PokerStars grew 67%: Flutter Entertainment 2020 half-year results

Flutter Entertainment: 2020 Interim Results presentation

Flutter Entertainment absorbed The Stars Group on May 5, 2020, becoming the largest gambling holding in the world. Back then, the company estimated an annual income of $6b. 

Flutter is confirmed as the global leader in sports betting and gaming, and poker now account for 19% of the market share, thanks to the merger with TSG.

The new divisional team was shared during the presentation, with Dan Taylor as CEO of the International market, in charge of PokerStars, Betfair, and Adjarabet. The organization is also divided into UK & Ireland, Australia, and the US.

Overall, Flutter's after-tax profit sank to £9m in the first semester of 2020, 87% less compared to H1 2019, although its balance sheet was highly affected due to the amortization of acquired intangibles and TSG merger costs.

PokerStars: +63% operating profit YOY

Lockdowns around the world forced people to seek other forms of entertainment, and many rediscovered poker. The social aspect of PokerStars was crucial for the results, as the average daily users increased by 70%, despite a relatively low investment.

The PokerStars report (which includes Casino, Sports, and Full Tilt Brands) shows a 40% increased revenue in H1 to £697m, with a poker revenue growth of 38% and casino growth of 51%. Operating profit grew from £220m to £357m, with strong support from recreational players.

It's worth noting that in the pre-disrupted period (before COVID and quarantines), the gaming revenues declined by 3%. The net debt (including TSG) of the company is £2,899m.

The board highlighted that the traffic peak quickly normalized, and the graph shows that games have reverted to normal levels.

PokerStars: business with a huge potential

Flutter concluded that the PokerStars' high profit margins were due, in part, to underinvestment (particularly a negligible one in direct casino acquisition). They will significantly improve this situation as follows:

• Marketing: The budget will be increased from 14% to 25% as a percentage of revenue to match the market standard. 
• Promotional generosity: Flutter will change the current rewards model that exclusively focuses on customers enhancing poker ecosystem, and highlight that over the last 5 years, a deliberate reduction in promotions was implemented;
• Product, technology, and customer experience: major investments will be performed in markets where customer perception is behind competitors.

One of the major conclusions is that Flutter's compliance procedures must be applied to PokerStars, to ensure organic growth over time.  

Although the assessment of legal and regulatory risk on each international market has not been completed, Flutter has identified a small number of underperforming jurisdictions and will be leaving those markets during H2 2020. Curiously,  PokerStars recently relaunched in Slovakia without a license.

The cost of measures to improve PokerStars' compliance gambling is expected to be £65m. 

Conclusion

Flutter Entertainment acknowledges that the online poker market is competitive, so they have to invest in customer experience. The changes are not going to happen overnight, but they agree that they need to invest more as such large EBITDA numbers won't repeat anytime soon.

Most likely, investments will be projected to enhance the casino division, as many of the customers they captured in poker can be kept with other gambling products.

Will we see a change in the unprofitable PokerStars rakeback model? All points to major changes in that area, so new promotions can be expected in the mid-term.

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