Flutter Entertainment plc (FLUT) Q4 2023 Earnings Report, Transcript and Summary

Good morning, and welcome to the Flutter Entertainment 2023 Earnings Call hosted by CEO, Peter Jackson; and CFO, Paul Edgecliffe-Johnson. Please note, this conference is being recorded. Please note this conference is being recorded and for the duration of the call your lines will be in listen-only mode. [Operator Instructions] I will now hand you over to Paul Tymms, Director of Investor Relations, to begin today's conference.

Good morning, everyone, and welcome to Flutter's 2023 results call. With me this morning are Flutter's CEO, Peter Jackson; and CFO, Paul Edgecliffe-Johnson. After this short intro, Peter will open up with a brief run-through of our excellent progress in 2023, and then Paul will run through the 2023 financials and also update on current trading and our 2024 guidance. We will then open up the lines for Q&A. We appreciate that the move to a U.S. reporting format, and U.S. GAAP and U.S. dollars will make our results materials look very different from our previous publications. And the IR team and I are on hand today to answer any questions you may have to help with this transition. I would also like to remind you that some of the information we are providing today, including our 2024 guidance constitutes forward-looking statements under applicable U.S. securities laws. The company cautions investors that any forward-looking statement involves risks and uncertainties and is not a guarantee of future performance. There are or will be important factors that could cause actual outcomes to differ materially from those indicated in these statements. These factors are described under forward-looking statements in our earnings press release, our registration statement on Form 20-F and our upcoming annual report on Form 10-K to be filed with the SEC. In addition, all forward-looking statements are based on current expectations as of today's date, and the company undertakes no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law. Also, in our remarks or responses to questions, we will discuss non-GAAP financial measures. Reconciliations are included in the results materials we have released today available in the Investors section of our website. And with that, I will hand you over to Peter.

Thank you, Paul. Before I start and for those of you newer to the Flutter story, I would encourage you to look at the listing day presentation we gave on January 29, which is available on our website. It outlines why we think Flutter is a compelling investment proposition due to the $200 billion plus regulated market opportunity that exists for our products, the scale and diversification benefits we gain from being the global leader with number one positions in the U.S., U.K., Ireland, Italy and Australia. Our Flutter Edge, which harnesses the combined power of our global footprint to create superior returns in each of our businesses and markets, our optimal strategy to deliver on this opportunity and our growth algorithm for translating revenue growth into returns for shareholders. Part of our listing on January 29, we announced our proposal to also move our primary listing to the New York Stock Exchange. Subsequent feedback from both existing and potential new shareholders has been very positive, and a special resolution will be put to shareholders at our AGM on May 1. Should this be approved, we would expect the transition to the U.S. primary listing to become effective by May 31, 2024. Moving now to the performance of the business in 2023, we are delivering on our strategic objectives. In the U.S., FanDuel delivered its first full year of positive further adjusted EBITDA and has consolidated its leadership position in sports across the key months of NFL and NBA activity, capturing a 53% share of net gaming revenue in Q4. This has been achieved by ensuring we have the best product in the market. Our sportsbook product has consistently been ranked as the number one by [ph] Islars and Crytek in the U.S. market, and we are investing to maintain this leadership position. This NFL season, we launched the Parlay Hub and The Pulse, both of which have helped drive parlay penetration higher, which in turn increases our win margin. This included a near threefold year-on-year increase in the proportion of Super Bowl live bets that were Same Game Parlays. This product superiority, combined with our pricing accuracy means our structural hold margin has also progressed well ahead of expectations, reaching 13.5% in Q4. The strength of our product gives us the confidence to continue investing behind the excellent returns received from our customer acquisition investment. In 2023, FanDuel acquired 3.7 million new sportsbook and iGaming players, 19% more than the prior year. Crucially, the payback period on these upfront acquisition costs remain consistent with long-term trends at less than 18 months despite the move to U.S. GAAP, which has increased the proportion of our costs, which are included in gross profit and now form part of the payback calculation. The value of our existing customer cohorts also continues to grow year-on-year, including Sportsbook revenue growth of 25% in pre-2022 states, demonstrating similar characteristics as we see in our other markets. This, combined with our highly disciplined approach to customer acquisition and generosity spend, we believe will drive future year profits and overall value creation. In iGaming, FanDuel Casino is going from strength to strength, becoming the number one brand in the market in January 2024 and has gained seven percentage points of share since July 2022. We said 2023 will be the year we reached product parity with our competitors, and we've locked in exclusivity periods with leading gaming titles, such as Willy Wonka and Fort Knox; signed new partnerships, including the number one iGaming in Las Vegas; and are looking forward to welcoming the Beyond Play team to the Flutter family, which will broaden our sportsbook and multiplayer functionality. We already have a strong pipeline of iGaming innovations in 2024, which sets us up well to deliver further market share gains. I'm delighted with how our U.S. business is performing. We are acquiring and retaining millions of players, and our guidance shows a very significant inflection in further adjusted EBITDA for 2024. Outside of the U.S., strong AMP and revenue growth in UKI and International, including the addition of Sisal, more than offset the previously muted trends in the Australian racing market. The UKI business had an excellent year. The combination of compelling new products and improved promotional efficiency has delivered an additional two percentage points of market share in 2023. In sports, we launched new products, including Acca Freeze, and exclusive markets in our Bet Builder products. While in iGaming, we further expanded our Live Casino offering. The proactive actions we took to put our business on a more sustainable footing in 2021 has left the UKI business well positioned as we enter a period where the white paper business to start to be implemented. We take commitments to say for gambling seriously and have invested $100 million in safer gambling initiatives across 2023, a 25% increase from the prior year as part of our positive implant. In Australia, Sportsbet grew AMPs by 2% to 1.1 million, driven by high levels of retention. However, average spend per player has reduced back to pre-COVID levels. We've also seen a softness in the racing market across the second half of 2023, which we expect to persist into 2024. These market trends have combined with increased regulatory and compliance costs. Since 2019, point of consumption taxes and product fees reaches a proportion of revenue by 10 percentage points, which equates to approximately $150 million in additional costs for the business. The combination of COVID reversion of challenging market and higher rated compliance costs will reduce Australian profitability further in 2024. Our Australian business has experienced significant top line growth in 2019, with compound growth rates of 15% in both players and revenue. We believe Sportsbet's scale from its 5% market share which is broadly in line year-on-year, along with its leadership in brand and product, leaves us well positioned for the future. Finally, in International, our strategy of investing in key focus markets is delivering strong growth across Italy, India, Turkey, Spain, Georgia, Armenia and Brazil. In Italy, we have the number one online share in Europe's largest gambling market, and our online revenue grew by 20% on a pro forma basis in 2023. Sisal's market-leading products and efficient cross-sell from its retail customer base is driving its strong momentum. Junglee in India has adapted well to the recently introduced tax changes, and player momentum remains excellent, with AMPs 53% higher in Q4. Revenue in Turkey grew 36% year-over-year on a pro forma basis despite a material foreign currency headwind as we doubled our footprint and drove increased online adoption and within our Optimize and Maintain markets with efficiencies in our PokerStars business through leveraging the existing technology and marketing resources of our local hero brand portfolio. In January, we completed the acquisition of MaxBet in Serbia and launched an expanded sports-betting concession in Tunisia. These are further examples of the great opportunities we see in fast-growing markets and ensure we are seeing a greater proportion of the $200 billion TAM for our products. To conclude, the business had an excellent 2023. FanDuel has reached an inflection point, where we believe we will generate significant further adjusted EBITDA in 2024, while we continue to see the diversification benefits in our ex U.S. business. Growth momentum is good across the group, underpinned by the Flutter Edge, meaning we are well positioned as we move through 2024. And with that, I'll hand you over to Paul.

Good morning, everyone. Thanks for joining. Given the detailed revenue information we already provided with our trading update on January 18, I'll keep my comments on our 2023 performance to a high level, then I'll update on Q1 2024 trading so far and provide our 2024 guidance. The group delivered a strong performance in 2023 with year-on-year revenue growth, 25% to $11.8 billion and further adjusted EBITDA growth of 45% to $1.9 billion. This resulted in a 230 basis point improvement in our further adjusted margin, a key output of our financial growth algorithm. This growth is structural from expanding our player base, which we have increased 20% year-on-year. On a statutory accounting basis, the group had a net loss of $1.2 billion and cash expenses associated with the PokerStars amortization of acquired intangibles and marking to market the value option over shares in FanDuel. The PokerStars reflects our change in strategy from PokerStars being an individual business to making the PokerStars brand available to our local hero brands like FanDuel, Junglee and Sisal to use in their markets. The increase in further adjusted EBITDA has been the main driver of our adjusted earnings per share growth of 25% to $3.51, and setting the year-on-year movement in the FOX option liability from a credit of $83 million in the prior year to a charge of $165 million in 2023, along with higher interest and tax costs. Adjusted free cash flow grew 63% to $938 million also benefiting from growth in further adjusted EBITDA. Moving to the segments; in the U.S., excellent top line momentum and significant operating leverage drove a further adjusted EBITDA increase of $430 million to $167 million. U.S. AMPs and revenue grew 38% and 41%, respectively, and the scale of our existing player base is now generating more sufficient contribution for our significant investments in new player acquisition, which will, in turn, drive further growth in contribution. Our ability to deploy national marketing strategies and operating leverage in states launched through 2022 drove further scale efficiencies in our investment into sales and marketing, which reduced as a percentage of revenue by 11 percentage points. Outside of the U.S., we grew further adjusted EBITDA by 10% to $1.7 billion. This reflected excellent top line growth in the UKI and our priority Consolidate and Invest market in our international division, offsetting the Australian market trends Peter noted earlier. In the UK&I division, we increased further adjusted EBITDA by 17%, ahead of revenue growth of 14%, with strong operating leverage in sales and marketing expenses due to our market scale. This excellent revenue growth was achieved in both sports and gaming, which grew 11% and 18%, respectively, and enabled us to take significant market share. Further adjusted EBITDA in Australia was 27% lower from the combination of revenue declines and increased taxes. In our International division on a pro forma basis, revenue grew 6%, driven by growth of 14% in our consolidated and invest markets, including an excellent performance from our Italian business, Sisal. Further, adjusted EBITDA margin expanded 200 basis points with sales and marketing expenses 570 basis points lower as a percentage of revenue. Moving now to the cash flow; the group generated adjusted free cash flow of $938 million, 63% higher year-on-year. Net debt remained broadly in line year-on-year. However, the growth in our further adjusted EBITDA means our net debt-to-EBITDA ratio reduced to 3.1 times. This rapid reduction in our leverage rate, combined with feedback received from shareholders, means we are raising our medium-term leverage target two to 2.5 times further adjusted EBITDA from the previous target of one to 2x EBITDA. Consistent with our previous target, when appropriate, we will temporarily flex this up to take advantage of attractive M&A opportunities. This increase reflects the confidence we have in future cash flows, combined with the strong returns we can deliver from efficient capital allocation into both organic investment and M&A. Where there is capital in the business, there's genuinely surplus, we will return it to shareholders. Turning now to 2024. Trading for the year has started well. Revenue for the 11 weeks to March 17 is 23% higher than the prior year's comparable period. As noted in our IFRS to U.S. GAAP conversion materials, PokerStars U.S. has moved from our U.S. division to our International division in line with how the business is managed. U.S. revenue is 56% higher from the for the period from strong Sportsbook staking volumes, excellent iGaming momentum and a positive sportsbook net revenue margin swing of 230 basis points. The large movement in sportsbook net revenue margin reflects the continued expansion of our structural sportsbook win margin, along with the lower comparatives due to our significant investment in launching in Ohio on January one last year and, to a lesser extent, Massachusetts from March 10. In the current year, FanDuel launched in North Carolina on March 10; and into Vermont, a relatively small state, on January 12. Excluding the impact of these new state launches in both years, total U.S. revenue grew by 34% for the period, which is broadly in line with our guidance for 2024. In our business outside the U.S., revenue was 6% higher in the current trading period. Strong momentum in UKI, aided in part by current movements, has more than offset Australian market trends and customer-friendly sports results in Italy. We will do our usual full assessment of our Q1 results in May. But until then, we cannot comment further on current trading. This positive start to the year is reflected in the 2024 guidance we have introduced today. In the U.S., we expect revenue of between $5.8 billion and $6.2 billion, which is a midpoint, equated to year-on-year growth of 36%. We expect U.S. further adjusted EBITDA to increase by nearly $0.5 billion of $710 million, again at the midpoint, and we expect U.S. cost of sales to be approximately 56.5% on a U.S. GAAP basis. We expect 30% of EBITDA to be generated in H1, with Q2 higher than Q1 due to the timing of state launches noted above. Outside the U.S. and using the midpoint of our guidance range, revenue of $7.85 billion represents 6% growth, and further adjusted EBITDA of $1.73 billion represents pipeline growth. This is after a 6% further adjusted EBITDA growth headwind from the Australian business, which is being more than offset by strong momentum in UKI and our International divisions Consolidate and Invest markets, including the addition of our recent acquisition of MaxBet. As always, our guidance is provided on the basis that sports results in line with our expectations for the remainder of the year, current foreign exchange rates and in a consistent regulatory and tax environment. In closing, after a strong 2023 performance, the business has made a great start to 2024. And with that, Peter and I are happy to take your questions. Gavin, please, could you open the line?

[Operator Instructions] And your first question comes from the line of Ed Young from Morgan Stanley. Your line is open.

Good morning. My first question is on the U.S. and your U.S. guidance. It's a strong revenue guide, but at the midpoint, your guidance implies a touch below 30% drop-through to EBITDA from incremental revenue. Your main peer in that market is smaller and isn't leveraging an international business, but they guide to at least 53% drop-through this year. So broadly, could you help us understand your approach to cost of investment, best to help us understand why this should be the case? Or should we just simply think of this as very conservative guidance? And the second question on International. Could you elaborate a little bit on the strategic and operational changes you've made to PokerStars? You've got some commentary about the impact it'd -- it'd be interesting to see think about the revenue and the cost synergies from the changes you've made.

Ed, let me just give you some sort of high-level thoughts, and then Paul can give you the details. Yes, I think you've heard me over the years talk about the U.S. business as one where we are trying to create as big a business as we possibly can do and acquire as much business as we can whilst ever we meet our return period. And that's something which is -- continues to be the case. So we didn't run the business to try and get to an EBITDA positive number last year. It was the math from the business. And look, we're continuing to acquire as much business as we can. And I think it's important to think about in terms of the framework for the business. And we're also trying to get the business to -- think about where the business will get to, not where the business is from a size perspective today. And then from a PokerStars perspective, there are real benefits in being able to bring this great product into our local hero businesses. If you think about how popular poker is in the U.S. market, for example, being able to make that product available within the FanDuel ecosystem, it will bring a fantastic product to the customer base in FanDuel. We've already done it in Junglee. We're going to do it this year for Sisal as well. Clearly, that removes the cost of operating the PokerStars platform in those markets. And so there are some cost benefits. But really, this is around reinforcing the moat in our local hero markets and bringing that sort of leading poker product into those markets.

Thanks, Peter. So in terms of our continued investment into the U.S. market, our cost of sales on a U.S. GAAP basis is going to be, for 2024, 36.5%. Actually slightly less than it was last year. And that is the equivalent of 50% under an IFR basis. So as Peter said, we continue to invest to win new customers wherever we are able to, because the returns are extremely good. It's our number one priority for use of capital in the business. In terms of PokerStars, the impairment there is obviously one-off noncash accounting adjustments to the carrying value of the PokerStars brand on our balance sheet. It reflects that change in strategy that Peter just talked about, from being an individual business to making the PokerStars brand available to our local hero brands, like FanDuel, Junglee and Sisal to use in their markets for which they will then pay a royalty fee. And we expect that when fully enacted, this new strategy will both increase our profitability from PokerStars and will reduce the capital expenditure associated with it. We have talked about the fact that it did come with an old tech stack, so maintaining that was quite difficult for us. The rate at which we've set the royalty fee that the businesses will pay to use the PokerStars brands. That requires us to reduce the value at which we carry the trademark on our balance sheet. So I hope that helps, Ed.

It does. Perhaps just one very quick follow-up on your first answer. You gave a bit of a perspective on where cost of sales might go. I don't know if you plan at some point to update the previous framework for the U.S., but could you perhaps give any kind of a toll on marketing versus betting products in the U.S.

I think that's something that we would talk about at the capital markets event that we are planning to hold later in the year. But I think for now, the framework that we've put out is best guidance that we can give in the market. But thanks very much, Ed.

Your next question comes from the line of Clark Lempen from BTIG. Your line is open.

Thanks. Good morning. I've got two also. Maybe to follow up on the U.S. guidance. I'm curious if you could give us maybe a little bit more detail on some of the KPIs that are underpinning this, like the structural hold assumptions or handle growth. And if we do end up indexing more towards the high 30s or low 40s, would it be primarily market strength and sort of hand growth? Or is there another sort of variable that we should focus on throughout the year that could bring us to that upper end?

Thanks, Clark. Did you say you had two questions?

Sure. The second question is on ex U.S. growth. I'm curious, if we think about 6% for the full year, it sounds like there's going to be a lot of variance between geographies. Possible to help us think about sort of high-level performance between the U.K. and International, maybe relative to Australia on a full year basis.

So yes, I mean, certainly, taking the second question first, Clark. There is variance. You can see that the Australian business is continuing to see headwinds. We have a very good business there. It's a 45% market share, and it's got the best management team in Australia. And so we're very confident on it in the long term. But with a market that is facing regulatory restrictions, additional taxes and where the air has really sort of come out of the COVID ballooned and inflated the market there, it would be a headwind on the International business. And I spoke about that in my prepared remarks. On the other side, the U.K. business is doing extremely well, added two percentage points of market share in 2023 and acquired a lot of new customers, particularly on the gaming side, so really flying there. We're very pleased with the performance of businesses like Sisal in Italy. So sort of a mixed bag on the International side, if you like and in terms of more detail on the U.S. KPIs, nothing we can particularly say now. But we talked at our Q4 sort of revenue update in the 18th of January about the growth in our structural margin or in the fourth quarter, Q4 and Q1 are our big NFL quarters. So they are advantaged there, higher proportion of parlays, which is our highest new product. So we'll come back later in the year when we do our next Capital Markets Day, and if we've got any reflections to add then on the long-term trends and what we manage bring those in then. But thanks very much for the question, Clark.

Your next question comes from the line of Paul Ruddy from Davy. Your line is open.

Hey, good morning, guys. Just two quick ones for me. First is just on the new leverage target, a little bit higher and given how quickly you delever from here. Just wondering, does it flag anything around kind of size of aspirations in M&A? Anything you are updated to say on kind of where would be the top priorities for M&A potentially? And the second one is just back to just the overall market, and maybe a bit more color on hold, if possible, just the extent to which you foresee the promotional environment this year. I know it's probably baked into your guidance in many regards. But just how you're thinking of how promotional intensity might pick up. I think BetMGM and ESPN are both kind of flagging kind of product relaunches during the year?

So let me take the leverage target first. So historically, we said one to two times. Obviously, we were running ahead of that. Now as we look at the business, U.S. listed, cash generative in the U.S. And lower risk, very well diversified around the world. We think that two to 2.5 times net debt to EBITDA is a good rate for us to run at over the medium term. If we see attractive acquisitions, absolutely, we will go after those. And if that means that we expand for a little while and then we bring it down naturally as we delever, then we are happy to do that. And so I wouldn't read too much into that. It's just the natural evolution of the business becoming more mature, generating more cash at lower risk or all around the world. And I think that's sort of two to 2.5 times for our mature business is very sensible.

And Paul, the example of the business that we bought in Serbia earlier this year, I think, is a good example where we use our ability to deploy our products' capabilities, capital into a market and give ourselves a -- ultimately a gold medal. And there's lots of white space opportunities when you look outside the U.S. market. I'm just going to put you on mute briefly because our fire alarm is just being tested. Sorry about that. I mean so you can't really move things up. So from an M&A perspective, to acquire those gold medal physicians in the ex U.S. businesses is important. We also just agreed to buy a small capability in the U.S. market, though, to support our leadership position in our iGaming as well. So will use it tactically if it needs be. But I think it's probably going to be more focused on sort of the ex U.S. business. And whilst I'm talking, I'm happy to give you some thoughts around the sort of how we're tackling the U.S. market. We've always lent in hard whilst ever we meet our return criteria. I referenced in my opening remarks, the levels of payback that we're seeing at the moment, and we're very pleased with the volumes the customers we're acquiring, and we'll continue to acquire as much business as we possibly can on that basis. Clearly, we're operating in an environment where people are -- we had to try and get our fair share of customers. That was certainly the case in Q4 and around the launch of the football season back in September. We were very pleased with the performance in Q4, where clearly the trading results that you see up to the March 17, and we'll continue to push on whatever we can acquire the business with these attractive return criteria.

And just as a quick follow-up, is it sensible to deduct that M&A is the top priority for cash at the moment?

So our priorities for use of cash is firstly is to invest in the business, as Peter was just talking about, to acquire new customers. That's a great return for us. And then we will look at acquiring really good businesses, market leaders; there's podium positions that we like, and we can grow using the benefits of the Flutter Edge. And then if there is capital that is genuinely surplus in the business, we will return that to shareholders.

Paul, the point I would just add, we're in a fortunate position. We don't have to buy anything, right? So we'll only buy it if it meets our return criteria, and that's a really important consideration when we think about M&A.

Your next question comes from the line of Ryan Sigdahl from Craig-Hallum Capital Group. Your line is open.

Good day, guys. And congrats on all the business performance in U.S. listing. I know there's a lot that goes into it. First question, just on Sisal, you've had continued success cross-selling and bringing retail customers online. Just what specifically is driving that online conversion now in a, well, post-COVID world where that conversion would seem a lot more difficult? And then secondly, FanDuel has had some unique access integrated and lower latent digital streams for its -- whether it be MLB Game of the Day or NFL later in the season. But I guess, how much of that is driving and helping the in-game betting metrics that you had, as well as the technology and the Same Game Parlays options that you're offering?

Good morning, Ryan. Thank you for joining us so early. Look, Sisal has performed very well at converting the retail base to online. And if you look at the market share levels that we've got to -- the business is hitting all-time highs from an online penetration perspective in both sports and gaming. We're able to do that because we offer fantastic products to our customers, so there's natural cross-sell journeys. But ultimately, we've got this enormous funnel, which is the lottery customers who are buying their tickets in 1,000 locations across the country. They can scan the back of their tickets, they can access all of the lottery capabilities and then we can cross-sell them into gaming and sports. And so that sort of funnel and pathway has been very attractive, particularly in a market like Italy where advertising is very restricted. So having that strong retail presence in that retail network gives us great access to selling customers there. From a FanDuel perspective, I think the most in thing that's driving our performance is actually the quality of our products. So things like The Pulse, the Parlay Hub, have been really important sources of product innovation for us, have been good at helping to drive customers towards the product. Whilst the low latency streams are important, we're not trying to get customers to do some of the absolute of micro betting in the next few seconds. And so the latency is slightly as important in terms of our focus for the market.

Your next question comes from the line of Ben Shelley from UBS. Your line is open.

Your line is open. Ben Shelley here from UBS. Two questions from me. One on current trading. You've called out some pretty strong U.S. revenue growth, and in the state does here, it looks like you're gaining share quarter-on-quarter from the data we have so far. Could you add some color here and help us understand that there's any special underpinning this, be it promotional strategy or product innovation? My next question is also in the U.S. You've had another strong year to gross win margin expansion, and this looks continuing into Q1. Could you talk a little bit about what are the levers and tailwinds there are for 2024? Specifically, what is the headroom like here on parlay penetration?

Both great questions. I think on the current trading piece, I'll point to the fact that we'll be doing our Q1 results in sort of six weeks' time, and we're providing you with a lot more detail then. Clearly, Q4 and Q1 are the real heartlands for us. It's where you see the NFL and NBA in coming to the fore, and that's where the quality of our parlay product really helps us stand out and deliver for our customers. And look, we're very pleased with the NGR share that we've got at the moment. There's -- in terms of how we think about deploying sort of generosity in our position in the market, it all comes back to this point that -- I sound like a slightly broken record on that, we'll take as much business as we can whilst everyone meet our return criteria. And that's how we judge any investment we put into the market. And we're -- as I mentioned in my opening remarks, we're very pleased with the returns. The point I'd make about the structural win margin, and I'm sure Paul will have some thoughts to add to this is it's really important that people understand that we actually offer the best prices to our customers. So we are offering the best prices in the market. So cheaper than our competitors, and yet we end up with a better margin. And that's because of our pricing accuracy and it's because of our parlay penetration. So it's slightly counterintuitive. I know, but we offer the best odds to our customers but end up with the best margin. And that's -- it's also boosted by the parlay penetration, but it's because of our pricing accuracy. Look, we're not providing any views in terms of where parlay penetration can get to. I'm not sure whether anyone actually knows in America, but we're very pleased with the quality of the product and what we're seeing.

Yes. So I think Peter has really covered off on the sport. Look on the iGaming side, we're also very pleased with what we're seeing there. We've taken a lot of share. We're now the number one brand in the market as of January. We said that we would get to closer to our natural market share, if you think how strong Fanduel is and no signs of that slowing down. So very pleased with the performance we've seen to date, and we're looking forward to seeing what else we can do in 2024. So thanks very much, Ben.

Your next question comes from the line of Monique Pollard from Citi. Your line is open.

Hi, good morning, everyone. Two questions from me, if I can. The first is on the U.S. iGaming. As you just pointed out, we've got really strong USI gaming momentum and you're now the number one brand in the U.S. market as of January. Do you think there's a potential that you can get to just overall number one company in the U.S. on iGaming as well? And then the second question I had was on the U.S. COGS guide. As you say, you're guiding to 56.5% U.S. COGS for 2024 versus 58% to 2023. I'm just wondering within that guide, if there's anything in particular you're expecting to change in terms of tax rate in particular states? Or if you're expecting tax rates to remain the same and you just get some scale benefits and things like your improved hold?

Morning, Monique. You've almost answered the question on U.S. iGaming. We've got tremendous momentum in the business. We're delighted with what the iGaming are doing. And actually, some of the innovations that I mentioned earlier, we've only just deployed. And so we're excited to see where we can take the business to. And just like we talked about in sports, we'll invest as much money as we can do in iGaming whilst ever we meet the return criteria. We set ourselves a market share targets, and we'll just see where and how big that business can get to. But I think the team are doing a terrific job.

Yes, look, the 56.5% is assuming a consistent tax and regulatory environment. As you'd expect, that's in line to the 50% cost to sell on IFRS basis that we booked about at Capital Markets Day back in 2022. So you have a consistent message there. But thanks very much, Monique.

Your next question comes from the line of Joe Stauff from SIG. Your line is open.

Good morning. Peter, Paul, just two questions, please, on year-to-date in the U.S., some of those trends that you had outlined. Maybe specifically in iCasino, iGaming, that growth of 50%. You did provide at least some data points in terms of the breakdown of your OSB. And I was wondering if you could talk about your year-to-date iGaming growth. Does that also include, say, volume and a pretty significant reduction in promo expense year-over-year? That's the first question. Second question, at the risk of not answering it, but March Madness, the first weekend just passed. It's not part of your guidance. It's a pretty significant event, obviously, as we all know. Just wondering if you think it kind of helped your trends or maybe diluted those year-to-date trends that you had provided?

Thanks, Joe. So we are a little restricted on providing more color than what we have in the release under US rules. So I can say that the gaming increases that we're seeing is really volume-driven. We added a lot of customers. Very pleased with the performance and great to be the number one in the market. And in terms of March Madness, yes, I mean, it's great to be in that season. And when we come and talk next mid-May on the full Q1 update, then we'll tell you how that's been going, but more we can say today.

Your next question comes from the line of David Brohan from Goodbody. Your line is open.

Good morning, guys. Two questions from me. Firstly, on the U.K. now that the white paper measures are looking a bit clearer, just wondering if there's any change to your prior guidance about the impact from that? And then secondly, there's been some reports recently and a number of states are looking at potentially increasing tax rates. I think Illinois and New Jersey are two that have been in the news recently. Is there anything you can say on that? And to what extent are tax increases factored into your long-term targets? Thank you.

Morning, David. Why don't I just deal with the first point and then Paul can talk about the tax rate. I mean when we came out and shared our guidance around the white paper of $25 to $50 million EBITDA split half this year, half next year. We haven't updated that because we still stand behind that guidance. So based on what we've seen from the white paper, that's what we think will happen. And that's built into the guidance, which we've given out this morning.

And on any potential tax rate increases, that's not been built into any long-term guidance. And we always -- to be consistent, just talk about the regime that it exists today. So we do continue to talk to states about how they have the best and healthiest environment to make it successful. So as you'd imagine, we're talking to Illinois and other states, but no changes to guidance. But thanks very much, David.

Your next question comes from the line of James Rowland Clark from Barclays. Your line is open.

Hi, everyone. Thanks for taking my questions. I have two, please. Just the first is on M&A, which you've flagged remains a key priority for you under your current capital allocation model. Brazil is a market you flagged previously as being exciting and somewhere you'd look to do M&A. Could you just talk about your playbook for doing M&A there because it's quite a fragmented market and conceivably this is -- key players aren't necessarily for sale. So anything on your strategy for M&A in that market. And then certainly on the structural win margin. I know you got a CMD in the second half of the year, but it's kind of a long way away. So we weren't really getting the updated guidance on 2025 until then. But you're clearly running ahead of your previous expectation. So maybe if you could take us a little bit on where you see the structural win margin moving through 2024 as you -- as is implied or you can back out of your guidance, that would be helpful. Thank you.

Morning, James. So you're on a slight fishing expedition wanting to know where we're going to do M&A. Look, we -- it is part of our strategy. We've been very clear about it. If you read our documentation, you can see that it is a key priority for us. I think if you mentioned Brazil, we're actually pleased with how our business is doing there. We managed a great year-on-year. It's an incredibly competitive environment. We've got 6.5%. I think it was a great result from the team. And what we've seen is that developing product that's more focused on what the local market needs, which we can do because the way the tech is set up, it's not all done centrally on a more perspective basis by market. The more we can do that, the better we're able to serve the local markets. And when I think about the benefits we've had in Italy with the acquisition of Sisal, the product in Turkey, the experience in America, when we have -- the business we just bought in Sisal. When we buy a local hero business, we can provide them with access to our pricing risk management capabilities, other assets we have in the business, know-how, et cetera, we can really help those businesses fly. And so that lab that we think about when we look at International markets from an M&A perspective, and I think we've been very successful at doing that so far.

And look, in terms of the structural win margin, we've said that we'll come back at Capital Markets Day and give some sort of perspectives around that. What can we say for now, you can see that continuing to be strong. And a lot of this is about the type of product that we're selling. Our customers' parlays, it's very popular, and it's the highest margin product. So whilst that continues, then yes, we will continue to see growth in structural margin. But we will look forward to being able to talk more about Capital Markets Day.

Your next question comes from line of Kiranjot Grewal from Bank of America. Your line is open.

Hey, it's Kiran Jot Gurwal here. Just two questions from me. As do you think 2024 should mark the worst of the Australian performance? And then secondly, you touched on M&A a couple of times earlier, could you offer some color on what types of assets you'd be considering? How do you feel about expanding footprint in the lottery category?

Australia has been a difficult market for us for the reasons that I mentioned in my opening remarks and Paul's referenced. If I look at the trading year-to-date, it gives us confidence around the guidance we've provided for this year. Look, clearly, that business has come down significantly as a result of the reversion of customer spend back to pre-COVID levels. I think what's important, when I look at the business, is it's got a very lean cost base in any event. It's got 45% market share. It's got the best brand in the Australian market, and it's got a terrific team. And they're also developing great ideas and products that we use to rest of the world, right? We talk a lot about this as the parlay product, we're enhancing and developing the parlay products off the back of what some of our team in Australia are doing. So not only are they helping us deliver such a great experience of Sportsbet customers, but they're also helping us globally as well. I think from an M&A perspective, I've covered that a couple of times on the call. There is the old bit of capability that we're prepared to fill in, which we did with the Beyond Play acquisition that we've announced and the acquisition of MaxBet in Serbia is a good example of where we'll go into a country and take us a podium positions. I think from a lottery perspective, we like the lottery and how we can cross-sell it into sports and gaming, as we've demonstrated in Italy, or where it gives us access to a sort of monopoly sports and gaming type of service as we have in Chile, where we've recently launched. So it's not all lotteries are the same.

Your next question comes from the line of Joe Thomas from HSBC. Your line is open.

Good morning, Peter. Good morning, Paul.Historically, you used to provide us with a kind of profit bridge where you were able to talk about regulation, in fact, a point of consumption tax results, et cetera, over the year. It's not in this slide pack. I'd be grateful for any details you can give is it's quite helpful to unpick. So request for any more color around that would be question one. And then a second question related to the U.K., where you've increased your GGR share by 2%. I think you said that was in gaming specifically that have driven that. And just perhaps you can just elaborate on that a little bit more, Peter, and how sustainable that is and whether you've taken advantage of sort of disruption that's going on elsewhere in the market as a result of the white paper responsible gambling initiatives?

Joe, look, in terms of those bridges, then the team certainly very happy to talk you through the moving parts. I think if you look at the number of reconciliations that we've provided in this and the complexity of everything that's going on in the business, with move from IFRS to U.S. GAAP, throwing something else into the release would have been made it even more complex. But we're very happy to sort of talk about it. And on the U.K., Peter?

Yes. Look, on the U.K., I think you need to go back and remember that we went well ahead of the rest of the market in terms of getting ahead of the safe gambling changes and the stuff that came out of the white paper. And that's definitely benefiting the business as it's all the great products we have. We're very excited about the Acca Freeze seeing on Sky Bet. We're really pleased with the SuperSub product we just launched Paddy Power, which we've been able to take their knowledge and know-how from the product the Sisal, showing that there's benefits we can take from acquisitions as well as getting to them as well. So look, the gain in market share we've seen, the 2% gain in market share is really -- it's across both products, it's not specific to gaming. You'll have seen from our -- the trading to the 17 of March, gaming is strong. That's off the back of some of the sort of the live products, which are particularly boosting SkyBet. But look, I think the team in the U.K. are executing really well, and I'm delighted with the performance.

Your next question comes from the line of Andrew Tam from Redburn Atlantic.

Can you just quickly talk through your outlook for the gross margin, noting the 43.5% guidance for 2024. Looking back at just where you were in 2022, that was 42%. So 150 basis points increase in two years. How do you expect that to progress to top line scale from here and the operating leverage on the gross margin, especially in the context of some of your competitors talking to significantly great deliveries there? And then secondly, just in terms of your 2024 guide, look, when I backout hub and net gross margin guide, it looks like your cost base is roughly around the $2 billion mark in 2024. That looks formally up a couple of hundred million once you strip that out on the stock-based comp, as I said. Where is that coming through? Is it coming through the G&A line? Or is that coming through sales and marketing as you expect to [indiscernible]?

So look, I mean, in terms of how we run the business and the scale benefit that we have, increasing our group margin is part of our financial growth algorithm. As we add more and more revenue on to a relatively fixed cost base, then we will just naturally expand our margins and our cash flow, et cetera, et cetera. So some of the benefits of the massive scale we have around the world. And in terms of cost of sales, for example, that's aligned with what we talked about at the Capital Markets Day. So you're 56.5% on a U.S. GAAP basis, 50% on an IFRS basis. So we always look at the competitive environment in the markets that we're working in, but not providing any more detail on the line items to saying it's a continuation of the strategy that we've been deploying very successfully for multiple years. But thanks very much, Andrew.

Look, I think we've done now on the questions. And there is one special thank you that I want to extend, which is to the IR team at Flutter. They have done an absolutely monumental job to get all of these materials prepared and ready, translating everything from our previous approach into this U.S. -- new U.S. GAAP reporting format. So a huge thank you to all of them. It's been massive, and I think they've done a terrific job in preparing the materials, which I hope you have been able to navigate your way through them. So thank you to the team.

And with that, Gavin, I think that we can terminate the call. Thank you very much, everybody. Bye for now.

That does conclude our conference for today. Thank you for participating. You may now all disconnect.