Paddy Power and Betfair owner Flutter Entertainment (FLTR) has cemented its position as the leading member of the duopoly at the top of the US sports betting and gaming operator tree, as it predicts that the number of potential gamblers will keep growing across the pond through legalisation on a state-by-state basis.

But questions remain about the path of betting reform in key states California, Texas and Florida. Without those, the growth is still significant: Flutter now expects total adjusted Ebitda to surge to over $5bn (£3.7bn) by 2027, compared with the $2.51bn analyst consensus for 2024. These figures, as well as the 15-17 per cent revenue CAGR (compound annual growth rate) to the 2027 target, exclude those three major states where sports betting is largely illegal. 

Despite growing concern over the social impact of the reforms, Amy Howe, head of Flutter’s US business FanDuel, said at the capital markets day last week that she was “optimistic that at some point it will happen” in California, but didn’t put a date on the potential Texas legalisation.

Where the optimism is obvious is in the total addressable market (TAM) figure of $63bn by 2030, released alongside the earnings targets. This is $23bn higher than Flutter’s 2022 forecast, boosted by gamblers spending more, and better-than-expected iGaming market penetration. The company continues to expect sports betting and iGaming to be available to 80 per cent and 25 per cent of the population, respectively, in a mature US market. Berenberg analysts called the $63bn forecast “bigger than expected”, but said Flutter would have good reason to expect rule changes to continue. A vote on sports betting in California failed in 2022 with 82 per cent against the idea. Howe said there was now a “very different approach” to removing the ban this time, including trials. 

However, there is not always a clear path from a change in the rules to immediate sales boosts. Sports betting was legalised in Florida last year, but there are very limited options available, and FanDuel has not been authorised to operate there. 

As the dominant player in the US market, the company is well-positioned if the light does go green. According to Flutter, it had a market share of 46 per cent of sportsbook gross gaming revenue (GGR) at the end of the first half. This was well ahead of its closest US competitor DraftKings (US:DKNG), which had a 32 per cent share, while the third-biggest player BetMGM lagged far behind the top two with a share of under 10 per cent.

Betting on high CAGR

Flutter’s growth in recent years has been driven by progress in the US, where individual states have been legalising sports betting since the Supreme Court overturned a ban in 2018. Its leading market share position underpinned a 51 per cent revenue CAGR and $952mn improvement in US Ebitda between the first halves of 2021 and 2024 in the US. Analysts have penciled in a 17.8 per cent Ebitda margin this year for Flutter, compared with 7.7 per cent at DraftKings. 

At the investor day, Flutter upgraded its US gross win margin target to 16 per cent by 2027, from a current position of 12 per cent. It expects to expand its adjusted Ebitda margin by around 700 basis points by the same year at a company-wide level, and reiterated a long-term US margin target of 25-30 per cent. Analysts at Berenberg said that “the upgraded gross revenue margin remains a key competitive advantage”, but they cautioned that Ebitda margin guidance “does not include potential taxation changes”. 

Flutter’s latest update compared favourably with recent noises from peers. In August, DraftKings cut its current-year adjusted Ebitda guidance down from $460mn-$540mn to $340mn-$420mn, and the business was also forced to backtrack on plans to implement a gaming tax surcharge in certain states. Meanwhile, BetMGM, a joint venture between Entain (ENT) and MGM Resorts International (US:MGM), pushed back a $500mn Ebitda profitability target from 2026 to a vaguer “in the coming years”. 

While Flutter’s US market outlook may be attractive, it comes at a price. The shares trade on 30 times forward consensus earnings, in line with the five-year average. 

Deutsche Bank analysts said that their 10 per cent valuation premium for Flutter’s US business against DraftKings is justified because of the former’s “higher structural Ebitda margin (lower tech and market access costs) and higher US market share”. 

Not just the US

Despite Flutter’s bullish update, investors shouldn’t think that the US is the only place to look for gambling growth. 

Further south, the fast-growing Brazilian market is expected to achieve regulated status next year (Berenberg analysts describe it as a “grey unregulated market” currently). Gambling sector consultancy H2GC forecasts that online gaming and betting GGR will rise from around $1bn in 2019 to $5bn this year, and could surpass $10bn by 2029. 

The growing importance of the market was highlighted by Playtech’s (PTEC) disclosure in its half-year results that its Brazilian operation “continues to grow very strongly”. Meanwhile, Flutter’s $350mn purchase of a 56 per cent stake in NSX will give it a top-five market position in Brazil if it completes as expected early next year. 

Back in Europe, Flutter’s proposed €2.3bn acquisition of Playtech’s Italian business-to-consumer arm, Snaitech, highlights the growth opportunities in another international market. The transaction is also expected to close by the second quarter of 2025.