Flutter Entertainment Plc and The Stars Group both reported increases in Australian revenue pleasing shareholders ahead of the mega-merger. The gambling giants are set to merge to form a behemoth of online gaming worth A$18.3 billion. No concrete date has been set for the merger.
There are plenty of obstacles to navigate before the Flutter and TSG merger can go ahead. Deciding whether the merger will create an uncompetitive market is the biggest hurdle. Once approved, Flutter and TSG will become a dominant force around the world, including in Australia.
The new company sees Flutter own 54.64 per cent of the combined stock with TSG taking the remainder. Combing both revenue streams of Flutter and TSG creates a revenue stream worth an incredible A$6.92 billion. This gargantuan sum is possible by the combined company enjoying 13 million customers in more than 100 markets.
Both Flutter and TSG released financial trading updates to their respective stock exchanges with both reporting increased Australian revenues.
TSG reported total revenue of US$622.484 million for the three months up to September 30, 2019. This is an increase on the US$571,983, or an 8.81 per cent rise, compared to the same period in 2018.
Australian revenue weighed in at US$71.157 million compared to US$52.243 million, a 36.2 per cent jump. All of this revenue stemmed from TSG’s sports betting division which now represents 35 per cent of TSG’s business.
The acquisition of BetEasy, which TSG owns 80 per cent of, helped this impressive increase. BetEasy acquired 100 per cent of William Hill Australia in April 2018, further enhancing TSG’s Australian revenue.
It was a similar story for Flutter’s shareholders as the company released figures highlighting a 19 per cent rise in Australian revenues. This is revenue of A$119 million in monetary terms.
The company’s Australian division’s performance delighted Flutter’s Chief Executive, Peter Jackson.
“In Australia, we are very pleased with our continued momentum. Sportsbet revenues increased by 19% in the quarter to £119m, driven by good customer growth over the last 12 months and a strong net revenue margin of 11.4%. This represented a 290 basis point improvement year-on-year.”
“The strong margin reflected a number of factors. Firstly, we have seen a 50 basis point structural improvement in expected margin thanks to a combination of ongoing refinement of our pricing capabilities and positive bet mix changes. Popularity of our same game multi-product continued into Q3 with high levels of player engagement helping to drive these positive changes. Secondly, we estimate that favourable sports results contributed to a 170bp outperformance above expected margin during the quarter.”
“With the uncharacteristically high margins reducing customer recycling, stakes were unsurprisingly down 11%. We responded to the bookmaker friendly results by increasing our investment in targeted customer generosity during the quarter and we believe that this will position us well during the important fourth quarter.”
The most likely date to complete the merger is during the second quarter of 2020. Several approvals from governing bodies are required before any deal happens.
Convincing the UK Gambling Commission (UKGC) is a major obstacle to the deal. The UKGC awards licenses to gambling companies and also oversees any potential conflicts in competition. That said, both Flutter and TSG hold licenses with the UKGC so this could help cut potential red tape.
The Australian Competition and Consumer Commission are likely to have a similar stance to the UKGC. Both bodies want their respective markets to have fair competition between gambling companies.
Analysts suggest Flutter will offload its Paddy Power retail arm in the hope that the deal goes through. What is more likely to happen instead is Flutter selling Paddy Power’s digital business to offset the recent acquisition of Sky Betting & Gaming.
Regardless of the hurdle Flutter and TSG face, it is extremely likely we will see this merger happen in the next six months.