William Hill And Flutter Focus On The US In Earnings Reports

The growing importance of US sports betting to previously European-focused gaming giants was on full display in last week’s earnings results from William Hill and Flutter. The numbers were both compelling and competing as both companies try to bolster investor belief in their ambition.

First up, William Hill came out with the claim on Wednesday that it was responsible (in one way or another) for one in every four bets placed in the US by the end of 2019. That was followed a day later with the assertion by Flutter brass that FanDuel had captured 44% market share in the states in which it is live.

Both companies have reason to be so keen to promote their US successes. The drive to establish an operation in the US is central to the message each is telling their investors and comes against a backdrop of issues in various European markets.

A New, Harsher European Reality

The UK, the largest market for both companies, is now well on the road to being a harsher operating environment. The recent ban on credit card betting unlikely to be the last of the new regulatory measures imposed by an increasingly trigger-happy UK Gambling Commission.

Meanwhile, measures to restrict gambling advertising are either in place or in the pipeline in Italy and Spain, the one-year-old Swedish markets providing a harsh lesson in not getting what you wished for, and the upcoming tax rise in Denmark also unlikely to be the last.

No wonder, then, that legal US sports betting markets look like the promised land.

The US Opportunity

At William Hill, US operations account for 8% of the group total for 2019, or $162 million of the $2 billion William Hill generated. That’s a 38% rise on last year.

That compares with a 3% pro-forma fall in international online revenues and a like-for-like 13% revenue fall in the UK retail business, due to the maximum stake allowable for gaming machines in betting shops being busted down to £2 from £100.

Flutter’s US business is far more advanced, encompassing the FanDuel sportsbook and DFS operations alongside the TVG horseracing betting business. Total US revenues rose 54% in dollar terms in 2019 to $480 million, or 17.5% of total revenues of the group’s total revenue.

Again the US business looks good in comparison with the other parts of the Flutter business. Online revenues rose 6%, and Australia was up 14% in Aussie dollar terms. However, the UK and Ireland retail business saw revenues fall 6% due to the same factors affecting William Hill.

Non-profit sector

What both sets of results demonstrate is the US is the beacon of hope for both companies. Indeed, in terms of corporate activity, this is where their focus lies.

William Hill has been busy setting up a media deal with CBS and is awaiting confirmation of long-term partner Eldorado’s conclusion to its Caesars buyout, something that would greatly expand its potential US footprint.

Flutter, meanwhile, hopes to conclude its merger with the Stars Group in the second or third quarter, and with it enhancing its US proposition with the acquisition of FOX Bet.

Even with these enhanced positions, problems persist for the finance directors at both firms. The issue that is causing some vexation among the analysts is when these businesses are going to turn a profit.

Granted, William Hill’s US operation is in positive territory – just – with an operating profit of $1.3 million. But its operations outside Nevada recording an adjusted operating loss of $33.4 million.

Flutter’s US business, meanwhile, also recorded an underlying operating loss of $76.8 million, representing a worsening from the $32 million loss the year previous.

What Are People Saying?

The current losses and the prospect of more as the investment needed for new states racks up have left the analysts struggling to a degree to pick the winners among the companies they follow with a foot in the US.

While some who follow William Hill are enthused (Citi, for instance, says it can see “meaningful upside”), others are less sanguine.

Bank of America, for instance, says the company’s “positioning is less attractive than its peers” (notably Flutter, which it says has the “biggest potential”).

Davy Stockbrokers suggests it is too early to call whether William Hill’s US business will be a long-term winner, and Redburn said the company “lacks scale” in the US.

Nor can the enthusiasm for the US opportunity cannot mask the issues these giants are facing at home or the levels of investment that will be needed if they are to truly establish themselves in these early days of expanded US sports-betting.

But as was noted by the Flutter’s results analysis, it now believes the “total addressable market” for its products will be $10bn (at an unspecified point in the future).

Given the size of the potential target, sitting on the sidelines is simply not an option for either outfit, or any other European-based or European-focused operators. Or as Citigroup’s ex-chief executive once famously said, “as long as the music is playing, you have to get up and dance.” And nevermind that the great financial crisis soon followed.