperformed in our major markets, US sports and our gaming, the UK, Ireland and Italy, providing great momentum for the second half of the year. In the US, Fangio had an exceptional quarter, with nearly 40% share of the entire U.S. sports betting and iGaming market. Our market-leading products, underpinned by the Flutter Edge, and continued disciplined customer acquisition investments are driving our performance in the market. The improvements we delivered in our NBA, WNBA, and MLB products are increasing parlay penetration, driving up our structural hold, and player retention rates, resulting in continuing strong returns on player acquisition investments. In the quarter, both amps and new players increased by over 30% for Sportsbook and iGaming compared to the prior year. This reflects a strong start in North Carolina, where we have 59% of the market and 20% growth in new players from pre-2022 states. These excellent KPIs point to a long runway of growth in these states and the market more broadly. They also vindicate the consistent posture we've taken since the market launched by investing behind Fangio's excellent return on customer acquisition. In iGaming, we completed an important milestone with the migration of Banfield Casino onto our proprietary technology. In time, this will unlock important benefits through access to in-house content, promotional capabilities, and also greater platform stability. This, combined with the launch of more exclusive titles and promotional features in the quarter, are further evidence of the fantastic roadmap of improvements we still have for our iGaming players. Outside of the US, The group's scale and diversification contributed to AMP revenue growth of 15% and 10% respectively. The Euros is the marquee event of the quarter, with our UKI and Italian businesses delivering same-game parlay product improvements for players in advance of the tournament. TESAL is the first operator to offer same-game parlay in Italy, proof of the benefits of Flutter's Edge when it comes to delivering compelling product advantages for our brands in their local markets. CESAO's same-game parlay accounted for nearly 20% of stakes on the Euros and helped deliver a record market share performance for CESAO in the quarter. This encapsulates a strong performance in CESAO since acquisition, where on a pro forma basis over the last two years, amps have increased by 60% and revenue by 37%. In the UK and Ireland, all our brands are delivering excellent growth, combining for a 10th straight quarter of market share gains based on gambling commission data. In iGaming, we leveraged the Paddy Power brand in launching Paddy's Match and Heist, our most successful live casino game launch ever. In Australia, the previously noted and anticipated declines in the racing market were evident in the quarter. However, we saw strong customer engagement around marquee rugby events, where player acquisitions doubled year on year. Overall, the group had a very strong quarter, strengthening our leadership position in the US and delivering excellent momentum in our diversified ex-US business. And with that, I hand you over to Rob.

Thanks, Peter. Good afternoon, everyone. Thanks for joining the call. It's a really exciting time to be stepping into the CFO role, and I'm delighted with the current momentum in the business. The group delivered a really strong performance in the quarter, with revenue growth The group had net income of $297 million on a reported basis, which is after non-cash expenses including the amortization of acquired intangibles of $147 million and a $91 million gain on the fair value of the Fox option. Voluted earnings per share increased 290% while adjusted free cash flow was $171 million versus a cash outflow of $95 million in the prior year. Our strong deleveraging profile saw our leverage ratio reduced to 2.6 times from 3.1 times at the end of December 2023. We are almost within our medium-term leverage target range of 2 to 2.5 times. We look forward to updating you on our capital allocation framework and the range of on September 25th. Starting now to each of the segments. In the US, the exceptional quarter noted by PETA translates to excellent financial returns with revenue growth of 39% and adjusted EBITDA growth of 51%. Pleasingly, the strong growth is across all state cohort types, with pre-2022 state launch revenue up 33% year over year, including pre-2020 launches 27% higher. Sportsbook revenue grew 41% from stakes growth of 35% and a further expansion of our structural sportsbook net revenue margin. Our gaming revenue is 47% higher, reflecting the gains we are making in the direct casino segment of the market from the product improvements the team have delivered over the last two years. This revenue performance combined with operating leverage in sales and marketing helped deliver adjusted EBITDA of $260 million well ahead of market expectations. Outside of the US, revenue increased 10% due to the strong performances in UK and I, and international. In UK and I, the combination of continued iGaming momentum, the European Football Championships, and positive sports results drove revenue and adjusted EBITDA 18% higher. Sports results were very favorable in the quarter, adding 190 basis points to our sports net revenue margin, Positive results were most notable during the Euros, which continued into July. The previously noted softer Australian racing market resulted in associated year-on-year declines in that market, with revenue down 10%. In international, the addition of MaxBet and 12% constant currency revenue growth in our other consolidated invest markets drove revenue 16% higher on a constant currency basis. Turning now to our updated guidance for 2024, in the US, we have increased our midpoint revenue guidance to $6.2 billion and adjusted EBITDA midpoint to $740 million. This equates to year-over-year growth of 41% for revenue and 219% for adjusted EBITDA. This reflects the strong momentum we have in the business, including the excellent performance in Q2, including the sports results benefit, and it's after the $40 million net in July. The gross tax impact in Illinois is $50 million in 2024, and we expect to mitigate 50% of the tax from 2025 onwards. That is prior to any additional second-order benefits, such as market share gains from subscale players, which we're typically seeing where regulatory or tax changes have been implemented in our other markets. On a quarterly basis in the US, we expect a small EBITDA loss in Q3. significant earnings to be generated in Q4. In the Group X US, we now expect both increased revenue of $8 billion and adjusted EBITDA of $1.77 billion at the midpoints of our guidance. This equates to year-over-year growth of 8% for both metrics. As always, our guidance is provided on the basis that sports results are in line with our expectations for the remainder of the year. Current foreign exchange rates, no new state openings for the remainder of the year, and in a consistent regulatory and tax environment. This guidance demonstrates the strong momentum we have across the group. With that, Peter and I are happy to take your questions. In the interest of time, can we ask that, as usual, we limit to two questions per person? With that, I'll hand you back to Jeremy to manage the call.

All right. Thank you so much. To ask a question today, please press star followed by the number one on your telephone keypad. All right. Our first question comes from Clark Lampin from BTIG. Please go ahead.

Thanks. Good evening, guys. Appreciate you taking the questions. Peter, I wanted to see if we could open up by talking about U.S. performance. Two key results were nicely ahead. Full-year guidance was raised out of Illinois. I think Rob said pre-'22 state growth was up 33%. Could you give us a little bit more color around, I guess, just what's sort of driving, you know, sort of strong results right now and what also is embedded for back half guidance? Second question I have is related to the 40 million net headwinds that you guys called out from Illinois. As we think about managing potential additional increases in taxes going forward, what are the key levers that you guys have at your disposal to mitigate those headwinds and is a potential tax surcharge on player winnings? may be part of that calculus. Thanks very much.

Thank you for the questions, Clark. It's nice to be talking to you in your time zone for once, and long may this continue. Let me give you some thoughts around the U.S. performance, and then I think I'll probably ask Rob just to give us the major building blocks. As I said in my opening remarks, I'm really pleased to see the strong performance in Q2. I think it's a really good indication of the posture that we've adopted in the market of acquiring as much business as we can whilst ever we meet our return criteria and to remind you that's of you know just to make sure that we can see you know less than a two-year payback and i think that we we pushed hard in the uh in the first half and you can definitely see the benefits of that come through in the player numbers the increase in acquisition that we saw uh in q2 i think it's done this really good step the building blocks.

Yeah, I think, first of all, Clark, I'm delighted to be talking about an upgrade to the four-year guidance for revenue and the first earnings call. As Peter said, we've had a terrific performance in Q2, and that's partly driven by the positive sports results. What we see as a result of that is extremely strong drop through in Q2. We're looking forward to the second half, the second half of the year still accounts for 40% of the revenue upgrade, but that won't directly drop through to EBITDA for a couple of reasons. Firstly, we're choosing to invest a further 20 million behind customer acquisition, given those returns that we continue to see well within our kind of 24-month That momentum should set us up really well for 2025 as we take a larger business into next year. In addition, we've got an additional $20 million of operating costs, and that's partly due to the higher payment costs, which have been driven by the changing player behavior and more frequent deposits and withdrawals, and partly due to some additional costs associated with the Beyond Play acquisition. If you then factor in the net Illinois impact of $40 million, you get to the four-year guidance. So essentially the four-year upgrade excluding Illinois drops through at 35%, or it's 15% ex-Illinois. So we're absolutely delighted with that.

Thank you, Rob. And look, I suspect, you know, Clark, you've got a question around the situation in Illinois, and I can imagine that a number of other people will have questions around how we're thinking about positioning ourselves in it. I think it probably makes sense to me just to give a slightly more expansive answer to that question. And then I don't anticipate us needing to answer the question subsequently for other people. To start with, I think it's important to recognize that there's a happy medium for tax rates that enables operators to maximize market growth, provides the best experience for customers, and over time maximizes revenue for states. And most states have taken a sensible approach to date. I do think, though, that instituting a graduated tax system that punishes those who have invested the most to grow their businesses is wrong. I think it will drive customers to offshore operators or potentially to onshore operators who are offering unregulated and untaxed crop parlays under the guise of sweepstakes. We have lots of pattern recognition of operating internationally in high tax locations. And our experience is that moderating levels of generosity or indeed reducing local marketing is the best response. As Rob mentioned, we often find as well that smaller players may also have to increase their prices, which leads to us capturing more share, which provides an offset for it. And so we think that the moderating level of generosity and reducing local marketing is the best customer option. And we have no plans to introduce a surcharge for winners.

Thanks very much.

Our next question comes from Jordan Bender from Citizens JMP. Please go ahead.

Good afternoon, everyone. Maybe just to follow on the CPA questions. You know, in 2Q here, that's been a big theme or topic across most players in the space. So, you know, are you seeing acquisitions costs fall kind of equally across iGaming and sports betting? And, you know, can you maybe point to why is this happening maybe year to date? And then the second question off of that, the updated U.S. guidance implies an increase in OpEx for the full year, even after kind of accounting for the Illinois impact. Are the declining CPAs kind of that core reason why you're stepping up investment here, or is there anything else you're seeing into the market or into football season here that kind of allows you to invest more? Thank you.

Thanks, Jordan. On a CPA basis, if I look at Q2 this year and Q2 last year, we actually would see that our costs have come down a little bit. even with the significant increase in customer numbers that we've acquired. It's often difficult to try and look very precisely at it because you do get an impact of new state launches, which can often dilute the CPA cost because of our large DFS customer base that we can cross-sell into and other mechanisms that we have that give us advantages. So I think what's important is that we're maintaining the consistent posture that we've had in the market to acquire as much business as we can whilst we meet our return criteria. We're very confident in offering the best prices to customers in the market and the best products in the market that we will maintain high levels of customer lifetime value. And together with the significant benefits of getting customer acquisition, it gives us real confidence to continue to acquire as much business as we can.

I think in relation to the second part of your question, George, so as Peter said, A, we're investing behind what we're seeing as some very strong paybacks. I think from an operating cost perspective, we've got the beyond play costs that I mentioned in the second half year. We're also seeing some slightly higher payment costs. We're very comfortable

As I mentioned also earlier, we've got some very good momentum coming into the second half of the year from a revenue perspective. One of the other things that we will be very focused on for the second half of the year moving forward is actually driving more operating leverage. All the costs are coming into focus. We're really looking to be as efficient and optimal as we can from a cost-based perspective. But we do have a couple of additional costs. I think, in addition, you've in conjunction with our US listing. But we previously signposted both of those and they're in line with our expectations.

Awesome. Thank you both. Our next question comes from Ed Young from Morgan Stanley. Please go ahead. Good evening.

My first question is on the cohort growth that you talked through, Rob, slide six it presents is very bullish to see obviously strong growth across all these different cohorts i perhaps wonder if broad brush you could give some color on the relative mix of amp growth and revenue per amp growth you're seeing across those different cohorts just to give us understanding over what's what's driving some of that across the different areas um and then second of all perhaps a novelty of a non-us question in in uk and i obviously the the euros was known to be a good event, but you've obviously had much stronger iGaming growth than sports betting growth. I just wonder if you could give a bit more colour on what's driven that and how you've seen the tournament progress from where you were pre-tournament. Thanks.

Hi, Ed. Good evening. Let me give you just a few thoughts about the cohort growth. And I think this is probably where you're coming from. But, you know, We continue to see increases in things like our parlay penetration in our historical cohorts. I think that's been something which has been very beneficial to us. If I think about that together with the step-ups we've seen in our structural margin position has really helped drive the historical cohort performance. It's as true, and you can see that in all of the different timeframes that we lay out. Robert, any answers to that? Yeah, I think specifically, Ed, I think we're very confident in the major cohorts and the growth they're driving.

So pre-2022 state acquisition, revenue was up 16%. we've got some incredible growth coming through there. With regards to the UK performance and the Euros specifically, I mean, we're absolutely delighted. The fact that Harry Kane didn't have his shooting boots on helped us with that and obviously exited Q2 with some great momentum. And that continued into the third quarter with the first half of the month with the Euros. In addition to that, I think what's almost more encouraging for the UK is the gaming performance. So we're seeing some excellent gaming momentum this year. And actually all four brands in the UK are posting gaming growth of 20% plus year on year, which we're particularly happy with. So UK is in very good shape at the moment as we move into H2.

Thank you. Our next question comes from Ryan Sigdahl from Craig Hallam Capital Group. Please go ahead.

Hey, good afternoon guys. I want to start. There's been a couple of rumors. You might sign an agreement with diamond sports group during naming rights for regional sports network separately. Potentially looking at pen interactive that no need to comment specifically on those rumors or directly, but curious, I think about media tie in. And what you've learned from other markets and then secondly. uh second question caesar has sold their intellectual property for a world series of poker to gg poker um your main global competitor they're just curious how you think that may impact the competitive dynamics and in your strategy around poker thanks uh thank thank you um well i think we've we've um we've always been able to benefit from our strong media times here in in the us yeah scale is definitely our friends and you know we

I think if I look at historically the way in which we've been able to showcase our products and pricing with good integrations, I think it's always been important for us and I think it's part of what's helped with our strong customer acquisition performance. I think it's, of course, really important you've got quality product you can back it up with. There's no point in people testing and trialling your products and finding that they don't like it. We're fortunate that we have the best product in the market. Yeah, I think from a sort of Caesar's perspective, you're right, you know, they have done this deal with, you know, I think with GG Poker, he's the global competitor to our poker business, albeit one which operates in a lot of markets that we wouldn't be prepared to operate in. So I think, you know, there's some interesting questions there for some of those people involved. You know, I think the Poker Stars business, you know, provides us, you know, with an important opportunity. in the US market, I think the extent to which we can get shared liquidity across states can give us some advantages. When you look at it around the world, poker is breaking down into smaller segments from a liquidity perspective, and I think we're in a reasonably strong position in some of those regulated markets because of the strength of the local hero brands that we have.

Yeah, I think just to add to Peter's point, from a poker perspective, we talked about At Q1, the fact that we've started to embark on a transformation for Pokestars, that's progressing really well. We're very pleased with the progress. And actually by later this year, we'll see our poker platform rolled out into Italy, which I think demonstrates our agility and how quickly we can move there. Also, from a performance perspective, A, Pokestars is doing very well in the US. We're seeing some real green shoots. We're very optimistic about how big that business can become there. I think secondly, when you look at the focused sales business in the rest of the world, we continue to see that the positive impact of some pricing initiatives that we've put in play. We've made some changes to both the loyalty, which has resulted in cost savings, and we've also had a number of offset savings across our product. So they're really happy with the way that we're trending on poker overall.

Great. Thanks, guys.

All right. Our next question comes from James Roland Clark from Barclays. Please go ahead.

Hi. Good evening. Thanks for taking the questions and well done. Great Q2. My first question is on Australia. You said there's no change to online trends and the upgraded EBITDA guide is sports results driven. Can you just give us some color on what your focused on particularly there that provides some confidence that trends have bottomed out, as you previously mentioned. And then secondly, a slightly nitty gritty question on the interest charge, which is guided up from £370 million to £405 million due to a delay in previously expected interest income benefits. Does this raise the interest charge in after years or is this just a timing thing? Thank you.

Yes, so I can pick up with the performance that we've seen in the quarter. I think it's demonstrating a really resilient performance in the face of quite a tough regulatory backdrop. So as we said, you know, we're seeing really good customer momentum and underlying trends are in line with the expected market declines that we've previously signposted. We're particularly seeing strong customer engagement on marquee events like the States of Origin Games and Rugby uh where we've doubled the customer acquisition year over year so it's really good momentum in sports in particular in australia outside of racing um and you know as we said we've had a benefit from sports results in the queue as well um so you know factoring all of that in um you know that's that's driving the upgrade um in australia which we're very pleased with i think from an interest perspective some of the projects across the wider group now won't land until 2025 when we'd originally envisaged from H2 2024. So that's making a path to change. In addition, when I've come in and we've had a look at the forecast, it was quite evident I think just to add to that as well, we did refinance some very expensive Euro and US debt in May, and we'll see the benefit of some interest cost savings in that versus the current run rate in H2.

Our next question comes from Dan Pulitzer from Wells Fargo.

Please go ahead. Hey, good evening, everyone. Thanks for taking my question. The first one, Peter, maybe could remind us on some of the parameters through which you evaluate M&A. And, you know, how do you think about U.S. opportunities or maybe balancing these relative to opportunities in Brazil or other jurisdictions? And acknowledging here, your leverage, I believe, is 2.6 times. Your target is two to two and a half times. Maybe how high would you be willing to go for the right deal? And then secondly, your flow through, I believe you mentioned it was about 35% for the back end of this year, ex-Illinois. Is that kind of the right ballpark to think about your flow through on a normalized basis from here? And that's it for me. Thank you.

Thanks, Dan. I'll answer the M&A question and then Rob will talk to you about the flow through. I think the first thing to remind everyone is we've done a lot of M&A here in the US and internationally. We recently acquired Beyond Play. Of course, we also bought the financial business back in 2018 as well. So we will be happy to make acquisitions in this market if we think it will help us. It's also important to recognize that internationally, There are many, many markets in either regulated or seem to be regulated markets where we're not yet present with either podium position or certainly sort of gold medal position. And we've had a great track record of acquiring businesses in those markets, applying the Flutter Edge and seeing a big step up in performance. C-SAL is a great example of that. Actually, Tombola is another example of us doing it in market. Experiences in a jar of that. All around the world, we've got great experiences. We pride ourselves on making sure that we look at almost everything that gets traded in our space. And if necessary, we will go beyond our leverage targets to do the right type of deal. If we've got confidence, we can do leverage quickly. And that is what you've seen with us recently. We're bringing our leverage down now off the back of the very strong growth in earnings in the US. What

With regards to the flow through question, a couple of points to mention on this. I mean, A, we are going to see some difference in flow through by quarters as we move forward, because it can be impacted by a number of factors, including both sports results and seasonality. And also, you know, where we see opportunities our overall kind of virtual firewalls of business so yeah we're not holding ourselves or anchoring to a specific number um but yeah we are quite confident at this stage that given the momentum we've got we've got yeah we will continue to see a decent drop through on the incremental revenues that we're we're driving thanks so much our next question comes from Paul Rudy from Davey please go ahead

Hey, good evening, guys. Just two from me, well, probably both interconnected. Just on maybe the competitive intensity, firstly, maybe in iCasino, when you think about MGM, speaking to increased investment in iCasino, is there anything there you feel you may have to respond to? And the second, similarly, in the sports sphere, there's a couple of operators speaking about refreshed product launch. Could you kind of give us some detail on why you think your product advantage will retain into the new NFL season?

Evening, Paul. I mean, fairly straightforward responses for you. I think from a competitive intensity perspective, we've always maintained what I would describe as a robust posture, acquiring as much business as we can, whether that's in you know, the states which just do sports or the states are doing sports and iGaming. Of course, we get the benefit of the cross sell for iGaming, but we're very pleased with the performance in the first half. We talked about Q2 today and Bob's just referenced what we're going to do to think about continuing to push hard in the second half of the year. It's not just around investment in marketing. We have also been investing a lot in building out our product capabilities. I'm really pleased when I look at the performance of Carles and MLB at the moment. Historically, it wasn't an area of strength for us, and we almost got to the same level of penetration as we would do in things like the NFL. So clearly, the product advantages we've been having, we've been doing a lot around line betting, And there's a stack load of things that we're going to deploy to take our product forward, you know, into the new football season that launches at the beginning of September. So, you know, we've got the best product in the market. We've got the best pricing in the market. And we intend to work very hard to keep, you know, a long way ahead of our competitors.

Thank you. Our next question comes from Joe Stoff from SIG. Please go ahead.

uh hello peter rob i had two questions please on the us amp growth in the quarter 27 i was wondering if you could disaggregate that for us between osb and icasino and then two uh with respect to the effort to in-source um a lot of the say technical and tech tech stack capabilities of your US iCasino offering. Where are you in that process? The reason I ask is I'm trying to anticipate, say, the gross margin pickup you get once that's fully in-house. Thank you.

Hi, Joe. Well, that's a great question because I'm delighted to tell you that we've actually bought our iGaming product in-house in the US. And it's not a cosplay, but it's certainly going to improve our ability to deploy our own in-house content into the US market, which is not something we've been able to do in the past. It's also going to help improve things like the stability of the platform as well. So we will definitely drive benefits of it. And I think there's a lot of exciting initiatives that we can deploy off the back of it.

by the way you want to just talk about the you know the the amp uh yeah so in in terms of the app or a 30 on both sportsbook and i gaming um yes there's a small decline on dfs as you'd expect um given a bit of cannibalization we're really happy with the growth rate across the place sports flick and i came and you know that's very much continuing into that into the second half of the year

And just to clarify, Peter, so it is 100% then, say, insourced at this point in terms of the iCasino tech stack, say?

Yeah, look, I mean, clearly the big part of iGaming is working with third-party providers. We'll continue to work extensively with partners in that space. But when I look at all the work that we've done around deploying our own It's cross-product promotional engine into iGaming, the stuff that you'll see us doing around that, all the work we've done around the stability and control. There's a lot of things that we've been able to bring from our experiences around the world into the U.S. market, and we now sit on our own in-house tech stack.

Thanks very much.

All right, and as we continue, since we are running low on time, we would like to ask everybody that saw the question to limit themselves to one. All right, we will continue with Monica Pollard from Citi. Please go ahead.

Oh, hi. Afternoon, everyone. Okay, I'll stick to one then. On the U.S. gross margin, the gross margin was really good in the quarter, 45.1%. Presumably, If I just think about how you've been growing in the different states, there's been some scaling, therefore, of the non-tax COGs. So I'm just trying to understand what sort of initiatives are being put in place there. And also, when we think about the full year gross profit margin, we talked about 43.5%. Obviously, that was excluding the Illinois tax impact. Is that still the guide, the Illinois tax impact, or has that been also increased?

Hi Monique, I think one of the points I just make is to remember the impact of the sports results, which has quite a profound impact, particularly when not all of our foster sales are 25% of the impact on Handel. So that will have a bearing, but Robert, are there any more details you want to add?

I think there's probably a couple cost of sales more broadly here. We now expect it to be roughly 56.8% of revenue, which is very much in line with the previous guidance of 56.5%. When you look at the composition of our cost of sales, we can pull in cost to sales and we will pull over time. You know, if you look at payment costs, for example, you know, we had an increase in payment costs as a function of our deposits and withdrawals system that we've got set up for our customers, which essentially makes it easier for them to deposit and withdraw. And, you know, they love that feature. But, you know, as a percentage of revenue, the payment costs are about 6% for our overall revenue. So it's quite a significant cost, do that in the US. There's actually a system coming in next year where we think we'll start to make some inroads into payment costs. You've got other things as well in cost sales like geo-comply costs that we also think that over time we'll be able to address. So yeah, in line with guidance, there's a number of things that leave us that we think we can put on cost of sales moving forward to stay within the longer-term guidance that we've previously outlined.

All right, our next question comes from Robert Fishman from Moffitt & Nathanson. Please go ahead.

Hi, good afternoon. Peter, in your recent write-up on the similarities between Flutter Edge and Fergie's Man U, you discussed the importance of developing and maintaining a distinct competitive advantage. So I'm just kind of curious if you can talk about your confidence of maintaining or even growing your number one position in the U.S., and if you want to speak about the success of North Carolina as an example.

Yeah, look, Robert, I think it's, I'm pleased you read the article. Look, I think it is important when you look at the business that we've assembled globally and the way that we've been able to do that in a way that empowers each of our local markets. I mean, I think, you know, businesses are trying to do things in a sort of central place, you know, can often get bogged down with, you know, trying to coordinate things around product roadmaps and stuff like that. We think it's really important to have local teams delivering on what's required in the local market. But what we're doing through the Flutter Edge is we ensure that in a small number of areas, we have really good examples of the teams supporting each other. I call that actually what we're seeing here in America with our strength in our casino business. A lot of the teams who are leading that have come from from around the world and I've had great experience in patent recognition of having run big casino operations for us elsewhere. We've been able to bring things like our reward mechanic into the market from our UK business and we've been able to bring technology from other markets as well. So I think what we've done here in casino is a great example of the Flutter Edge coming to life. When you look at the same game parlays, we're the first to bring that to I mentioned earlier that 20% of our customers in Italy use that in the Euros. That's another great example of the Flutter Edge in action.

Our next question comes from Jed Kelly from Oppenheimer. Please go ahead.

Hey, great. Thanks for taking my question. Just going back to the taxes, and I get not implementing the surcharge. But can you talk about, just given your experience in other jurisdictions, how you, Flutter, can be proactive in terms of preventing sort of some of the state contagion, especially if some of your wind margins continue to go up? Thanks.

Hi, Joe. I think you probably sneaked in in terms of a slightly different approach to the point I made earlier. We do operate in a lot of different markets around the world, and I think it's When you look at, you know, there are plenty of examples we can highlight where in some places where they've pushed the tax rates up, they've actually seen the tax take decline. So, you know, these are not, you know, not straightforward decisions for these bodies to take because it may not actually achieve what they're aiming for. You know, we'll be familiar with the Lasser curve. There are optimal points, we believe, for taxation to be set. And we try and spend as much time as we can educating and sharing our experiences with state bodies to ensure that they can achieve the best outcome for themselves and for customers as well.

Our next question comes from Joseph Thomas from HSBC. Please go ahead. And you may be on mute if you're trying to talk. All right, we'll move on. Our next question comes from Simon Davies from Deutsche Bank. Please go ahead.

Yeah, hi, guys. This one from me. Brazil, looks like it's finally set to launch in the new year. Can you just talk a bit about how well you're positioned in that market? And is it one of those markets where you might need to bring in M&A to scale up?

Hi, Simon. Yeah, look, I can remember talking about Brazil in our preliminary earnings call in 2018. We're finally getting there when the regulation is going to pass this time. We are excited about it. It's a tremendous country. I spend a lot of time there. They're all absolutely sort of soccer mad. There's obviously a lot of betting that happens in the market today. I think we're reasonably well placed with our Betfair brand in that market. And of course we also operate PokerStars there as well. But we are ambitious. We like to have podium positions. And ideally, we like to have gold medal positions. And we've been able to do that organically in many markets around the world. But we've also, in time, often resorted to M&A. And we think that when we do that, we're able to apply the flutter edge and supercharge these businesses. So we will work out what we want to do in Brazil. And when we've made a decision, we'll let the market know if there's anything to say.

Our next question comes from Andrew Tam from Redburn. Please go ahead.

Hi, guys. Thanks for taking my question. So at the start of the year, you flagged pretty well that there was a tack towards leaning into customer acquisition. Are you satisfied with your efforts during the first half? Do you think you could have gone harder in that regard? And then just as a follow on, Is there a natural tempering of expectations given the hit to customer LTVs certainly in the Illinois market given the change there? And does that mean there's a reallocation of spend out of that market into other states? Thanks.

Andrew, we have talked in the past about having looked at historical performance and wishing we'd leaned in and done more. um yeah and partly that's because we found that the lifetime values of customers has ended up being greater than we had originally anticipated um i think that you know and that's in part because of you know better retention in part it's been as a stronger cross-sell into into i-gaming it's also been because of the um expansion of our grocery margin to parlay penetrations and things like that uh if you look at the performance in you know, in Q2, you know, I mean, all of those things continue to be true. And so I think historically we would always wish we had acquired more business. I think we did push hard in Q2. We kept it in our guardrails. And, you know, I think the team delivered a great job. We continue to refine our playbook. And if we think there are further opportunities to push and we can deliver the great returns, we will.

All right. And our final question of the day comes from Robin Farley from UBS. Please go ahead.

Great. Thank you. I wanted to circle back to your not having plans to introduce a surcharge. I'm just kind of curious why you wouldn't see it as an opportunity to recapture a significant part of tax expense, not only in Illinois, but also New York and Pennsylvania and maybe even prevent future states that might be following what Illinois did. I mean, if you as a market leader, it seems fairly low risk if the two market leaders both pass along the costs and no one's really at a competitive disadvantage. So I'm just kind of curious why not take that opportunity.

Thanks. Morgan, I dealt with that earlier, and I don't have anything further to say.

All right, now we will get a question from James Wheatcroft from Jefferies. Please go ahead.

Good evening, Peter and Rob. Just a question really around product and development as we go into the next NFL season. I'm particularly thinking about bet in play and how that's going to be incremental to the parlay product, how that will shape over the course of this following season and into next year, please.

Hi, James. I think if we look at Q2, we were really pleased actually with how our investment in live betting helped us. We mentioned that we saw the proportion of customers betting in the NBA playoffs was four times higher than we had done previously. So look, it's definitely helped when we improved the quality of the product and For the NFL, we've got some great initiatives and plans that we plan to get behind the same game parlay lines for the season start. It's an important product for us.

All right. That does conclude the Q&A. I will now hand it back over to Peter and the team for closing remarks.

Thank you, everybody, for joining the call. It's been fantastic to do it from here in our operational headquarters in New York. And I hope all of our U.S.-based analysts have appreciated not getting up in the middle of the night for this evening's sprint. But we're delighted with the performance in Q2 and look forward to catching up with you all soon.

That concludes today's presentation. Have a pleasant day.