Flutter Entertainment PLC (FLUT) 2022 Q4 法說會逐字稿

Good morning, and welcome to the Flutter Entertainment Full Year Results Call presented by Peter Jackson, CEO; and Jonathan Hill, CFO. There will be a chance to ask questions later. But first, I will hand you over to Peter. Please go ahead.

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 provides an overview of why the business is well positioned for future growth and details of our 2022 performance.

Before we go to questions, I'd just like to touch on a couple of items. As announced in mid-February, we've commenced a consultation with our shareholders in relation to an additional U.S. listing. We outlined in the announcement the numerous long-term strategic as well as capital markets benefits this could yield. One point to emphasize is should we proceed with additional listing, it would not change where we're headquartered, domiciled or the taxes we pay.

The only feedback from shareholders has been supportive, and we'll be meeting many more of our shareholders over the coming weeks. At the end of that process, we'll announce results for the shareholder consultation. And until that point, there is very little extra we can say.

Turning to our 2022 performance. We delivered another strong year. Our U.S. business is going from strength to strength, and our advantages are compounding with each new state opening. The recent launches of Maryland and Ohio have been our best yet, providing ever greater -- even greater conviction and positive EBITDA for the full year 2023.

Outside of the U.S., the business carries good momentum into 2023. In UK&I, the product improvements and efficiency initiatives delivered throughout the year resulted in a strong Q4. Our Australian player volumes remain high as the H2 COVID frequency benefit unwound, and we saw increased competitive intensity in Q4.

In international, our consolidate and invest markets is delivering strong growth and now make up 76% of the division. The division is at a growth inflection point. And when combined with U.S. profitability in 2023, will transform the earnings profile of the business. And with that, I'd like to hand it over to Judith for questions.

The first question is coming from Ed Young of Morgan Stanley.

Both questions on the U.S., if it's okay. The first is you gave some detail in the presentation around the cadence of U.S. EBITDA. I wondered if you could do the same for revenue if that's okay, i.e., if I look at previous years, Q4 sort of sets a baseline for the following year and then there's a step up in Q4 with the seasonality of the business. Is it reasonable to expect the seasonality and the cadence of this year's revenue will look similar to previous years? Or are there any other extra considerations we should be thinking about?

And then the second one is on paybacks. On Slide 26, you're talking to below 12-month paybacks given what appears to be more improvement in the way you're doing your state launches and state openings. So I guess that's deeper initial investment, quicker payback as you spoke about historically. You're flat below 18 months back at the CMD. So is that a change that we can think about for this year or ongoing? And how does iGaming's share increases play into your thought process around paybacks?

Okay. Thanks, Ed. Jonathan will pick up the first question.

Yes, sure. I mean it pretty much follows the same seasonality as EBITDA, which is obviously driven by the sporting calendar. The only other thing to say is obviously the EBITDA's shape in Q3 is, there is a bigger spend there, obviously, in sales, marketing and promo around that reactivation as we come into the NFL season. And it's obviously the big acquisition point in the year from new people coming into sports betting. So very much the revenue should follow because effectively the cost base, certainly, OpEx is relatively flat. But it is seasonal based on that calendar.

I think the only thing I'd be able to add that, Ed, is, of course, when there's specific state launches in different parts of the year will have an impact. The start of the football season is always a great way of us and it's the reason we spend a load of money at acquiring customers. And clearly, if the state has launched at a period of time where they haven't been able to participate in football, we'd see in the next football seasons sort of an inevitable step up.

In terms -- look, in terms of the paybacks, I think we were talking specifically on that slide about some of the sort of new state launches and stuff. But look, in general, we're very pleased with the trajectory of our acquisition costs. In fact, I think in '22, they're an improvement on '21, if you look at it on a sort of cost basis. The way we actually look and run the business, is looking at the CAC/LTV dynamics and in terms of those sort of paybacks and we're very pleased with the way in which the business is performing.

We're continuing to improve our structural margins and if we can continue to drive up structural margins and reduce our acquisition costs, it means that the paybacks go well within our target time frames.

Just one technical follow-up. You mentioned in the release material NOLs. Have you given the number for U.S. NOLs in the statement somewhere or have I missed it? Or could you give any color on that?

No, haven't. We've obviously had operating losses over the last few years. You can look at the EBITDA and add something to that around the sort of estimates on depreciation. So there are significant brought-forward losses, which will obviously impact the amount of tax we have to pay over the next 2, 3 years.

The next one is from Paul Ruddy of Davy.

Peter and Jonathan, just 2 questions, if I could. First one is maybe just on the diverging performances you're seeing or we're seeing between UK&I and Australia. So it kind of looks like the UK&I performance is strong and you appear to be taking share there. Australia may be a little bit more challenging in Q4. Could you just maybe talk to the competitive backdrop in both and how you think about growth rates as we go into 2023 and potentially market share expectations?

And the second one is just appears to be some regulatory developments in India, [placing] even in Brazil, popping up on the screen this morning. Just interested in particular your competitive position in India and how that benefits you in the context of positive regulatory developments. And then also maybe just on the negative side, just maybe the trade question on the U.K. white paper. Any kind of thoughts on the recent speculation and if the [performance may take trend] for the consumer from revenues, et cetera?

Paul, that's a very good way to try and get 2 questions in. I think you got 7 in there. But well, we'll try and deal with them as best we can.

So look, Paul, in terms of your question around the performance of the UK&I and Australia. Yes, let me give you some high-level thoughts on it and then Jonathan might follow up with a few more specifics.

I think if I look at our Q4 performance in the UK&I, up 14% when the market was down. I'm very pleased with how the business is performing. We've delivered a lot of product enhancements and improvements over the course of the year. And I think with the World Cup and the energy we put into that, I think we were really pleased with the way that the business has performed. And I feel like we've got our mojo back. So we've got lots of momentum we're carrying into this year.

In Australia, I think it's important to remember the dynamics that we're seeing in that market. And of course, the Australian market is somewhat behind the U.K. in terms of the time it's taken for them to come out of COVID. And so in a Q4, which is their summer was the first sort of summer period they've had without COVID for a number of years. And we undoubtedly were the main beneficiary of COVID as the biggest brand in Australia. And so therefore, we saw -- did see a disproportionate impact on our engagement with our customers in terms of sort of our average player days.

But look, the main thing that happened in Q4 was there was a big step-up in competitive intensity. There was a -- a competitor launched who was spending a lot of money on very attractive odds and most players in the market were trying to bulk up in advance of the changes in the consumption tax, which we've seen happen before.

So we very deliberately leaned really hard into generosity and spent a lot of money. And you can see the growth we saw in AMPs in the quarter, which I think we were very pleased with.

In terms of the -- and I'll let Jonathan provide you with a bit more sort of follow-up on those, and then I'll turn to turn to the regulatory developments.

I think there's a couple of points I'd make on each of these. I think there's a great slide in the deck, which is Slide 30, for those who haven't looked at it, which looks at both the gaming performance and then talks about our sporting performance. I think for me, overarching the fact that our pro forma AMPs are up 14% in Q4, gaming revenue was up 12%, sports revenue, up 16%, really strong results in the fourth quarter.

I think when you look at the progression of what's happened during the year, and that's where Slide 30 gives, I think, a really good picture on gaming, down in the early part of the year as we lapped some of the safer gambling measures. Then we got into the second half. We launched product improvements as we said we would. And you can see that performance in Q4 and the growth, and that's continued on into 2023. And on the sports side, again, really strong performance, very happy with where we were.

Sadly, we had about 300 bps of negative luck in quarter 4, which we had hoped was going to unwind from the prior year, but actually didn't. We had roughly the same negative luck in Q4 as we did last year. So we're not getting a benefit in that number from sort of an uplift in the luck component or sports results component. So really happy with where we are there.

And on Australia, we decided to invest some of the margin we had in order to make sure that we were properly positioned to keep our customer base and to fight back against the increased competitive intensity we saw. And both Peter and I are very happy with where we ended the year. And looking back on that, we would not have done anything different.

Look, in terms of the regulatory developments, what I would say about India is probably, for us, actually our fastest-growing market, up sort of 80%. And we're really pleased with the performance we're seeing there. I think it's nearly our second biggest market in international actually.

So look, it's a great story for us. And I think the investment we made there and the trajectory that our business is on is very, very exciting. There are a number of regulatory views going on, on a state-by-state basis and indeed some federal changes, which we believe will position us well as rummy becomes accepted in more states in India.

I'm afraid I haven't had a chance today to see what the -- what's coming across the wires in Brazil, so I can't comment on that.

With respect to the white paper, I've sort of slightly lost count on how many of these meetings we've been talking about here because we fortunately did talk about it for a long time. We're really keen it gets published. We've made a number of changes. We've taken $150 million of revenues out of the U.K. business. We've made massive strides forward really focused on doing the right thing. And I think the extent to which the white paper can be published as it can encourage other operators to pick up the slack and join us, I think would be very helpful for the sector.

The next one is from Ryan Sigdahl of Craig-Hallum.

Just one on the U.S. I want to talk at a higher level and then one follow-up. So with many operators hoping to get positive EBITDA at some point this year, our thesis is some of those have structural challenges scaling to meaningful profits beyond that. We agree with you guys saying you can and will. But how do you think about the need to achieve positive EBITDA now versus making investments in the near term to build the business that can earn potentially billions in profits longer term?

And did you have a follow-up Ryan? Or do you want me to pick that one up first?

Just on the follow-up, just curious how -- Ohio, Maryland, very strong starts. Just curious how your marketing strategies as they launch playbook have changed or if they're similar?

Yes. Look, I think the point you make about the U.S. is a very important one. And look, whilst we're very confident that the business will be EBITDA profitable this year, I think people need to be careful that they're not so just focus on getting across the line on that.

If you look at Slide 18 in the presentation and that cohort analysis, it doesn't require a lot of imagination to see how when you add in the business that we've acquired this year to that chart, and then you think about what the business starts to look like into '24, the reason we're talking about this being a transformational year, is you'll see a very significant sort of change in the profile of our U.S. business. And look, we're very excited about it.

And we've always taken an approach of focusing on acquiring as much business as we possibly can, whilst we ever have the rights of CAC/LTV dynamics, and that's something we're doing. You've seen us lean very heavily into customer acquisition this year, acquiring more business year-to-date than we did in the first quarter last year.

And look, I think the important thing is that we're compounding the advantages we have in the market. So we're continuing to see higher levels of hold against our handle than our competitors do. The parlay penetration was fantastic in things like the Super Bowl and the product offering that we have there is the best in the market, and we're continuing to develop and improve it. So we have a structural advantage in revenues, and we know that we are more efficient than anybody else from a customer acquisition perspective.

And when you start rolling for those cohorts, I think, yes, we are going to be EBITDA-positive in 2023. But it's actually when you start looking at the trajectory that, that business delivers, which I think is very exciting.

Jon, I don't know if you want to add anything.

Yes. I'd add a slight nuance to the point made, which is some of our competitors are targeting getting to profitability in Q4 of this year. We've never targeted getting to profitability this year. We said it was a resultant outcome of Slide 18. So this is not a be all and end all target. We expect it to happen because of the cohorts. But I think Peter's point is absolutely right. People need to focus on '24 and the '25 potential of where this business gets to because that's, for us, the big story here on the transformation of the earnings profile, the cash flow profile, the deleveraging benefits of '24 and '25 and what that actually means for the group is fundamental.

And look, with regard to the launch in Ohio and Maryland, look, you will know as well as anyone, Ryan, how complex these states can be from a rules and regulatory perspective. We were really pleased with the way that which the team performed to get to a point where we've got sort of 6% of the adult population as customers of FanDuel in such a short order in Ohio and to have 50% of the market was pretty remarkable.

We were clearly leveraging our sort of DFS base hard in the state and I think we've probably got nearly sort of 60% to 70% penetration of our DFS base in Ohio already, which is a sort of new record for us. But look, I think the team refine and enhance and improve the state launch playbook with each 1 that we see, and I'm really pleased with the results that they delivered.

Congrats on the performance. Thanks, Peter, Jonathan. Good luck guys.

Thanks, Ryan.

The next one is from David Brohan of Goodbody.

Just 2 questions for me, both on the U.S. Firstly, on the iGaming side, I think, very encouraging to see the share gains there. Just wondering where do you think your product sits now versus peers? I know in the past, you had mentioned that the product needed some improvements.

And then also, just wondering, is there any updates you can give on the potential termination of FOX Bet in August of this year?

Look, on the iGaming side, we are the world's biggest online casino operator. If you look at our -- the strength of our business in the U.K., which is a fiercely competitive market and those figures that Jonathan just quoted and that are clear in the presentation, we know how to run these businesses, and we're very successful, and look, we are our hardest critic. And I think when we look at the quality of our products in the States, we knew it was not good enough.

We have made some improvements to it, but there's a lot more that we're going to bring to the market. So we're very pleased with the share gains that we've seen so far. But we're not standing still from a product perspective. So we're going to continue to make improvements, which we expect to enhance the offering we have in the market.

With respect to FOX Bet, look, I mean the FOX is a (inaudible) important partner for us. I mean one of the things that's worth acknowledging is that they were transmitting the Super Bowl this year. And actually, rather than promoting FOX Bet, FanDuel was promoted. So I think these subscale operators, very difficult to make money in and the long tail of operators, I think are probably struggling as FOX Bet is. So we'll review what we do with the business at the appropriate time.

The next one is from Clark Lampen of BTIG.

I've got 2 follow-ups. The first is on the U.S. Peter, you talked about parlay penetration and the product offering. I think 2/3 of U.K. customers use BuildABet during the World Cup. Is there a stat you could share around usage rates for a comparable product, whether it's with the World Cup or maybe NFL activity? Just curious what peak usage sort of looks like to level set.

And then for Australia, the trading comments were pretty clear around early year performance, but I'm curious if you could share thoughts around how what looks like really strong player acquisition could begin to either accrue or I guess, offset some of the competitive headwinds that you talked about throughout the year as those cohorts season?

Okay. Thanks, Clark, and I appreciate you getting up early. Look, in terms of your question around the parlay product, I mean, look, I think there's a couple of things I'll share with you. I mean I think first of all, if I take the Super Bowl, it's around 3/4 of our actives bet on a sort of same-game parlay in the Super Bowl. So it's pretty high levels of penetration, not that dissimilar to what we have shared around the bet builder for the U.K. And look, as Conor shared with you the Capital Markets Day, the in-house pricing is really important there. So around sort of 90% of the handle of the parlays is sort of priced in-house. And that means we get to keep all of the economic benefits associated with it.

And so we believe we've got one of the best products in the market. We're continuing to evolve it and improve it and price more of it. And that means that we capture all of the economics associated with it. But most importantly, our customers absolutely love it. So we're seeing really good sort of engagement with them on that.

In terms of Australia, look, I think the important thing for us to focus on in our business, and it's one of the reasons we use it as one of our important KPIs, is this AMP figure. And so we were very pleased that we're continuing to grow sort of engagement in Australia, particularly as people are able to live a normal life in -- for the first time in their summer period.

So if you think about the way that COVID restrictions are working in Australia, back end of 2021, many states were only just coming out of lockdown. So in Q4 in Australia this year, we were really pleased that as people for the first time were able to sort of plan overseas holidays and all those sort of things, AMPs were up 13%.

We have definitely seen a sort of a moderation of engagement. So the average -- so that means the player days are down, so trending back down towards the levels we saw pre-COVID. And that's a phenomenon we're seeing in the U.K. and other markets. And I think, look, we have got these point of consumption tax changes coming into the market. If you're a smaller operator, it will probably -- and you're making a small profit, I think it probably push you into being unprofitable. Last time round, we saw a bunch of people reacting and changing margins and overruns and generosity to try and deal with that. We have the scale to cope with those tax changes and the important metric for us is to keep driving engagement with our customers.

I think that's probably the critical point is that we didn't just behave in an aggressive fashion in Q4 because of the competitive intensity. It's also in the run-up to the incremental point of consumption tax changes because we felt that the strategy that was employed in the business, as Peter said, and they run into the last point of consumption tax for the introduction of this significant point of consumption tax changes a few years ago was a successful one, and we've -- we followed that. And I think the team have actually executed really well in Australia in terms of the approach they're taking and the way they've executed.

The next one is from Joseph McNamara of Citi.

First one is on the U.S. I just wanted to ask about the Super Bowl. In prior years, you offered extremely generous odds for new customers and this obviously had an outsized impact on Q1 win margins. Am I correct in thinking you didn't pursue the same kind of 71 -- 70 -- sorry, 57:1 odds? And kind of if so, can you explain the rationale? And any color on, I guess, the impact for Q1 profitability kind of this year and going forward?

And the second one is on Sisal. Very strong numbers there. What should we expect for 2023 as kind of retail comps normalize? And any kind of ambition to bring product launches such as [Geo] and Tipster to other brands within the Flutter portfolio?

Thanks, Joseph. Maybe I can take the first one. You're correct in that we didn't employ the 56 moving to 57:1 offer this year. We actually ran a fantastic sort of campaign around the ground kick at half time, and that really caught the imagination of punters. But it also did it through the sort of playoff period as well. So we really think we benefitted a lot on FanDuel over that whole period. And actually in the sort of playoff stages, we saw activity up 2/3 year-on-year. So we are really pleased with the way that, that campaign actually went on for quite a long time rather than just being a one and done.

I think the second thing is that the offer that we put in the market last year, we saw just short of 1/2 of those punters being effectively one and done. And therefore, we reevaluated the overall economics. And actually, what we've seen this year is really good value coming into the business. We think the offers that we have in the markets were the right ones for driving medium- and long-term value. So we're very happy with where we ended up in terms of our offer on the Super Bowl and our engagement. And certainly, you can see the sort of market share stats are pretty strong through the start of this year in the U.S.

Yes. And I think I'll just build on that. So Joseph, we think that the -- as Jonathan said, the benefit of acquiring customers in the period of time leading up to the Super Bowl rather than on the day of itself and so the average value customers are requiring is much higher, and we think we've got a much better sort of engaged base.

Actually, when we look at the volumes, as I said, we've already acquired more customers this year than we did in Q1 last year. So undoubtedly, we're -- we think that the change in strategy has been the right one.

With regard to the work we're doing with Sisal. Look, we talk a lot about sort of the Flutter Edge, which is the symbiotic relationship we have with all of the different parts of the group benefiting and contributing as well.

I think if we look at things like from a product perspective, the [Geo] and Tipster stuff are definitely things that we are interrogating and making sure that we use those in other parts of the group insofar as it makes sense. But likewise, we're also taking things into Sisal as well. So they're already now using our risk and trading capability, and when Cash Out was made available from a regulatory perspective in Italy, we're able to sort of do it in a very accelerated fashion because of the capabilities we have elsewhere in the group.

With regards to the retail and online performance, we are very pleased with how Sisal exited 2022, fantastic momentum in their core Italian business, the online business, reaching some more sensible levels of penetration, but we believe there's still a very long way to go.

We were definitely helped in terms of customer acquisition numbers by the enormous SuperEnalotto jackpot of EUR 370 million. And we need to see what happens this year as we operate in sort of normal lottery jackpots. But I think the team have got an excellent capability there in terms of having 1 million customers a week checking their lottery tickets on the Sisal app and using that as a vehicle for cross-selling deeper into gaming. And I think we're also benefiting in Sisal from some of the international elements. So we're really excited about the opportunities that we see in Morocco, Tunisia and, of course, the business we have in Turkey as well.

So look, it's been a great acquisition for us. We're really pleased with the performance and we think that they're on a very positive trajectory. And it's part of what we know, gives us real conviction in the turnaround in the international division.

And just adding to that, I think the thing that in terms of the Italian part of their performance that was most pleasing was when retail came back, we actually -- the team were very -- looking carefully at the performance of the online. But actually, we saw the online continue to grow through this period, which I think shows the strength of the underlying product, but also the strength of the omnichannel offerings in that market versus those who are online only. So we are really pleased with the way the business performed online with retail returning.

The other thing I'd just say is we obviously highlighted in the presentation. We -- the Sisal made GBP 247 million of EBITDA this year. We obviously had paid around GBP 1.6 billion for it, so that's sort of 6.6x. We're really happy with this acquisition, and we look forward to going from strength to strength, both in Italy and in some of the international markets where we've got these fantastic positions. And hopefully, you'll have seen the presentation and seen a little bit of a deep dive that Peter did on the Italian and international business for Sisal.

The next one is from Louise Wiseur of UBS.

It's Louise from UBS. I was wondering if there's any indication you could give on where you are on EBITDA profitability and margin in the kind of like more mature states, so New Jersey, Pennsylvania. And have any of these states got closer to the long-term margin you expect from the U.S.?

And then the second question is on the consumer backdrop. Has there been any change in the consumer behavior in Q4? I think in the past, you said that you were not seeing any impact from the consumer. I just wonder whether that's still the case or if you've seen any change? And is there any differences between the different regions?

In terms of the EBITDA margins, we're not going to comment on a state-by-state basis. We did give a breakdown, I think it was the interims around the sort of EBITDA trajectory in New Jersey. Look, I think the most important thing is aligning the Chart 18 in the deck with the Chart 7, the numbers on 17. You can see the improvement in EBITDA percentage from the overall business as we get the top line driving operating leverage and that flywheel effect. And then secondly, Slide 18, as these contributions from these cohorts come through, the trajectory is very, very clear.

But we're not going to comment on state-by-state basis and then you get into all sorts of questions of allocation of national marketing and this sort of stuff. I don't think it's massively helpful. But I can tell you from looking at the trajectory on Slide 18, you can see that the contribution is increasing in each of the states, and that gives us high levels of confidence of getting to sensible levels of EBITDA in this business going forward as we talked about in the Equity Capital Markets Day.

And with regards to your question about consumer behavior, we're seeing no discernible impact across our business. The [product business] with Tombola or any of the brands in the U.K. or any other markets, we're seeing no impact.

The next one is from Joseph Stauff with Susquehanna.

I wanted to ask about Australian user growth. You had AMP growth of nearly 13%. What's the right way to think about that? Is that -- in the context of where, say, the penetration is in Australia of the adult populations for, obviously, online gaming, is that -- do you read that as customers kind of trying out your product? Or is that, say, new customers in terms of increased penetration in that market?

Yes. Look, Joe, is there anything else you wanted to ask or is that the…

Yes. And then I wanted to ask about Sisal. And with the reopening trade and retail kind of more normalized in Italy and elsewhere in the world, is most of the growth from here, say, more online within Italy?

Okay. Look, in terms of the 2 points, first of all, on Australia, look, we have a very, very recreationally focused business in Australia with Sportsbet. It's a great of mass market products. And if you want to have a better understanding of the brand, I'd encourage you to look at the Capital Markets Day we did which focused on some of the aspects of that during the sort of the COVID lockdown or even have a look at the YouTube channel at some of the creative that they do. They do a brilliant job of activating and bringing excitement to life as they say, in Australia.

I think if you look at what's been driving the AMP growth, certainly there's a degree of reactivation from historical business. But every year, new cohort of customers comes available to us because they come of age in Australia. And you know how important sport is to Australians and actually having a punt as they say is something which a lot of people do for fun and recreation. And so we're the mainstream brand in that market, and that's why we continue to grow our AMPs.

And I think that's supported by our innovative effect of niche product, which has been fantastic for recreational betters, bringing in new recreational betters. And we've got more products and features coming on that in the near future. So watch this space on that.

In terms of Sisal, if you look at the Chart 36 in the presentation, you can see the very strong growth that is occurring in the online space. And as the brand that has significant retail presence, we're able to really participate and drive that off the back of things like the customers who are checking their lottery tickets every week, the million that I referenced. With advertising restrictions, it's very difficult for pure-play digital brands to compete against us in the market and so, look, online penetration is growing. It's growing strongly, and we're capturing a significant share from it. So we're really pleased with the trajectory that we're seeing in Sisal.

On the application of the Flutter Edge in terms of getting our knowledge expertise both into the business but out of the business, we were asked the question on [Geo] and Tipster earlier, there's fantastic opportunities for us to really help and drive growth in that market.

We've got ramped live in Sisal now. We've obviously got Cash Out, which came live very quickly with a lot of expertise and across the group earlier in late '22. So very excited about the opportunities there to help drive that online growth even faster in Sisal.

The next one is from Jordan Bender of JPM Securities.

Can you talk about your penetration rates in your more mature sports betting markets in the U.S. and kind of what those growth curves look like?

And then for my follow-up, kind of to touch on the FOX Bet comments you made, breaking out the FanDuel business from the other investments in the U.S., the loss outside of FanDuel was to the tune of about $75 million during the year, which is a decent size loss. Maybe can you talk about how that non-FanDuel loss might look in 2023?

Yes, in terms of penetration rates, I mean, you'll have seen that all of the states publish market share data. So on a state-by-state basis, we're continuing to perform very well even in the states which launched very early days. And of course, we're performing very well in the states, which we've only just launched.

If we look at our performance in states that we've been in some time, we're continuing to see good performance there. So we're still growing, up 24% in staking in states that we launched in pre-2021 and revenues at 42%. So the strong performance we're seeing in the U.S. is not just being driven by recently launched states. So I think the product is -- the benefits we have are compounding, right? We're continuing to see improvements in our revenue performance. We're seeing more efficient marketing acquisition, and we're able to reinvest that in having better products, better generosity, driving wallet share, driving further customer volumes and really getting that flywheel powering.

In terms of the loss -- in terms of FOX Bet, obviously, as you said, FOX Bet plus PokerStars we need to remember that is the -- that we're talking about is 3% of revenues and 30% loss, that $75 million we'd expect between 1/2 and 2/3 of that to go away if FOX Bet was no longer operational.

The question is how much we want to invest in PokerStars and the fact that we've got shared liquidity across multiple states now. How much do we want to try and drive that growth and try and build that liquidity. So again, we'll have an equation of how much do we invest to grow and build that liquidity pool versus how much do we decide -- well, it will depend on CAC-to-LTVs in those markets at that time how aggressively or not we invest behind the PokerStars liquidity pool.

The next one is from Kiranjot Grewal of Bank of America.

Firstly, just on the U.S., could you give a bit more color on the cost breakdowns? Clearly, marketing is being leveraged, and we'll probably see more of that next year, as you go towards positive EBITDA, but wanted to get a better sense of other OpEx. It looks like it was up over 60% year-on-year. What's driving this increase? And should we see a significant leveraging of that as you move forward?

And then the second question is around -- is sort of building around the AMP question that came up earlier. You've also spoken a lot about focusing on the recreational customer. I think some of your peers are also targeting a similar cohort. Given there's a lot of focus on this, I mean, where are you winning your customers from? Is it from competition? Is it increase in proportion of population betting overall? And I suppose this relates a bit more to the mature markets.

Thanks. I'll take the cost question. Clearly, the business is scaling up in the U.S. as we build out a lot of the functions to get to that sort of sustainable level. There are some -- we've got a range of different cost drivers in the business. We've got some cost base, which are relatively variable. And as we expand states, for instance, we'll take on compliance and legal teams to ensure that we're able to comply with all of those new rules and regulations around each of the individual states. So will get variable costs in those. We've got areas where we've got fixed costs, and that includes areas that sort of like finance and other areas like that.

So the big increase that we've had year-on-year in terms of the cost base is about 2/3 in terms of staff costs as we scale up. There's actually within that, we have the California lobbying costs, so there's some extra costs in the year. Those will obviously drop out as we go forward.

But we feel as if we were getting the business more towards where we need it to be, and then we'll have scaling costs associated with certain functions. We're also clearly looking at where we can take part of my -- part of my new role as COO, will be looking at where we can take learnings and ways of doing things across the group and drive some effectiveness and efficiency into operations across the group and the U.S. are clearly focused on making sure they build their cost bases in a very effective way to be able to service the customers at the right cost base. So yes.

Look, Kiranjot, in terms of your question around AMPs, I think it's pretty straightforward for us, really. We have been very focused on the recreational space for a long time. We've got products which we think are very well suited to and invest very heavily in them.

If I look at the U.K., for example, I'm really pleased with the way in which we've been able to use our new products for that in gaming, in terms of things like this is the Wonder Wheel for Paddy Power, some of the changes we've made around BetBuilder for Sky Bet. Bringing fantastic product innovations to the market it's helped us grow AMPs because people have sort of really engaged with those exciting products we bring.

And when I think about 2023, look, we definitely took share in Q4. You can see that with the very strong performance we had relative to the market. And I expect us to continue to take share in 2023 by growing the top line.

The great products we have are translating into growth in AMPs and other people, in particular sort of catching up with some of the stuff we've done a long time ago on safer gambling, I think we're really seeing the benefits of our strategy come to bear.

The next one is from Daniel Politzer of Wells Fargo.

So a couple of ones on the U.S. First, Maryland and Ohio, you guys are quickly up to 50% plus share there. One, I wanted to see what you kind of would attribute that early success to? Are there changes in the market, changes in your long strategy or just changes in the kind of competitive and promotional environment?

And then also the second one. Your hold benefit in the second half of the year, I think it was 8.5% net revenue margin, which compares to, call it, 6% and change in prior years. I know that there was a little bit of favorable hold, but also your structural margins have improved. So I guess on a go-forward basis, kind of what's a good range to think about? And how should we think about kind of the breakdown between what was favorable sport outcomes and what was the structural improvement in the second half?

Daniel, I mean, when I look at the Maryland and Ohio, I'm very proud of what the team has done. I mean terrific job. We get better and better with each state launch that comes along. Think about the Capital Markets Day and the stuff that Mike and the team talked to you about, we are shifting spend towards sort of national advertising. That helps. We're getting more efficient around our advertising and effectiveness.

But really, we're able to capitalize on our DFS base. So very high levels of penetration in Ohio, which has naturally helped. And our offers, our refer a friend, all the different components of the strategy and as well as having the best product. So I'd say we're really pleased with the performance that we saw in those 2 states.

Jonathan, do you want to talk about the margin?

Yes, sure. I mean year-on-year, when you look at the mixture of luck and promotional spend, those 2 things sort of net out. So most of the uplift year-on-year was actually improvements in structural margin.

We feel good about the 12% number that we talked about for gross win at the Equity Capital Markets Day, and we're on a trajectory to move towards that. So we do expect further improvements in our gross win margins going forwards as we get improved pricing accuracy and improved levels of parlays. So we're confident in the sort of medium-term target that we put out there.

The next one is from Richard Stuber from Numis.

Two questions for me, please. One on safer gambling and one on Australia. In terms of safer gambling, I think in the presentation, you said that 40% of customers use a tool. Could you split out in terms of what percentage of customers use this tool in the U.K. and what use it in the U.S.?

And the follow-up on the U.S. side. Are you starting to see opposition to marketing and advertising in the U.S. or are the comments coming out of New York sort of more of an outlier as opposed to a general sort of nationwide consensus?

And the second question is on Australia. I think you saw EBITDA margin fall by nearly 300 basis points because of the competition in the COVID reversal. Would you expect margins to return this year back towards previous levels? Or do you think now this is the new norm?

Look, I think it's -- if I look at the 2 markets you referenced, I'm really pleased with what we've done in the U.K. We've directed -- directly invested over sort of GBP 65 million across the U.K. to support, promote and educate safer play. And there's lots of proactive measures that we've implemented as part of our Play Well strategy. We've taken at least GBP 150 million revenues out of the business.

The stuff that we've done, the deposit limits of GBP 500 for U.K. customers under 25, the GBP 10 limit on slots, these things are not always included in some of the Play Well tools, right? So I think that the team are doing an excellent job, and we've got safer gambling targets in the annual bonus schemes for all colleagues, which I think is really important. So I think that the U.K. team are doing a terrific job, and we're definitely sort of leading the race to the top.

When you think about the fact that we set those Play Well targets for the group, as America, which is now our biggest division, is going to be -- is going to have to play its part. And clearly, to get to our 75% target, we're going to need the Americans to be at least at that level, there's loads we're doing there as well.

We have been working very carefully with the leagues, the teams and media partners to develop codes of conduct. We've actually done some terrific work with them around advertising which we think will try and take some of the heat out of potential problems with advertising, but we're obviously watching very carefully with the developments we see.

Because it's America, we've got our safer gambling ambassadors, which are very important voices to get out there. So they're not just -- our customers are not just hearing from us. We've actually managed to help lead the industry in the development of 12 common principles around safer gambling leveraging some of our experiences in the U.K. and other markets. So there's a lot going on. But ultimately, the states are going to play a very significant role.

Jonathan, do you want to talk about Australia?

Yes, sure, Richard. In terms of H2, we obviously, as you said, we're at sort of 26% EBITDA margin. We'd expect that to improve probably around 3 percentage points year-on-year. We've got some nonrecurring marketing of around 7 million in H2. We are obviously very aggressive in terms of generosity and that obviously has an impact on cost of goods sold as well. We've got other areas we think we can make some efficiencies.

So we'd expect that to help offset some of that POC impact. So we'd expect to be in the sort of high 20s as a sort of rough guide for this year.

The next one is from Andrew Tam of Redburn.

Just wanted to follow up on Sisal and what's happening in terms of the online space. Are you able to share anything in terms of, say, the margin differential between the retail business and the online segment? And just in terms of that growth dynamic there?

Yes. Look, we know, Andrew, that when we have customers in online, particularly if they've migrated from retail, we see much higher levels of margin for them. And if you look at Slide 37, you can see some of the benefits we see from online. It operates at a higher online EBITDA margin, you can see it at 40% as opposed to the retail EBITDA margin.

Our retail business is slightly unusual because these are not all sort of owned and operated stores and sometimes they're sort of commission. So we see it as slightly different to fall through. But look, the online business that we're acquiring is much more sort of EBITDA positive for us and we're not actually sort of migrating customers from retail to online and so we're actually growing our penetration significantly in online.

Yes. And obviously, with the marketing restrictions in Italy, we don't spend very much marketing, which obviously helps the level of profitability in the online business.

Got it. Got it. And just a second one, just in terms of the guide towards the higher depreciation in '23. I think there's some comments around some offset to that in terms of U.S. tax losses. Can you just clarify just the size of what some of those offsets could be?

Sure. You'll need to look at your model and work out what you think the profitability is and then, therefore, work out what you think the offset is because the offset, obviously, carrying forward from the earlier question on NOLs, you need to work out what your taxable profit is and, therefore, what the tax benefit is from the carryforward losses, which are, as you'll recognize from our losses over the last few years, quite significant. So I'll leave you to have a look at that, maybe chat to the IR team is probably the best way to get through that.

But obviously, the -- some of the depreciation increase is about making sure we've got pro forma, making sure we get all that Sisal in. And remember, some of Sisal is around the concession. So you do get an uplift there from depreciation and amortization around that.

So I'll leave you to work through that with the team, but we feel pretty confident about the offsets.

Look, I think that's the end of the questions this morning. Thank you very much to everybody who's dialed in. Particular thanks to Jonathan. This is the last time he'll be sat next to me helping me with the results. Don't look so happy, for those of you who are dialed in and can't see him first. But, Jonathan, thank you. I really appreciate everything you've done over all the years to help us. We look forward to continuing to work with you to help deliver the Flutter Edge.

Indeed, Thanks.

Thank you, all.

Thank you. Everyone, that concludes your call for today. You may now disconnect. Thank you for joining, and enjoy the rest of your day.