Flutter Entertainment a solid bet for punting success

"Our staff really are passionate about what they do," says Peter Jackson, chief executive of Flutter Entertainment, owner of bookies Paddy Power and Betfair.

He's walking through the Paddy Power trading floor in Flutter's HQ in Clonskeagh, Dublin. In some ways it could be any modern office, rows of desks lined with PCs stand at right angles to the walls. But the screens show horse racing, football, golf, tennis, not what most employers want their workers watching at midday.

Sport is meat and drink to Flutter. The traders, who set the odds on races and football matches and respond as punters’ money flows in, are also fans, lending credence to claims for their passion. There are plenty other fans out there who want to bet against them. Jackson estimates that the sports betting and gaming business is worth $450 billion (€398 billion) globally.

The group's name change, to Flutter Entertainment from Paddy Power Betfair, is meant to reflect its own international ambitions. It is a holding company for the Irish and British bookies and racing form specialist, Timeform, Fanduel in the US, Sportsbet in Australia and Adjarabet in Georgia. It also has a presence in other countries.

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Jackson believes that only 11 per cent of the $450 billion global market is online, meaning that 89 per cent, $400 billion, is not.

In the US "a big chunk" of that is poised to come on stream. Thirteen months ago, the federal Supreme Court declared the Professional and Amateur Sports Protection Act 1992 (Paspa) unconstitutional, paving the way for individual states to legalise betting on sports such as football, basketball and baseball, opening a market potentially valued at $120 billion.

The US has loomed large in his sights for much of his time as chief executive

"May 14th, one day it may become a company holiday," says Jackson recalling the ruling's date. He was barely five months in the job, so the US has loomed large in his sights for much of his time as chief executive. Nine days after the court shot down Paspa, he oversaw Paddy Power Betfair's purchase of a majority stake in Fanduel, a fantasy sports business where fans pit their wits against each other predicting possible results and other outcomes from the day's sports events for cash prizes. Shortly afterwards, it agreed a deal with Meadowlands racetrack and casino in New Jersey, giving it a foothold in the state that challenged the act and became the first to legalise sports betting.

Both were important stepping stones into the market. Before they merged to form Flutter’s springboard, Paddy Power and Betfair guessed that Paspa’s days were numbered. “Independently, pre-merger, they were trying to work out what the right route was to position themselves in the event that America legalised sports betting,” Jackson explains.

That route had two staging posts: a brand recognised by US customers and a list of clients. Betfair had an online casino in New Jersey and TVG, a horse racing business (Paspa did not cover racing). Paddy Power had a fantasy sports start-up, Draft. They found cross-selling TVG to Draft customers relatively easy. "And so it gave us quite a lot of conviction about the quality and benefits of the customer franchises associated with those daily fantasy businesses," Jackson says.

But Draft was too small – the big players were Fanduel and Draft Kings – while testing showed that apart from Australian outfit, Sportsbet, Flutter's brands did not resonate with US customers. "So when we looked at the bits that we had and we looked at the bits that those daily fantasy businesses had, we realised that actually we needed to go out and buy one of those daily fantasy businesses. So we set about talks with both of them and ultimately the business that was very clearly suited from a cultural perspective for us was Fanduel."

Meadowlands gave it a physical presence, needed because it must have servers based in each state to host digital bets struck there. Flutter opened a betting shop there, which Jackson says could end up turning over $1 million to $1.5 million a day. “When we opened the shop up, we produced all these guides trying to explain to people how to bet. Of course, the first customer who walked in put down a quite complex five-leg parlay, which is an accumulator, and it was immediately clear to us that people in America know how to bet.”

Flutter has 50 per cent of the New Jersey market, which current signs indicate could grow to $500 million or $600 million. It has a deal with national casino operator Boyd to give it a physical presence in multiple states, encompassing those the group believes likeliest to legalise next. It is now preparing to get its online business live in Pennsylvania, which recently liberalised. Notwithstanding its retail success, Jackson believes that this will amount to just 10 per cent to 15 per cent of what will really be a digital market.

Flutter could equal the returns that the group's European businesses are delivering within the next few years

The questions are how much and when? He stops short of predicting exactly, but argues that, depending on which states legalise and when, with a conservative 15 per cent market share, Flutter could equal the returns that the group’s European businesses are delivering within the next few years.

Territories with big populations such as New York, intend legalising sports betting, but have yet to do so.

“In one state we’ve got 50 per cent market share and the reason we’ve got such a high market share is we’ve got a great product, we’ve got customer franchises that we can leverage across into sports betting – the daily fantasy customers – we’ve got a great team and we will have all those other things in the other states as well.”

He maintains that Fanduel, which operates nationally, gives it a head start. During a trip to New York, Jackson went to a Brooklyn Nets basketball game where Fanduel was advertising in the stadium.

“You won’t see any other betting brands advertising in New York, because they’re not allowed to at the moment, but we can acquire daily fantasy customers in New York, and, as and when that market opens up, we’ll be able to email them and tell them that they will be able to use their account now for sports betting and off they go.”

All this will cost. Flutter lost £24 million on its US sportsbook last year because it had to spend to attract and keep customers. The figures showed the bill for getting off the ground was £95 million. “Within each of the markets as they open up, clearly we’ll be incurring costs upfront when we acquire customers,” Jackson acknowledges. “It costs us a bit of money to acquire them and then we earn revenue from them. If you imagine you’re doing a huge amount of customer acquisition, there’s a huge amount of cost upfront but then you get the revenues later.”

He notes that the 100,000 or so clients it recruited in New Jersey in the closing weeks of last year and the opening months of this are very valuable, but marketing and customer bonuses meant Flutter lost money on them this time. “But they will make us a lot of money,” he says. “Be in no doubt we’ve positioned ourselves very well to succeed in America, and when we do succeed, this is going to be a very valuable part of our business.”

One of the first sporting occasions I went to with my father was Wetherby races

Jackson hails from Leeds and cut his betting teeth going racing with his father in Yorkshire. "One of the first sporting occasions I went to with my father was Wetherby races," he recalls. After graduating with a degree in engineering, he joined consultancy McKinsey, going from there to financial services, and was working in Halifax Bank of Scotland when the financial crisis struck more than a decade ago.

He left to join Travelex, a private equity-owned foreign exchange and payments business that he sold to Middle Eastern investors. While there he joined the Betfair board in 2013, staying on after the Paddy Power merger in 2016. Meanwhile, he began running payments company Worldpay’s UK division, with the aim of becoming group chief executive, until US player Vantive bought the business.

By then, Paddy Power Betfair chief executive Breon Corcoran had announced his departure. Jackson was meant to help interview potential successors but was available himself and wanted the job. An awkward conversation with chairman Gary McGann followed.

“It was a bit like going for a dance with a girl. Gary sort of wanted to ask me, sort of didn’t want to ask me, if I did want to do it, and I wanted to ask him, I didn’t want to ask him, if he did want me to do it. There was no alcohol involved so it took a bit of time so sort this out, but we did.”

He agrees that corporate governance wonks may not favour this approach, but says that previous Paddy Power chief executive Patrick Kennedy made the same switch.

Knowing the business allowed him to “hit the ground running harder” than if he had arrived fresh.

Much of that running involved the US, but earlier this year, Flutter bought Adjarabet in the eastern European state of Georgia giving it a leading position in a nation that has regulated gambling.

This is a second pillar of Flutter's strategy, buying companies with what Jackson calls a 'podium position' in regulated markets

Adjaranet – "a bit like Netflix meets Skysports" – is Georgia's main entertainment portal. It has key positions on pay points found in banks and shops around the country, which locals use for everything from online banking to paying their bills, making it easy for clients top up their betting accounts.

This is a second pillar of Flutter’s strategy, buying companies with what Jackson calls a “podium position” in regulated markets.

So, what are the odds on the group doing more such deals this year? "If you look on the map between Ireland and Georgia, there's actually quite a lot of regulated markets where we're not in podium positions, but that doesn't mean that there's going to be lots of activity because we're very thoughtful about making sure that we acquire the right types of business, there's lots of businesses we look at which wouldn't meet our tests."

Growing long-standing businesses Paddy Power, Betfair and Sportsbet is the strategy’s third strand. Jackson argues that Flutter is a digital business. In these enterprises, he explains, “the bigger you are the bigger the returns you can make”. For instance, it employs three people in Clonskeagh to compile horse racing odds. The cost is the same whether 1,000, 10,000 or 100,000 bet against those odds, so the more business it can generate, the higher the margins. Flutter can then invest those profits in getting even bigger, or give the cash to shareholders.

The strategy's fourth element is to grow the Betfair betting exchange, which allows punters bet against each other and takes a commission from the winner, in 100-plus countries where it has a presence. This means localising the website, understanding the language, taxes, payment methods and preferences. For example, few people in Brazil bet on horses, but – not unexpectedly – they are enthusiastic football punters.

Flutter wants to operate in regulated markets. While its industry typically regards such jurisdictions as safe havens, Jackson notes that they are not always straightforward. Betting tax increases in the Republic and Australia, and a new UK law cutting the maximum that punters can stake in betting machines to £2 from £100, have changed the landscape in those markets.

He is not unduly worried, pointing out that the market keeps growing as more countries shift from unregulated to regulated.

We are not trying to create some big central function

The group may not rush into all of these markets at once, but as owner of what Jackson says are “challenger brands” it is positioning itself to move where the opportunity is right. But, is there a fear that creating a holding company is a step towards the sort of corporate bureaucracy that could hinder the entrepreneurial approach that set the likes of Paddy Power and Betfair apart from their peers?

“We are not trying to create some big central function. We’ve all worked in those businesses where someone arrives from group and says, ‘I’m here to help’ and you sit there and say, ‘yes, yes, yes’ and they get on the plane and fly home and you get back to what you were doing,” he says. “We’ll never be a corporate bureaucracy.”

CV: Peter Jackson

Post: Chief executive, Flutter Entertainment, owner of Paddy Power and Betfair
Why is he in the news? The betting group has designs on the US market and plans to expand globally.
Family: Married with three children.
Interests: Sport.
Something you would expect: He's spending a lot of time in the air these days.
Something that might surprise: Despite being a self-confessed petrol head, thanks to a father who worked in the motor trade, he cycles everywhere "even in Dublin".