Duel of fates: How Flutter and Entain are shaping up in the battle for dominance

Heavy is the head that wears the crown and, in the shape of Flutter Entertainment CEO Peter Jackson and Entain CEO Jette Nygaard-Andersen, gambling seemingly has its current king and queen. The London-listed rivals continue to dominate the space, ravenously sucking up opportunities at a breakneck pace. A quick glance at the duo’s full-year 2022 results makes for eye-popping reading for those operators attempting to claw at the coattails of this apparent two-horse race for dominance in the regulated online arena.

Flutter powered ahead with 22% year-on-year (YoY) revenue growth on a constant currency basis to a whopping £7.6bn, while Entain reported a 12% annual rise in net gaming revenue (NGR) to £4.3bn. To put Flutter’s money-churning machine into context, if you added bet365’s most recent full-year revenue to Entain’s, it would still be some £450m short of the leader. And for this, we can thank the jewel in the Dublin-headquartered giant’s crown: FanDuel.

The American dream   

US revenue at Flutter leapt 67% YoY to £2.6bn as FanDuel netted a stunning 50% online sports betting market share. Sports betting revenue jumped 81%, gaming revenue increased 34% and the number of active players soared 49%. It has been a stunning success story for the legacy DFS brand, led by CEO Amy Howe, since the fall of PASPA in 2018. The expectation that the group returns positive EBITDA in H2 would see it become the first profitable online sports betting operator in the US after years of cash burn.

As the rapid pace of sports betting states going live abates, and with the industry at an impasse over any new igaming legislation being waved through, it represents a potential period of consolidation for FanDuel. Analysts were quick to laud the US opportunity for FanDuel following the results, but a 50% market share – with DraftKings, BetMGM (Entain’s half-share of a horse in the race) and Caesars making up ground – will undoubtedly be challenged.

Coupled with a potential rough macroeconomic period, the question is how this runaway success story will stay the course? Edison Group’s Russell Pointon commented: “The group said its growing US business remained on track to be EBITDA-positive in 2023, but it remains to be seen how prolonged inflation pressures and a possible recession later this year impact consumer spending habits across markets.

“Continued investment in safer gambling initiatives is an important priority, especially with the UK’s gambling review white paper looming on the horizon, despite its chronic delays. Flutter will be betting on strong results in the US and further strategic acquisitions to weather the macroeconomic storm, and its diverse range of products will provide some resilience,” he added.

If the storm can be weathered and the challenge withstood, Flutter’s bosses remain confident in its abilities. Speaking to EGR Intel on a media call following the results, Jackson and CFO Jonathan Hill lift the lid on their thinking behind the growth so far. It is yet to be seen, however, if we are now entering the era of a new strategy and if it’s time for the relatively young dog FanDuel to learn a new trick.

Jackson says: “I’m very pleased with how we are doing. What we’ve seen with each state launch is that there are always changes and different quirks, but we’ve managed to work our way through them. Every time a new state comes around, we get better at going to market and I’m confident our playbook is improving as time goes by.”

Hill touches on the ‘Sliding Doors moments’ and fiscal discipline which opened the path to growth. “We’ve always shown discipline in our US business,” he remarks. “By investing more heavily when people were pulling back has absolutely led us to the 50% share we had in Q4 2022. What happened after the Super Bowl in 2022 was the competitive set pulling back heavily from their aggressive offers and we saw that as an opportunity to step in and acquire more business.”

This is now all seemingly leading to a dual listing of Flutter Entertainment, complete with the allure of deep pockets of stateside investors and the opportunities ahead that could eventually lead to the company exiting the London Stock Exchange altogether. There are currently discussions taking place at the upper echelons of the business, with a proposal set to be put forward to shareholders in due course.

So, where does Entain and, more specifically, its JV operation with MGM Resorts, BetMGM, come into play? A 71% YoY rise in US NGR to $1.44bn beat initial expectations, while average monthly igaming customer numbers jumped 51% and sports betting customers increased 61% in Q4 2022 compared to Q4 2021. Take out the outlier of FanDuel and you’d be a pretty happy executive with these results. Add in a 29% igaming share and you’re laughing. But being good sometimes isn’t good enough. Speaking to EGR Intel following the results, Entain CFO and deputy CEO Rob Wood claimed that while BetMGM enjoyed a fantastic year, there was still so much more to come from the brand.

Entain CFO Rob Wood is bullish on BetMGM’s chances of cutting into FanDuel’s market share in the US

Wood muses: “The growth is still tremendous in sports and gaming. In terms of access to [the US] population, we are about half for sports but only around 20% for gaming. There’s a lot more room, but it’ll take time. We are the clear number one in gaming and number three in sports, so we’re working on that all the time.

“Product development never stops. FanDuel do have some product advantages that we are closing out. They’ve got a big sports heritage that we’re chipping away at, so we are absolutely not settling for where we are. The market probably has a run rate of about $10bn right now and we think it’s got about three to four times that to go,” he notes.

At the time of writing just six US states have regulated online casino, though. The floodgates are refusing to budge in a similar way to the tsunami of regulation following PASPA’s repeal, but Entain is banking on a legislative shift in the near future. A majority of industry heads have suggested 2023 is a no-go for new igaming legislation, so Entain will be continuing to look at the long-term opportunity in the US, despite rumours abound of a potential split of the JV once profitability has been reached.

Wood sets the record straight, adding: “I think reaching profitability is something that investors are more focused on than we are. It’s just a moment in the cycle and it happens to land in the second half of this year, but it doesn’t change our strategy. We, as parents of this business, are happy to invest whatever it takes to fulfil our ambition. That’s what we’ve done thus far and what we’ll continue to do. The fact that it becomes self-cash generating is great. It’s a milestone, but the strategy continues.”

It is evidently clear that Flutter and Entain, along with DraftKings, have made the most of the US gold rush. The market share for online sports betting for this triumvirate sits at around 75%. Move early, splash the cash and reap the rewards has worked, providing profitability follows as expected – or at least eventually. But growing negative public discourse around online gambling driven by media editorials, and the upcoming reckoning to be faced in terms of responsible gambling, may well leave the golden goose cooked.

Much ado about something

From the land of hope and glory to the land of nope and gory, the UK has been labelled as the old man in the room for a while. A lack of growth, market calcification, safer gambling measures cutting out high-rollers and a grass-is-always-greener attitude has seen it slip to become one of the less sexy geographies for operators. However, Flutter’s UK brands – Sky Bet, Paddy Power, Betfair and Tombola – and Entain’s brands – including Ladbrokes, Coral and Foxy Bingo – continue to dominate the market, if you discount bet365, that is. In fact, Jackson said he felt Flutter had “got its mojo back” in the UK in H2 2022, while Wood insists the UK will always be a “fantastic market”.

The numbers here can quantify some of the chat. Flutter saw UK & Ireland revenue increase 4%. Break this down, and it is a 56% rise in retail thanks to Covid-19 comparatives and a 1% downturn in online. Entain, similarly, recorded a 9% dip in online, with that figure amounting to a 15% decrease in H1 but buoyed by a 56% jump in retail revenue. And this reflects the statis that the UK finds itself in. Flutter and Entain will continue to hold most of the cards but without much to shout about.

Additionally, both seem more at peace with the safer gambling initiatives that took some revenue out of their businesses. Entain confirmed around 10% of drag on online revenue due to affordability measures, while Flutter confirmed that since implementing the strategy in 2021 it has taken around $150m out of the business. Despite this, there is an upbeat attitude. Wood comments: “Even in a year where your top line is not quite where you want it to be, we’re still taking share. Once we’re through the regulatory shift around affordability then we should be left with both actives growth and revenue growth.”

Active customers hit an all-time high for Entain in Q4. Flutter saw an 18% rise. The shift to recreational players, driven by the shedding of high spenders and a realigned focus on products such as bet builders, has altered the way the UK has come to be viewed. As average revenue per user (ARPU) dips and the state of the UK shifts, what strategy can be put in place with foresight and capital that doesn’t detract from the US opportunity?

Flutter will put a dual listing proposal to its shareholders in April

Writing on his Substack, The State of Online Gambling, Eilers & Krejcik Gaming consultant Alun Bowden said regarding Flutter: “Revenues of £1.9bn is still gigantic. EBITDA of £612m is bigger than most people’s UK revenues. But nobody is forecasting much growth in the future, all the talk is of cost-efficiency savings and of small product and marketing improvements. A lot of the talent is moving to the US, or to other firms, or to other firms in the US.

“And there is a larger existential problem. Flutter UK & Ireland is three brands that overlap, directly compete and have quite big cultural differences. Does the Flutter structure really maximise the potential of Sky Bet? Of Betfair? I find it very hard to form an argument that it does.”

Growth spurt

Looking ahead and at the pair’s track record, the idea of organic growth coming in the near future seems left field. Flutter spent a combined £2bn to acquire UK bingo site Tombola and lottery operator Sisal last year, the former bolstering its recreational UK income and the latter giving it a leading position in Italy. Entain dived in for Croatian leader SuperSport and Dutch operator BetCity, with both deals giving the group instant access to markets with guaranteed share. Wood says the pipeline is “still active” for M&A, with Nygaard-Andersen hinting at further expansion after saying there were still 40 untapped, regulated markets Entain could attack.

When it comes down to the M&A battle, it could well be Flutter’s to lose. Regulus Partners wrote in a note: “Underlying EBITDA of £993m and capex (excluding M&A) of £212m [for Entain] demonstrates strong cash generation, with net debt of £2.75bn unlikely to be a constraint to corporate or investment activity regardless of interest rate risk.

“More notably in terms of scaling is that Entain’s capex is roughly half that of Flutter’s. If both groups spend on development equally wisely, then the compounding effect of Flutter’s scale is likely to tell, in our view.”

As for Entain, while a global powerhouse, there is always a bigger fish. MGM boss Bill Hornbuckle said he had “moved on” from taking another run at its JV partner after previously being knocked back. Entain’s market cap sits at £7.2bn, roughly £900m less than the £8.1bn MGM offered two years ago. Conversely, Flutter is sitting pretty at £24.8bn.

As the scope continues to narrow on the US, there may well be a desire to shed the hoard of global entities for either company to free up cash in the long run. A US listing for Flutter will further swell its wallet. Staying in the fight could see Entain follow suit in ditching London for New York. And the race towards a monopoly rumbles on.