Flutter: bookie must capitalise on US success to override heavy UK going

A couple of racing certainties have lengthened the odds for Flutter and fellow UK-listed gambling companies lately. With the ending of Covid lockdowns, fewer people have been using online gambling as a distraction. More importantly, the Gambling Commission, the UK’s wagering watchdog, has been turning its attention to online betting. This follows tough curbs on bookies’ physical premises.

Flutter’s interim results on Friday showed that moves to reduce problem gambling have crimped the UK top line of the business formerly known as Paddy Power Betfair, though group sales were up. Ebitda fell by about a fifth, in line with what the market expected.

More positively, its FanDuel US business in sports betting and online casinos moved into the black at the ebitda level. That pleasant surprise — the company had promised this would happen next year — spurred a jump of 11 per cent in its share price.

Since the US Supreme Court overturned the federal law that banned state betting on sports in 2018, Flutter has moved to grab share. It claims over half of the sports betting market, and a fifth of online casino gaming. In the past three years the US slice of group sales has jumped more than four times to 34 per cent.

Yet Flutter’s former mainstay, heavily regulated UK and Irish markets, remains important, at almost a third of sales. That makes a long-awaited UK government white paper on the future oversight of online gambling very important. Safer gambling initiatives already cost the group £48mn in the first half.

Even after its recent share price surge, Flutter is down over a tenth year to date. Worries are deepening over the UK’s multiyear clampdown on bookies. Ebitda margins have been eroding steadily — from high to low teens in recent years — as its US business has expanded. This explains this year’s sluggish share performance and a valuation near three year lows.

Flutter thinks US ebitda will reverse to red from black in the second half. Stronger progress will be needed in the US to override heavy going in the UK.