Paddy Power Betfair (PPB) might not be a household brand in the US, but after its acquisition of FanDuel the company can boast real money gaming operations in 45 states.
The company released its first-half results on August 8. Although six-month US profits of just £5 million ($6.44 million) don’t look too interesting, PPB is planning a major expansion in US state-regulated sports betting.
PPB US footprint is massive
On top of its acquisition of FanDuel, PPB has entered into a deal with Boyd Gaming that gives it access to 15 states, four of which have already legalized sports betting.
The US market may currently be small in the grand scheme, but PPB expects to see substantial growth. H1 saw £61 million ($78.6 million) of revenue, up 21 percent in US$ on the previous year.
The company is using two brands for its US business, TVG and FanDuel. Between them, PPB has daily fantasy sports, horse racing and with the launch of New Jersey sports betting, real-money gaming already up and running in 45 states.
Jackson told investors that this gave PPB a real advantage over other operators.
He pointed to the New Jersey market where FanDuel has launched its first sportsbook at Meadowlands Racetrack, explaining that the company already had 100,000 existing customers before the sportsbook opened. Many of these are from the Betfair online casino, the second-largest online casino in the state.
A strategic deal with Boyd provides the rest of the expansion strategy.
The deal gives PPB access to 15 states. Boyd is partnered with MGM Resorts, which is in turn partnered with GVC through a joint venture announced just over a week ago.
FanDuel could lose money for some time
The aborted merger between FanDuel and DraftKings was the reason why FanDuel’s offer during the last NFL season produced disappointing revenues, according to Jackson.
The last few months saw PPB and FanDuel focused on the merger, so the next half-year is likely to see FanDuel continue to lose money. Jackson added that this was also “due to the seasonality of the fantasy sports operations and the launch of the sports betting business.”
Jackson refused to give a date for the introduction of a mobile sports betting app in New Jersey, or for any other innovations that FanDuel may introduce.
The investor presentation did say that online sports betting would be launched in time for the NFL season starting and that the product would consist of:
- A technology solution that combines third-party platform and wallet with a bespoke front-end, and proprietary risk and trading platform
- Expectations of product advantages versus many competitors (e.g. number of markets, user interface)
Key FanDuel deal highlights produced for PPB investors
- 2017 Entry Fees (Handle): $1.2B
- Registered customers: 7M+, across 40 states (c.84% of customers already betting on sports)
- Proprietary platform built by in-house developers
- Revenue $127M & EBITDA losses $23m in LTM
- H1 2018 revenue +4 percent YoY
- 1.9 times more cumulative revenue/equity capital invested than FanDuel’s nearest competitor
PPB produced a slide which summarized its belief that FanDuel will scale quickly:
From the US perspective, PPB has positioned itself well. Now they have to get down to executing the strategy in the expectation more sports betting legislation will soon be on the books.
Paddy Power Betfair Financial Highlights
- H1 revenue up 7 percent, with Q1 flat and Q2 up 13 percent (up 9 percent in period pre-World Cup)
- Good Q2 revenue growth in all operating divisions:
- Online: revenue up 13 percent with sports +12 percent and gaming +14 percent
- Retail: revenue up 6 percent
- Australia: revenue up 19 percent
- USA: revenue up 20 percent
- H1 underlying EBITDA up 1% to £217 million ($280 million), or up 6 percent excluding changes in betting taxes and levies and losses in DRAFT (Q1 flat, Q2 up 13 percent)
- Sportsbook stakes down from £2,962 million ($3,816 million) in H1 2017 to £2,735 million ($3,524 million) in H1 2018
- Full year 2018 underlying EBITDA, pre-US sports betting, now expected to be between £460 million ($593 million) and £480 million ($618 million), reflecting recent trading momentum, the introduction of additional taxes in Australia and the inclusion of losses from the FanDuel daily fantasy sports business
- Combination of Betfair US with FanDuel completed in July, creating a unique platform to address the nascent US sports betting market opportunity
PPB CEO Peter Jackson commented:
“It has been a busy and successful few months for Paddy Power Betfair. We have made substantial progress against our strategic priorities and trading in Q2 was good, with all brands and operating divisions contributing to the Group’s double-digit revenue growth.
In the USA, we were delighted to add FanDuel to the Group’s portfolio of leading sports brands, creating the industry’s largest online business, with a large sports-focused customer base and an extensive nationwide footprint. Our FanDuel sportsbook is now available in New Jersey and with our recent partnership with Boyd Gaming we’re looking forward to launching in further states as the legislation progresses.”
The markets were unimpressed by the figures, particularly the reduced revenue forecast, with shares falling by around 3 percent in early trading.