Yahoo Finance Paddy Power’s owner faces the hard yards in America’s sports betting boom
In the weeks leading up to the 2016 US Presidential election, Paddy Power paid out $1.1m to customers betting on Hillary Clinton, so certain was the gambling website that she would emerge the clear winner.
Such was the bookie’s confidence in Clinton, its spokesman admitted at the time that if Donald Trump won, Paddy Power would face a double payout and “some seriously expensive egg on our faces”.
Flutter Entertainment, the £27bn owner of Paddy Power, will be hoping its next bet on the US proves more fruitful.
In just five years, Flutter has become one of the leading betting firms across the Atlantic. Its US betting brand FanDuel trumps well-established casino brands such as MGM and Caesars in market share terms.
In January, its chief executive Peter Jackson described the US as Flutter’s “natural home”, announcing plans to switch its main stock market listing from London to New York.
While its move represents a blow to the ailing London Stock Exchange, which has been languishing amid an exodus of companies and low valuations, it is plain to see why Flutter’s bosses have fixed their eyes across the Atlantic.
Sports betting has exploded in America after a Supreme Court decision in 2018 began allowing states to set their own gambling laws. Since then the Dublin-headquartered bookmaker has taken pole position.
Flutter’s total US operations brought in $4.5bn (£3.6bn) in revenues in 2023 – higher than the $3bn (£2.4bn) contributed by its UK and Irish business. The US now accounts for 38pc of all Flutter’s revenues. A major draw of moving its primary listing is the potential inclusion in American indices such as the S&P 500.
“What Flutter has done is been strategically ahead of everyone on everything,” says William Woodhams, the chief executive of bookmaker Fitzdares.
Just days after the Supreme Court ruling, Flutter made its move by acquiring a majority stake in FanDuel, a popular fantasy sports app with millions of users.
“Everyone knew what was going to happen in America and everyone knew you’d have to throw a lot of money at it,” says Woodhams of Fitzdares.
FanDuel already had legions of sports fans signed up, and had spent millions on advertising campaigns and endorsements from A-list celebrities such as Snoop Dogg and Floyd Mayweather to entice customers.
“FanDuel and [its closest rival] DraftKings had used Wall Street money to plaster the United States with advertising,” says gambling industry consultant Andrew Tottenham.
“FanDuel was there to provide a product for 21-year-old jocks who didn’t want to bet illegally. By that point it had this amazing database of people that you knew would just start gambling,” adds Woodhams.
Gambling firms quickly found there was no shortage of demand for legal betting once states began to open the doors to the industry in 2018. “[Americans] are just as passionate if not more passionate about betting. And they’ve got more sports they tend to bet on,” says Paul Girvan, chief executive of PKC Gaming & Leisure Consultancy.
Americans wagered almost $120bn on sports in 2023 – a rise of 27.5pc on 2022 – according to figures from the American Gaming Association (AGA). That translated into revenues of around $10bn for the growing industry.
In a presentation to New York investors earlier this year, Flutter said it expects the combined US market for sports betting and online gambling to be worth around $40bn by 2030.
The eye-watering sums up for grabs have sparked a goldrush among companies desperate to cash in. As well as the big casino firms, many of the best-known players in the UK have invested heavily in the US.
But in many cases turning a profit has proved a struggle because of intense competition, high costs, and the complexity of dealing with different rules and regulations in dozens of individual states.
A major problem for some has been the sheer amount of cash needed to get customers on board with free bets, promotions and other gimmicks. “Acquisition costs are the greatest costs in online gaming,” says PKC’s Girvan.
In 2021, Flutter said it had already spent more than $1bn on marketing FanDuel since the 2018 deal. By May 2022, FanDuel said it was spending about $290 per new customer, which was taking an average of 12 to 18 months to pay back.
“Last year, we had to pay to acquire those customers. This year, those customers delivered a positive contribution, and of course, we’ll also acquire a whole bunch of new customers as well,” Flutter boss Jackson told reporters in March.
“It really is about the strength of your balance sheet and how long you are willing to keep paying for business,” adds Tottenham. “Smaller companies are falling by the wayside. They’re pulling out of markets because they have no path to profitability.”
Flutter’s spending spree appears to be paying off, after FanDuel reported its first full year of profitability in 2023. But others are yet to reach that point. 888 Holdings, the owner of William Hill, said last month it is considering a sale or exit of its US consumer business, blaming high costs and red tape.
“We have concluded that achieving sufficient scale in the US market to generate positive returns within an accelerated time frame is unlikely,” its chief executive, Per Widerström said at the time.
Flutter still has some hurdles to jump in its quest to conquer the US. The heavily populated western state of California has the highest GDP of any state and a thriving sports industry, but sports betting is still illegal there.
Attempts to legalise it have so far failed in part due to opposition from Native American tribes, who have a monopoly on casino gaming in the state. There are around 70 tribes running casinos in California, generating around $8bn in revenues.
“The tribes’ position is that you’re not going to get into this market in the way you’ve gotten into other US markets. They’re not going to let them in on that unless it’s done their way,” says Girvan. Even if it is legalised, Girvan believes it is unlikely the tribes would agree to any deal that risked their prominence.
Meanwhile, Flutter’s fortunes outside the US have been mixed. Its UK and Ireland sales grew 14pc in 2023, but in Australia, which accounts for around 12pc of its business, revenues fell by 7.1pc. Flutter has warned the “challenging” market and increased regulatory costs will hit its profitability there in 2024.
At the same time there are growing signs of a public backlash in the US as worries rise around the social impact of gambling.
“If there’s one thing that created the backlash in Europe to online gambling, it’s the amount of advertising,” says Tottenham.
“Us involved in the gambling industry, we live in a bubble. What we don’t understand is there’s a lot of people out there, don’t like it, don’t want it, don’t want it in their living room and don’t want this constant barrage. It is creating a backlash, and that will feed into what happened over here, which is more restrictions on the industry.”
Charles Ritchie, co-founder of the charity Gambling With Lives, which supports families bereaved by suicides linked to gambling in the UK, adds: “The loosening of gambling laws in the US will have serious consequences in the US just as it did in the UK.
“More access to mass-advertised, highly addictive products will not only mean more people addicted but many more suicides, and the government will be forced to act.”
Calls for tighter regulation and higher taxes on gambling companies are also growing. Last month the New Jersey senator John McKeon sponsored a bill proposing to strengthen protections for consumers and raise the rate of tax on online sports betting and casino gaming in the Garden State to 30pc from 13pc and 15pc respectively.
McKeon has been quoted as saying the funds from this would go to prevention and treatment programmes for gambling harms. Flutter’s Jackson said in March the company was doing “a lot of work... to make sure that we lead from the front” on responsible gaming initiatives.
For now, Flutter is winning big with its bet on the US. But as the darker side of the US gambling boom becomes ever more evident, the betting giant and its rivals may find tougher times are on the cards.
