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Flutter warns its Dutch withdrawal could cost £50m

Flutter Entertainment has lowered its earnings forecast for the year due to its temporary withdrawal from the Netherlands and unfavourable sports results during the opening weeks of Q4.

The group, which owns Paddy Power, Betfair, FanDuel, PokerStars and Sky Betting and Gaming, said in its Q3 trading update that adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) expectations – excluding US operations – for 2021 are now between £1.24bn (€1.46bn/$1.69bn) and £1.28bn, compared to previous guidance of £1.27bn-£1.37bn.

Flutter said unfavourable sports results in the first 24 days of October impacted EBITDA by around £60m.

It put the cost of its temporary Netherlands exit at £10m during Q4 2021 and £40m in 2022, with the group’s entry into the regulated market delayed by its decision to only withdraw on 1 October. The £50m cost “assumes we recommence trading in Q3 2022 and that our Dutch operations break even in H2 next year as we invest to re-engage customers.”

Adverse sports results in October will also cost £15m for its US operations, with a loss of £250m-£275m now expected compared to the previous £225m-£275m. Net revenue guidance for its US operations are unchanged at £1.285bn-£1.425bn.

During the three-month period ended 30 September, revenue was at £1.4bn, which was up 9%, or 12% on a constant-currency basis. Within that, sports revenue was up 13% to £906m and gaming revenue up 1% to £534m. The group also recorded a 13% rise in average monthly players.

Revenue from the UK and Ireland was down 5% to £491m, with online and retail contracting by 5% and 6% respectively. A decline in online sports revenue was primarily driven by a staking decline of 5% year-on-year as well as a 10 basis point reduction in net revenue margin to 9.8%. The staking decline was in part impacted by the condensed nature of the comparative Q3 2020 sporting calendar.

UK retail revenues were 9% above Q3 2019 levels whereas revenue in Ireland was down 27%, mainly because of the latter’s slower relaxation of Covid restrictions. As a result, overall retail revenues were around 90% of 2019 levels.

The group saw a 20% year-on-year rise in Australian revenue to £370m. Sportsbet’s stakes were 15%

higher year-on-year while net revenue margin increased by 40 basis points to 11.1%.

Revenue in its international division – mostly driven by PokerStars – was 3% lower year-on-year, with gaming down 6% and sports up 14%. German product and tax changes were a drag on this segment, with revenue up 6% when excluding that market.

US revenue grew by 85% to £280m with FanDuel – now live online in 12 states – accounting for 94% of the total. Sports revenue increased by 97% to £184m, including sportsbook growth of 422%. Gaming revenue increased by 65% to £95m with gaming products now available in five states.

Peter Jackson, Flutter’s chief executive, commented: “Flutter delivered a strong third quarter performance, with double-digit growth in our global player base. This resulted in the group delivering revenue growth of 12% despite challenging comparatives including a concentration of key sporting events in the prior year.

“While a run of customer-friendly results in October have resulted in win margins being below expected levels in the quarter to date, the underlying strength of our business is clear; we have grown our online recreational player base by 46% in just two years. With more international jurisdictions and US states on the path to regulation, we look forward to sustainably growing our global player base further in 2022.”

Commenting on the results, Regulus Partners analysts said the loss from the Dutch market is “a reminder of the risks run in grey markets – the cash flow is nice but capitalising the value is dangerous.”

Regulus added: “Flutter continues to demonstrate that where it has mass market betting-led strength it is a sustainable sector leader. What happens where these characteristics do not apply, either because of the nature of the market or Flutter’s own offer, remains an open question currently delivering lacklustre performance.”

While not giving details of business costs and profitability during the three-month period, Flutter CEO Jackson said the group had been “disciplined” in US marketing expenditure at the start of the NFL season. However, Harry Barnick, senior analyst at Third Bridge, said customer acquisition costs in the US continue to pose a challenge.

“The US market continues to be a strategic growth area for Flutter with success in this market looking pivotal to the future of the company,” Barnick said.

“As regulation opens up on a state-by-state basis, Flutter will be singularly focused on picking up licences and growing market share in the US.

“The land grab is in full swing as Flutter and its competitors spend big to win share in this growing market. As the market matures, demonstrating profitability to investors will become increasingly important.”

Media reports this week said that Flutter was bidding to acquire sports media brand The Athletic. In a response to iGB, a spokesperson the business opted not to comment on the speculation.

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