Flutter Entertainment plc (FLUT) Earnings Call Transcript & Summary

Good morning, and welcome to the Flutter Q3 Trading Update hosted by CEO, Peter Jackson; and CFO, Paul Edgecliffe-Johnson. Please note, this conference is being recorded. [Operator Instructions] And I will now hand you over to your host, Peter Jackson, to begin today's conference. Thank you.

Thank you, Courtney. Good morning, everyone, and thank you for joining our Q3 trading update call. With me this morning is Paul Edgecliffe-Johnson, our CFO. Hopefully, you've had a chance to review our statement this morning. Firstly, I'd like to talk to you about some important developments of the group before Paul will take you through the Q3 numbers. We've had another strong quarter with revenue growth of 13% despite customer-friendly sports results. In the U.S., FanDuel maintained its leadership position and have started the new NFL season with great momentum following the lull in the sports calendar across the summer. Ahead of the new NFL season, the team has delivered a multitude of new product innovations for customers to sustain our product leadership in the market. These include market-leading new products that react to trending action by allowing customers to bet on the most compelling in-play action and expanding our range of player prop markets for in-play bettors where we continue to offer the widest proposition in the market. We've further enhanced our promotional toolkit by launching profit boost tokens, a mechanic that's proven very successful for Flutter in other markets, providing us with greater optionality for how we reward our players. These innovations have landed well with players, and the pipeline of further innovation remains strong. This has resulted in FanDuel maintaining its market leadership with a 47% NGR share, including a 55% share in September following the resumption of the NFL, in line with our year-to-date NGR share of 52%. In iGaming, last year, we outlined our strategy to improve our propositions for casino players. We've been making significant improvements across our product offering and promotional capabilities, which are delivering excellent results. FanDuel is the fastest-growing gaming brand and is now the #2 in the market, and we are confident of taking further share. Our U.S. business is in a great position as we head into the key months of the sporting year. FanDuel will be the first operator to deliver full year profitability, and our continued high level of investment in player acquisition at compelling returns will drive a ramp in profits into 2024 and beyond. In the group outside of the U.S., we've continued to deliver growth in line with our 5% to 10% revenue framework despite some headwinds. In the UK&I, the business is performing exceptionally strongly, with our brands delivering new and engaging products to our players. We've led the industry in taking proactive actions on safer gambling, and we look forward to working with both governments and the Gambling Commission from the White Paper consultations. The combination of a highly recreational player base and strong product propositions is driving market share gains. In international, we hosted sell-side analysts in Milan last month to give them a deeper understanding of the opportunity that exists in our international markets, and the slides are available on our website. MaxBet, the local hero acquisition we announced in September, is giving us an exciting platform to grow in the Balkans, repeating our proven strategy of acquiring the best local player and improving its growth and profitability through the Flutter Edge. In Australia, while we remain the clear #1 operator, the racing market has continued to be soft, albeit still well ahead of pre-COVID levels. This softness, combined with increased regulation and taxes, is resulting in a greater revenue impact than we previously anticipated. Sportsbet has a fantastic position in the market, and we are focused on maintaining its leadership for when the market returns to growth. Lastly, on our proposed additional U.S. listing, we have submitted a draft registration statement with the SEC and look forward to engaging with our review process in the coming weeks. We've chosen to list on the New York Stock Exchange and expect this to become effective in Q1 2024. As a consequence, we'll cancel our UNX listing. We recognize this may impact certain shareholders, and we provided details on our website which will hopefully answer all your questions. We'll provide a more specific timeline for the UNX delisting and U.S listing in due course. And with that, I'll hand you over to Paul.

Thanks, Peter, and good morning, everyone. As Peter outlined, Q3 was another strong quarter for the group. We added over 1.5 million new players, up 16% year-on-year, which translated into 13% revenue growth. In Sports, customer favorable outcomes in Premier League and European Football were a 12 percentage point headwind to revenue growth in the quarter, taking it from a 16% to a 4% increase. Gaming is performing exceptionally well, with double-digit growth in all divisions, driven by delivering compelling content to our players and cross-selling Sportsbet players to gaming. Turning to the divisions. And in the U.S., revenue grew 20% despite a 170 basis point swing in net revenue margin due to lapping favorable sports results in the prior year. In sportsbooks, revenue increased 12%, with strong staking growth of 38% being offset by the swing in sports results year-on-year. The product improvements Peter noted earlier are driving significant structural gross win margin increases, up by 80 basis points versus Q3 last year. In casino, strong delivery against our gaming strategy resulted in 52% revenue growth, taking us to a 23% share of the market. We continue to make significant investments in customer acquisition, driving a 37% increase in new sportsbooks and casino players in the quarter. When combined with significant operating leverage in future years, we are well set for continued strong growth in both revenue and profitability. In the group ex U.S., revenue increased 5% on a pro forma basis, with good momentum in the UK&I and international, partly offset by a softer Australian market. In the UK&I, revenue increased 11% due to strong growth in gaming and expansion in our structural sportsbook revenue margin and greater adoption of Betbuilder products. In Australia, revenue declined 7% despite AMP growth of 2%. I'll touch more on the outlook for the Australian market later. Finally, in International, our high-growth Consolidate and Invest markets, which make up 78% of the division, grew 11% in the quarter, and the division as a whole by 5%. Turning now to the outlook for the rest of the year. FanDuel is expected to be the first sports betting net operator to deliver a full year profit in the U.S., with adjusted EBITDA of approximately $180 million in 2023 from revenue of approximately $4.7 billion. This should represent a near 50% increase in revenue year-on-year and a near $500 million sweetening in profitability. Profitability ramp will continue in 2024 and beyond, driven by significant top line growth and material expansion of our profit margins. In the group ex U.S., adjusted EBITDA is expected to be approximately GBP 1.44 billion. This expectation reflects the midpoint of our prior guidance range adjusted for GBP 50 million of adverse sports results and GBP 30 million of foreign exchange movements. The strong underlying momentum in our UK&I and International divisions is offsetting the Australian headwinds, showing the benefits of our diversified portfolio. Whilst it's difficult to read the market so far ahead, our expectation is that the softer Australian market will continue into 2024 with a single mid-digit decline, which will now limit our ability in the near term to offset the impact of the previously announced Victoria point of consumption tax increase. In India, a very exciting market for the group, where we are well positioned with our Rummy brand, Junglee. The previously announced changes to GST from 18% on GGR to 28% on deposits is expected to result in 2024 profits growing GBP 30 million less than we had anticipated, and will likely push out the ramp in profitability to getting -- from getting to a scale position by 1 to 2 years. We are also investing in the group capabilities to ensure we truly harness the power of the Flutter Edge, and this combined with U.S. listing-associated costs will see growth in our corporate cost base. So in summary, we are very pleased with the ongoing growth trajectory of the group, and in particular, the strong player growth and structural margin increases we are achieving sets us up well for enduring profitable growth. The exciting trajectory of growth of our U.S. business is on track to transform the earnings profile of the group, which in turn will provide us with significant financial flexibility. I'll now hand you back to Peter.

Thank you, Paul. So with that, we'll turn it over to questions. As this is a quarter update, we'll be keeping the Q&A section to around 30 minutes, so I would ask you to limit your questions to 2 to give everyone a fair chance. If we do run out of time, it's the IR team on hand to help with any questions you may have. Courtney, back over to you. I'm just waiting to see where the operator is if you just bear with us, please. Apologies. It looks like the operator has dropped off the line. If we all just stay on here, we're hoping they'll rejoin and they'll be able to patch the people who've queued up for questions here shortly. Sorry.

Apologies for the inconvenience, I am standing in for the operator. The first line is open for Ed Young from Morgan Stanley.

Can you hear me?

Yes, we can. Thank you for bearing with us, everybody, and apologies for the delay of the previously. Courtney disappeared. So I'm pleased to go back to normal things. Ed, as I hear from you, I thought we just need to sit here on our own. Do you want to go ahead?

Yes. Sure thing. So, my first question is on the U.S. Can you help us understand the Q3, Q4 phasing for U.S. revenue, please? Obviously, your guidance implies nearly GBP 1.3 billion revenue in Q4 that's maybe double Q3. And that's a larger sort of quarter-on-quarter sequential improvement than peers are talking to. And if I look versus your close to peer guidance, it's back up to being about 25% bigger than the midpoint of their guide versus a single-digit cap this quarter. So clearly, there's some very wonky phasing quarter-on-quarter. Can you us understand what's driven that, please? And then my second question is on Australian racing softness. You referred to it and you've given the sort of guidance into next year. Can you just talk through exactly what you're seeing in racing and how it's different from your prior expectations?

Ed, let me just quickly go forward with the Australian one, and then [indiscernible] talked to you about the phasing, Paul, sorry, I should say, will talk about the phasing in America. If we look at it in terms of, look, the market is definitely soft. The market events are actually performing well. So we are pleased with what we saw in the Melbourne Cup recently. AMPs, as we stated, are up, but we are seeing a decline in the number of bet days and also in ARPU, which is particularly impacting the racing part of the portfolio. I think some of it is that the engagement was driven very high through COVID, and there's been some sort of unwind from that. And I think we'll also continue to drive great product innovations in Sports but we haven't been able to land this successfully in racing, which I think is also impacting it. Paul, do you want to talk about that phasing?

So look, on the phasing, as you said, we have continued the guidance for revenue and EBITDA for the full year. If you look at 2022 and you look at that with a sports adjusted basis, i.e., taking out the luck element, it was a Q3, Q4, 1/3, 2/3. And then as you say, that's roughly in line with what the guidance for the full year would indicate. Obviously, it's difficult for you guys to see through those numbers sometimes, but hopefully, that helps.

Okay. Can I just -- can I sort of follow up? Because if I look at the quarter-on-quarter perhaps from Q2 into Q3, it's also sort of quite different from peers. So I just wanted to understand, you talked about NGR share. And is there anything particularly going on with you think promotional activity versus peers when thing goes the market that's different? Or is there anything you'd like to flag on that side?

Ed, I suspect there's a bit of looking at [ our peers ], no one has to say mixes us with the sort of sports gaming thing, but [indiscernible].

NGR, we think is the right metric to look at and -- because that does take account of generosity coming through. So 47% NGR for us, which is up 5% year-on-year. And it's good that now we've got 9 states that are publishing that, and we are encouraging the rest of the states to do the same because I think that's really the metric that matters. And I think that demonstrates our strength, our NGR share in sportsbook is 50% more than DraftKings. And I think that's the key metric.

We'll take our next question from Clark Lampen from BTIG.

Maybe I can just put a little bit of a finer point on some of the U.S. comments. Just to be clear, you're not really modeling in any sort of change in share, any real uptick in promo or anything other than sort of a mean reversion in hold rates to get to that sort of GBP 1.3 billion, the midpoint of the guidance. Is that correct?

We don't think things are changing exactly. So it's just a reversion to the mean, taking out the Sports results from Q3, Q4 last year.

Is there anything baked in for an uptick in sort of competitive intensity around that? And maybe, Paul, I guess if we step back from just sort of a discussion around the end of year, as we think about, I guess, the medium-term guidance that you guys have provided for sort of '24 and '25, is -- should we think about, I guess, the conditions being similar, i.e., we're not expecting substantial improvements in or adjustments in share improvements in the promotion rate or hold rate, things of that nature? Any clarity would be helpful.

Clark, I mean we have operated in this market for many years now, and the market has remained incredibly intense from a composition perspective. We don't anticipate the back end of this year being any different, and we don't expect subsequent is really different. We've always been very focused on acquiring as much business as we possibly can do, whatever it meets our acquisition to lifetime value sort of dynamics. And we've been very pleased with what we've been able to acquire this year. Paul will comment on how we see some promotional spend sort of changing things in the market. But we will acquire as much businesses as we possibly can be whilst ever we meet our hurdles. And I believe the market is becoming more rational. I think that's actually a positive thing for all participants.

So I think you've got a couple of components that drive customers to choose the apps that they prefer. The biggest one actually is the functionality, and FanDuel wins on all the aspects of functionality. If you look at the latest Eilers & Krejcik report, I think it's the first time there's been a clean sweep on -- for any operator, winning on every single metric. I think that will help. We continue to have very strong offers, promotional and generosity offers. We brought in profit boost tokens now, and they're being well received by our customers. We've got significant further increases in customers who are using parlays, and parlays are obviously a higher-margin product for us. 80% of NBA players so far have used a parlay this NBA season. So that's all heading in the right direction. Great product, great generosity and that's what's delivering the sort of market share that we're seeing.

Our next question is from Monique Pollard from Citi.

Just two questions from me. Focused on the U.S. again. So the first is, when I look at the U.S. for this quarter, the mix versus continued expectations was win margin driven, and in particular, when I look at the gap between the net win margin, 6.8%, and sort of the normalized gross -- or not even a normalized gross win margin but actual gross win margin taking into account across sports results, it seems like this quarter was really quite promotional, more in line with wonky promotion levels in terms of free bets, which tends to be a very promotional quarter given the Super Bowl. So what I'm trying to understand is a couple of things. One is, how do you think about promotional intensity in the context of results? So do promotions get scaled back from results are very favorable because the customers are already getting that benefit or not? And then how should we think about that promotional intensity versus peers? Is it that you're ramping up promotional activity because you're facing market share gains by the #2 player in online sports betting? And how will that ramp your promotional intensity to help you to take share back from the #2 operator?

Look, Monique, let me give you some thoughts, and I'm sure Paul wants to sort of dive in as well. It's important to remember that the -- there's two things happening in the quarter 3 period. The first of all, there's not a lot of sports, and then suddenly, it's going to be there's a step-up in the launch of the NFL and then you get into the NBA. So it's actually it's a quiet period from a sports perspective but a very intense period from a sort of customer acquisition and reactivation perspective. And so there is actually a lot of promotional activity in this quarter. I think it's a much more important quarter actually for customer activation than the Super Bowl would be. And I think it's just important to bear that's in mind that Q4 and Q1 are then, obviously, the very big quarters from a -- from a sports content perspective, which we always see us playing to our strengths. To be clear, we have not altered our posture in the market as a result of what other people are doing. We've always tended to be very focused on acquiring as much businesses as we ever can do as so ever it meets our return criteria.

And in terms of the margins, there's a few moving parts. I mean we've talked about the win margin because of the very strong Q3 last year. So the shift to Q3 '22 to Q3 '23 is 170 bps. We're growing the structural margin, and that's driven by the continued take-up of parlay bets. Spoken about that before, that's about 80 bps. And then you've got the profit boost tokens coming through, and that's about 90 bps of a headwind at the GTR level. But the combination of those is what takes us down to that level.

The final part that Monique asked, actually, is about how we think about generosity with regards to favorable and unfavorable sports results. And of course, this is a relevant question not just for America, but for any of our businesses. And clearly, we do manage our generosity as a function of what we're seeing from a sports results perspective. So we would have pulled back in the U.K. when we saw those very favorable results in September. And correspondingly, earlier on in the year when actually results were difficult for customers, we would have been leaning in and providing more generosity. So it's actually it's this advancing metric for us to some extent think about.

Got it. Okay. And that's the same in the U.S., you would say?

Everywhere we operate, we use that concept.

The next question comes in from the line of Ryan Sigdahl calling from Craig-Hallum Capital Group.

Two questions for us. Peter, you mentioned the NFL had an uplift on market share. But additionally, [ Bet List ] historically outperformed even better on NBA. You have any metrics you can share on market share business trends since the season started in late October? And then secondly, just internationally, thinking back to other times in history when how we've had statistically better win rates for the customer-friendly ones, how quickly can you recoup those? I guess do you see a bigger and faster reinvestment back into bets?

No, Ryan, I mean we obviously, we're talking about Q3 today, and the NBA has only started relatively recently. But I'm very pleased there with how the business is performing. And if you look at historically, our strength has always been when sports are back on, firing on all cylinders, and you know that we have a really, really compelling product for the NBA, which always, I think, disproportionately favors us. So we're excited to see what we deliver in the course of this NBA season in Q4 and Q1. The way that we sort of historically have talked about the impact of favorable results is degrees of recycling. There are different metrics we've looked at historically to sort of assess how fast those sort of benefits flow back. But it's more of an art than a science.

The next question comes from the line of Paul Ruddy calling from Davy.

Peter and Paul, just a quick question just on the U.S., just on the innovation piece. Could you maybe just give us some context on just where you think your product sits and what the new big blocks of product innovation, you alluded to some of them earlier in the call, are? And maybe just with reference to where you think the competition set is in the U.S., both the #2 operator and maybe the tailer operators and what the kind of various gaps you see there. And the second thing is just on India. I think you alluded to maybe a GBP 30 million downgrade from the GST in 2024 or a headwind from this. And just thinking about the phasing of that profitability, is it sensible to kind of just think of that GBP 30 million moving as an outlook contribution into 2025? And would you expect a slower or a stronger ramp than that thereafter?

Thanks, Paul. Well, I mean I could -- this is a great question in terms of sort of product advantage. I can speak for a long time about the long list of advantages that we have in the market. Really, this isn't just my view. If you look at what Eilers & Krejcik can tell us, as Paul referenced earlier, for the first time an operator swept the board with the #1 in all categories. Now I was delighted to see that was FanDuel. We have always had a leadership position from a product perspective. And it's not -- we're not sitting still. We're pushing hard on innovation and we're moving quickly. Whether it's things like our live same-game parlays, which you have a more sports with less friction than our other operators; our Parlay Hub, the sort of popular bets, which is sort of a sorted feed of trending picks that we have for customers. The Pulse, which is servicing more compelling narrative-driven in player betting opportunities; the Reward Machine that we have in casino. But it's not just the sort of product things we talked to, it's also an important sort of opportunities, things like our Quick Deposit Mechanism, which allows customers to top up their balances, part of the bet placement process. We know how important it is to make the site easy to use, and these types of capabilities are really important. In terms of account creation, we have a sort of prefilled fast track sign-up process. So we're investing right across the stack. I don't know whether, Paul, you want to talk about the Indian stuff now?

Yes. So in India, Junglee, a great brand. And we had very high hopes for it having hit its profit infection point in 2024, but the change in GST is going to push that back. It's a little difficult to tell whether it's going to then bounce back into '25 in full. We thought in '24, we would go from sort of a breakeven to about a GBP 30 million profit basis. So that could come through in full in '25. We might only see half of that. It really depends on just how quickly we can adapt there, but it will come for sure.

Next question comes in from the line of Kiranjot Grewal calling from Bank of America.

Just two questions from me. Firstly, I would like to unpack for the Australian impact heading into next year. I think we already had the warning on H1, but it looks like there's more headwinds in '24. Could you just share some color on how much of this is FX versus taxes versus underlying performance? And then secondly, within your release, you've outlined some softness in Italy. Are you seeing any market pressures here? And as you enter into Q4, how do you think Italy will perform? I'm just conscious that you're lapping a World Cup period where Italy didn't participate last year.

I mean why don't I just quickly touch on the points in Italy, and then I'll let Paul talk about Australia. I mean I think whilst Italy weren't in the World Cup last year, I mean still there's obviously a lot of interest in engagements in it, which I think is obviously important. Q3 has been much more competitive, but we've maintained our discipline. I think the Sisal team are doing a fantastic job. We're confident we took NGR share in the first half. And I think in Q3, we have to remember that September was also a bad, particularly bad month from a sports results perspective. And we have a sort of disproportionately large sports business compared with our sort of key competitors. I'm not particularly concerned about short-term fluctuations. I think the team are executing well and doing a good job.

And in terms of Australia, the underlying performance of the business is good in that our AMPs are up 2%. We're the biggest business in the market. The racing market, having gone up a lot since COVID, is now going back. And so we're calling that out. So that's what we saw in the third quarter. It went back more than we had anticipated in the third quarter. Best line of sight for us is that will continue in the fourth. And then if we lap that out into 2024, that's going to have an impact on the amount of money we'll make from that business line. So it's still a good business for us. It's still well ahead of where it was back in 2019. But yes, it is going to be a profit headwind in '23 and then a continued profit headwind in 2024, as we called out.

The next question comes from the line of Joe Stauff calling from SIG.

Two questions, please. Paul, you had mentioned the 80 bps in third quarter structural improvement in the U.S. Is that maybe the right expectation of structural hold improvement going forward, whether it be fourth quarter and 2024, I guess, based on the analyst meeting the -- a range of 50 to 80, so if you can comment on that? And then number two, if you were to -- maybe just comment on the competitive environment in UK&I. You guys are taking share. And I was just curious maybe from this side of the pond about how many other operators you see that are adjusting properly in front of the White Paper versus not?

Joe, thank you for getting up so early. I mean let me just quickly touch on the U.K. point, and then Paul can talk about the margins on hold rate. If I look at the market share data and look at Q3, amongst the Tier 1 operators, basically the market was sort of flatter to plus 1%, and we're 11%. So we're clearly taking share. I think the team are doing a tremendous job. We got ahead of the changes from a White Paper perspective early last year. And I think it's set us in very good stead through the course of last year and this year. But we're also making some very considerable product enhancements, the stuff we're doing with the [indiscernible] for Sky Bet, the backorder product for Paddy's. We're also seen very significant growth in gaming in the U.K. And a lot of that is driven through the product changes we made as well, such as the introduction of live products on the Sky brand, which have proved to be very popular amongst that really recreational customer. So we're undoubtedly performing well and taking significant share. And I think we're pleased that other operators are also implementing these changes. And I think maybe the whole market in time will have to get there.

And in terms of the margin improvement, Joe, yes, really, really pleased with the 80 bps improvement. This is about the quality of the product, which has been significantly enhanced. We talked at the Capital Markets Day last year about getting to a 12% level there, and we're already at 11.5%. So rapid improvement and still some way to go, but we're not giving inter-quarter guidance on that, but really pleased with the performance.

The next question comes in from the line of Alistair Johnson calling from BNP Paribas.

Just two from me, please. Firstly, on the U.S., I appreciate you haven't guided on 2024. But given what you were saying about not altering your posture based on what your competitors are doing, does that also apply to your market investment next year, given we've heard DraftKings talking about lowering marketing costs in absolute terms in 2024? And then on Australia, is it fair to interpret your comments on maintaining market share as meaning you will invest in customer acquisition, potentially at the expense of short-term EBITDA? And what gives you the confidence that sort of that's the right approach that the market will come back in the long run?

Alistair, I mean I'll give you some quick thoughts on it. Look, I mean we set out the leverage opportunity for the business from a marketing perspective at the interim. So we don't further need this is necessary to be pulling around those levers. We've always ever started the business, been very disciplined in how we spend our marketing money to make sure that we acquire as much business as we possibly can then whilst meeting our return criteria. And whilst we get that profit ramp into 2024 and beyond, we're going to be able to continue to play the same game. We won't feel any pressure to deviate from that course. And here, the way I think about the business in Australia is we actually have to be really careful that we don't try to over monetize the business and cause problems in the longer term. We have a great business in Australia. There is some softness in the market. It's still significantly bigger than it was pre-COVID. I think it's important that we continue to invest in the market to take advantage of the growth when it comes.

The next question comes from the line of James Rowland Clark calling from Barclays.

Okay. Two follow-ups, please, from my side. The first is just on recycling. I don't know that you are not giving any color on what you're seeing in terms of recycling after the customer-friendly results in the last 2 months. It seems like the U.K. is seeing a slightly higher rate of [ seating ] in the last couple of weeks. So any color there would be helpful. And then also on the U.K. regulation, I know you just mentioned how you implemented safer gambling measures earlier than the rest of the market and you're pleased. If everyone is sort of trending to where you are, but are you confident that you don't have to make any further changes ahead of the White Paper?

Thank you, James. Yes. Look, I think in terms of -- because I see color on the impact of favorable results. You've probably just done it, right? There is inevitably going to be some sort of impact on the -- on staking. And we'll see that. We should also remember results in two ways, and we have, I think, to year-to-date, it probably gives us some sort of reasonably expected result. As it pertains to the sort of U.K. market from a regulatory perspective, I think it's important to say that whilst we step forward early to put in place a bunch of changes, we do continue to iterate and improve our safe gambling measures. So this wasn't a sort of once and done thing we did last year. We're continuing to make changes. I think we also were very thoughtful about the guidance that we provided to the market at the time. And we guided to a GBP 25 million to GBP 50 million impact on an EBITDA basis. And that was predicated on our best view over time of what we thought would happen as a result of the White Paper and consultation. So we still stand by that today. We haven't seen anything that would cause us to deviate away from it.

The next question comes in from the line of Simon Davies calling from Deutsche Bank.

One point of clarification, but do you think in terms of the U.K. market and regulatory costs and safety standards, that you are at the top end of your peer group? Or do you still see some catching up in certain areas? And do you see any further regulatory headwinds in the U.K. in 2024? And secondly is on Australia. Do you think this is an issue of competition or the weaker consumer backdrop? And if it's the weaker consumer backdrop, are you're concerned that we may see some signs of further slowdown elsewhere in your more mature markets?

Yes. Simon, we've -- I think we've been pretty clear in terms of the fact that we're leading the rates at the top from a U.S -- or a U.K. perspective around the safety standards. We took a lot of pain last year. And look, if you look at our performance of the businesses there, I'm very, very proud of what the team are doing. We're up 11% and the market, broadly flat. Some of that is undoubtedly the fact that we got ahead of the changes and other people are kind of belatedly catching up, which would infer that we are ahead. And the other part of it is because of the strength of our products. So I think we're in a very good position. The team are executing really well in the U.K., and I'm very proud of what they're doing. Paul, I don't know, you want to talk about Australia?

Yes. And if you look at Australia, our business is still performing well from a competitive standpoint. If you look at the racing market in particular, it went up a lot with COVID, and I think really what we're seeing is still the COVID reversion. It is a little slower than we would think, but it's still a very good business and we're still leading there. And sports is up, but racing is tough as we revert back to a level that is still ahead of 2019, but lower than we've seen in the last few years.

If I maybe I could just build on your question about whether this is -- what are the drivers of this, whether it's a macro and whether there could be any impact elsewhere. The business we look very closely at is Tombola in the U.K., and we're seeing absolutely no signs at all of any stress from a consumer perspective there. So I don't think this is a consumer stress thing in Australia. I think there's a bunch of other factors, which we discussed, and we're seeing no indication of that in the U.K or any other markets.

The next question comes in from the line of David Brohan calling from Goodbody.

Two quick questions. Firstly, on Brazil. Just curious what your latest expectations are there in terms of timing of regulation. And then just on the additional investments into Flutter Edge, could you give us a flavor what that investment actually looks like?

Trying to put a pin on the date of Brazilian regulation is a thing that's tripped me in the past many times over the years. So I'm probably not going to try and fall for that again, David. But we're hopeful they'll be coming soon. We're very pleased with the performance of our business in Brazil. We're growing and I think that we're excited to see what we can do as that market regulates.

And in terms of investment into the central cost line, this is partly around the Flutter Edge, so it's building our capabilities in HR systems so we can give the best data to our teams partly around procurement so that we can drive ongoing efficiencies, finance systems, et cetera, so you gain some structural improvements in our capabilities. And it's also partially, as we move to having a U.S. listing, there's a few more requirements on us around [indiscernible] compliance, et cetera, from having -- from being under the SEC's regulation. So just building out some capabilities around that.

The next question comes from the line of Joe Thomas calling from HSBC.

So the two from me. Firstly, on India, I'm just wondering, you've talked about the ongoing hit from taxes. The Indian government has also been chasing some operators for back payment of taxes. Now I know you've said in the past that there's no merit to those claims. But I just wonder what the status is there and how the thinking is progressing on that and if there have been developments? And then secondly, just following on from that point on Brazil. There was a lot of change in the LatAm market at the moment. And it sounds like on balance could be, there could be some negatives in the short term as taxes go up and perhaps some games are banned. But I'm just wondering how you think about sort of headwinds or tailwinds into next year as you think about the profit outlook?

We've had no demand in terms of back taxes for our Junglee business. And yes, I mean I think there's a case that's going through the courts at the moment. We have no update on that at this stage. In terms of Brazil, I think there's always some questions and uncertainty around the extent to which gaming will be regulated in addition to sports. I don't know whether that's what you're referring to. But look, we don't see Brazil as being a headwind next year. We're excited about our position in the market. I think the team are executing really well on the ground. And I think from a sort of broader order basis, there are some exciting developments across Latin America, which of course we're watching. Look, we're up double digits in Brazil in Q3. The team are performing well, and I'm excited to see what they do second half of the year and into next year.

Our final question comes from the line of Andrew Tam calling from Redburn.

Just a quick question on U.S. iGaming. Just wanted to understand what you see just in terms of further product improvements given, obviously, other competitors are there taking even more share, notwithstanding the fact that you have taken share year-on-year. Is there gaps in terms of what you're doing relative to peers in terms of generosity? Are you maintaining discipline there? And also, could we get an update just in terms of [indiscernible].

I lost the -- you asked, you said to get an update on something, Andrew.

Could we just get an update on cross-sell rates from sports betting from others been?

Look, I mean I think if you look at what we've been doing in the U.S. in the casino space, we stated at the Capital Markets Day that we saw this as a 3-phase sort of plan. The first phase is to fix some of the things were sort of broken. We didn't have a focused brand, marketing team, a bunch of other things. So we needed to address that, and that was what we were doing last year. We saw ourselves getting to product parity this year, and also making some enhancements to some of our promotional capabilities. So you'll have seen us bring in things like the Reward Machine, and we definitely expanded our range of content. And then we always anticipated that next year will be the year when we moved ahead from a product perspective. If you look at what we have managed to accomplish, we've been really pleased that we've been able to grow the business in the direct casino space. So we've taken share. We're the fastest-growing brand and now the #2 operator. And so look, frankly, we've got there faster than we thought, and we've got there on the back of sales in the direct-to-casino space. We still have a very strong performance in terms of cross-selling into sports. It's better than we had originally anticipated. Now it's around 50% which, I think is strong if we compare that with our European businesses. But a lot of the growth that we've been seeing has actually come from the direct-to-casino space. Look, I think the team have done a brilliant job. For where we are, we're delivering better results than we were anticipating. We've got lots of exciting things still to come in casino, which we know will enable us to take further share. Okay. I think that was the last question. So I'm with apologies to those of you who were waiting with trepidation earlier on in the call wondering if the operator is going to come back and patch any of you through, I apologize for that. I'm glad that we managed to get it fixed and working again. So thank you for your patience, and I look forward to catching up with you all soon.

Thank you for joining today's call. You may now disconnect.