Flutter Entertainment, parent of FanDuel, will dual list its stock in the US on the NYSE under the ticker FLUT on January 29th in addition to its current listing FLTR on the London Stock Exchange (ticker FLTR). The US listing will bring increased attention to the worldwide sports betting and gaming leader, which dominates the US OSB market with a 43% GGR share and, more importantly, a 51% Net Gaming Revenue Share (less bonuses/promos and taxes). Move aside DraftKings (DKNG) for the superior margin, market leading FanDuel.
Flutter acquired FanDuel in Q3 2018 when it was a fantasy sports operator on the heels of the US Supreme Court repealing the Professional Amateur Sports Protection Act (PASPA) opening the floodgates for states to legalize sports betting and iGaming. Since then, FanDuel and DraftKings leveraged their fantasy sports players to carve a de-facto duopoly in the US. In Q3, FanDuel accounted for 40% of Gross Gaming revenue and a more impressive47% share of net revenue, good enough for #1 ahead of DraftKings. In iGaming, their revenue growth of 52% allowed them to claim the #2 market share position at 23%.
We are particularly pleased by the great progress we are making in the US. We are the first online operator to achieve structural profitability, and the strong ramp in EBITDA during 2023 will continue into 2024 and beyond, as our profit margins expand materially.
-Peter Jackson, CEO of Flutter
More importantly, FanDuel has been the first among the OSB players to show profitability, generating $100 million in adjusted EBITDA for the first half of 2023 and approximately $180 million for the full year. For reference, DraftKings while improving its efficiencies will lose $105million in adjusted EBITDA for the full year 2023 (source: Daloopa Data). DraftKings does not expect to reach full year profitability until 2024, where they expect to generate $400million in adjusted EBITDA (source: Daloopa Data).
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The United States represents 33% of overall revenue for Flutter, growing above company average with a move to profitability as seen with an adjusted EBITDA margin of 2.7% for 1H of 2023 (source: Daloopa Data), a dramatic improvement versus the adjusted EBITDA loss of 12.5% a year ago. Note, the US division is in high growth mode as new states continue to legalize OSB and iGaming well below that of Flutter’s more mature geographies, including UK and Ireland 31.9%, Australia 26.4% and International 24.3% (source: Daloopa data).
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Duopoly at Play
FanDuel and DraftKings combine for 60-75% of the OSB market, varying on a state-by-state basis. DraftKings tends to be more competitive regarding total handle (dollars wagered), but FanDuel focuses more on profitability, backing out the promotions pointing to gross gaming revenue.
FanDuel’s Take Rate is Higher than DraftKings
FanDuel offers fewer promotions/boosts/credits and a superior technology platform, thus generating a higher take rate than DraftKings in most states. In New York and Michigan, two of the biggest states, FanDuel generates a 10.5% and 11.4% take rate versus 8.4% and 8.0% for DraftKings, respectively, in 2023. In CT, FanDuel and DraftKings account for90%+ of the handle, alternating the lead month to month, with the third operator being run by the CT Lottery (recently taken over by Fanatics). In every month, except one when they were equal, FanDuel’s hold percentage dramatically exceeded DraftKing’s every month.
NYSE Listing January 29th on NYSE
Flutter is currently dual listed on the London Stock Exchange (LSE) and the Euronext in Ireland. Concurrent with the NYSE listing, Flutter will delist from the Euronext while maintaining its listing on the London Stock Exchange. Flutter will continue to be a member of the FTSE 100.
US funds and investors generally overlook Flutter as it is not part of the benchmarks and is not covered by the research side’s big investment banks and boutiques. One of the impediments for active US retail investors in the OSB space in the US, is the 0.5% stamp duty tax on any shares purchased electronically, making it hardly investor-friendly compared to the standard commission-free trading in the US. Flutter will have volume on the NYSE and will soon be added to benchmarks, whether the Russell and S&P 500and broad analyst coverage. The combination will provide more detail that is easily accessible, increasing the multiple to mirror that of DraftKings.
NYSE Listing will Narrow the Valuation Gap with DKNG
Flutter’s core profitable business from UK/Ireland/Australia/internationally helps fund the investment in the high-growth US market that has lagged in terms of the legal rollout. The US group accounted for 250-million-pound EBITDA loss in 2022 (Source: Daloopa Data). While November’s historic pro-consumer outcomes hurt margins, Flutter remained EBITDA profitable for Q4.
The company issued its Q4 trading update consisting of revenue and hold rates; it could not provide specific EBITDA results nor 2024 guidance. However, qualitatively they pointed to “really good exit momentum” as hold rates improved in December and January. They will file their 13F with the SEC imminently in order to qualify for NYSE trading on January 29th. They will formally report Q4 and full-year results on March 26th.
Flutter trades at 16x ’24 Enterprise Value to EBITDA versus 42x for DraftKings. As Flutter’s US business continues its high growth rate, it will soon become the lion’s share of revenue, and the EBTIDA drag is behind them. In 2024, I would expect at least high single-digit EBITDA guidance for the US as it steadily migrates to the company average and, correspondingly, its EV/EBITDA multiple to increase toward DraftKings through the end of the year.
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