Pointsbet Holdings Ltd

ASX:PBH

Earnings Call Transcript 2020-Q3

[Operator]

Thank you for standing by. And welcome to the PointsBet Holdings Limited Appendix 4C and quarterly activities report conference call. [Operator Instructions]I would now like to hand the conference over to Mr. Sam Swanell, Managing Director and Group CEO. Please go ahead.

[Samuel J. Swanell, Co]

Good morning. And thank you for joining this call for the PointsBet Holdings Limited Q3 FY 2020 business update and activities report. This is Sam Swanell, CEO, and I'm joined on the call today by our CFO, Andrew Mellor; and General Counsel, Andrew Hensher. This morning, I'd like to walk you through the Q3 FY '20 trading performance for the Australian and U.S. businesses, and then provide some commentary on the current COVID-19 situation. I will then hand over to Andrew Mellor to talk through the Appendix 4C quarterly cash flow update released to the ASX this morning. Please note, all numbers referred to are unaudited and in Australian dollars, unless otherwise stated. As can be seen on Slide 4, the Q3 performance of the business resulted in strong growth across the key KPIs.Turning to Slide 5. In Australia, the business saw a 58.3% increase in turnover and an 89.8% increase in net win compared to the prior corresponding period. Quarterly net win of $15.5 million takes the year-to-date net win in Australia to $42.7 million, up over 99% on the prior corresponding period. One key trend that we have tracked closely is the quarter-on-quarter net win margin performance, which as can be seen, has improved each quarter of the current financial year. It is pleasing to report that February 2020 was a record net win month for the Australian business, which was then followed by another record net win in the month of March. Whilst the major global sporting codes were progressively suspended from early March, Australian thoroughbred, harness and greyhound racing remained largely unimpacted. Encouragingly, over this period, PointsBet Australia has seen a trend of clients transferring to the higher-margin racing product. This positive momentum has continued into April.The quarter also saw the successful execution of an Australian media partnership with Channel 7, which commenced in February. Under the agreement, PointsBet became the exclusive Victorian odds integration partner for Channel 7's national horseracing coverage, delivering points that branded content and marketing on a major Australian television network over a period where limited sport content has been available to viewers. This initiative highlights PointsBet's management's continued disciplined and opportunistic approach to targeting media assets to deliver efficient client acquisition and increased betting volumes. Most importantly, the Australian trading business delivered its first-ever positive EBITDA quarter, despite the suspension of numerous sporting leagues and events globally due to COVID-19. Following the recent announcement of forthcoming industry consolidation, namely the folding of the BetEasy brand into Sportsbet, and the current closure of all TAB outlets, the company is in a great position to capitalize on these changes in the sector. We are planning to increase our Australian marketing spend in H1 FY '21. Now turning to Slide 6. In the U.S., we were pleased with the trading performance of the U.S. business prior to the suspension of the NBA on March 12. As a reminder, PointsBet were fully operational during Q3 in New Jersey and Iowa and have launched digital operations in Indiana on March 6. Despite the major U.S. sports being suspended from 12th March, 2020, including the inability to benefit from the NCAA basketball tournament March Madness, New Jersey achieved record net win for the quarter of $3.3 million at a net win margin of 3.9%, up from 1.8% in the previous quarter. As retained clients become a larger proportion of our client base, the company was able to reduce the amount of promotions offered to clients over the period, thus resulting in positive impact on net win margin. The Q3 FY '20 New Jersey gross win margin, 6.5% and net win margin of 3.9%, were particularly pleasing. We have consistently communicated that over the medium term, we expect to achieve a 5% gross win margin and a 4% net win margin and us hitting those targets during this period represents first-class execution across the business.During the quarter, PointsBet achieved a market share of 5.6% in New Jersey based on total New Jersey sports betting handle for the quarter as reported by the New Jersey Division of Gaming Enforcement. As mentioned earlier, the quarter also saw the launch of our operations in Indiana, PointsBet's third digital Sportsbook in the U.S. and the first under our agreement with Penn National Gaming. The company saw the benefit of its strategic prelaunch marketing efforts with great early acquisition results seen prior to the suspension of the NBA on March 12. While it is disappointing that U.S. sports have been suspended at this time, historically, it should be noted that April to August is the quiet period for U.S. sports betting, seeing only 28% of annual U.S. sports betting turnover. In January 2020, PointsBet announced 2 further market access agreements. Firstly, an agreement with Lac Vieux Desert to provide online and mobile sports wagering and iGaming in Michigan, representing the company's first tribal market access deal. And secondly, an agreement with Kansas Crossing Casino to provide retail and online sports wagering in the state of Kansas. Following these deals, PointsBet now has access to 12 states, subject to where relevant, the passing of enabling legislation to licensure, further demonstrating PointsBet's ability to secure market access in key U.S. states by winning competitive processes across numerous partners. Turning to Slide 8. PointsBet is well placed with a clear response plan to manage through the challenges of COVID-19. The company took early and prudent steps to protect the health and safety of its employees, including nearly all global employees to a work-from-home environment as well as a restriction on all international and domestic traveling. Staff have been equipped to work remotely, and in managing its operations, the company maintains a resilient and secure IT infrastructure. While our current intel suggests that some key leagues will relaunch this financial year, we are prepared and well placed for a longer suspension of sporting leagues if that eventuates. We expect that mainland Australian thoroughbreds, harness and greyhounds will continue to operate largely unimpacted. PointsBet continues to promote and proactively identify other sports and betting markets that are available or can be made available to its clients. The company is making great strides on the development and improvement of its scalable cloud-based technology platform, including the progression of its new iGaming vertical, and with preparations for further U.S. state launches, in particular, Illinois and Colorado. In the United States, where there has been a significant reduction in sports betting turnover and related functions, the company took the difficult decision to furlough 20 members of staff, primarily from trading, client service and marketing. These individuals remain on the company's books as unpaid employees and retain their health care benefits. Turning to Slide 9. Whilst during the quarter the company experienced excellent momentum both in the U.S. and Australia on a gross win and net win and relevant margins, the suspension of sporting leagues has had an impact on acquisition. In Australia, the early weeks of the AFL and NRL seasons are important acquisition periods. And thus, as a result of their suspensions, the company saw lower-than-expected first time betters. That being said, the net win results achieved in Australia in the second half of March and the continued momentum we have seen in April demonstrates the very high quality of the clients being acquired. With U.S. sports being suspended from March 12, this prevented the company from being able to benefit from expected high acquisition during the NCAA Basketball Tournament March Madness. As always, the company continues to apply its disciplined approach to marketing and to actively model and monitor the cost per acquisition to client lifetime value relationship. I will now hand over to Andrew Mellor to talk to some of the operational levers the company has to combat COVID-19 and the Q3 Appendix 4C quarterly cash flow update released to the ASX this morning.

[Andrew J. Mellor, Chief Financial Officer]

Thank you, Sam, and good morning to all. Turning to Slide 10. As previously communicated, the company has a number of levers to pull to significantly reduce costs in the coming months. As soon as it was clear that global sports will be pulled in the medium term, the company immediately sought to reduce its variable expenses. Cost of sales are highly correlated to betting turnover, revenue and deposit withdrawal volumes, and therefore, will reduce proportionately with the fall in these metrics in the U.S. The vast majority of global marketing expenses are variable in nature. In the U.S., the company has significantly reduced its marketing expense for the quarter to June 30, 2020. As can be seen on Slide 10, the company anticipates the U.S. Q4 marketing and cost of sales expenditure to reduce by 85% from its pre-COVID-19 expectations. Q4 marketing and cost of sales are expected to reduce from USD 7.7 million to approximately USD 1.2 million. This would represent an estimated overall cost decrease of AUD 10 million for the quarter. Given the reduction in these expenses in the U.S. in Q4 full year '20, the company expects U.S. operating cash outflows will reduce in Q1 full year '21 as the reduced expenses moved through to the company's cash flow. The same agility that allowed the company to swiftly reduce marketing spend in response to COVID-19 will be utilized to effectively recommence marketing promotions to acquire and reactivate clients once sport resumes.Now turning to the Q3 full year '20 Appendix 4C released earlier today, a summary of which can be seen on Slide 11. The company has always taken a disciplined and pragmatic approach to managing its cash flows, and the importance of continuing with this strategy will be even more pertinent over the upcoming quarters as the company responds to COVID-19. At the 31st of March 2020, the company's corporate cash balance was $149.4 million, within a favorable AUD-USD FX movement contributing $14.7 million during the reporting period. The company has no borrowings. Receipts from customers, net win, for the quarter totaled $18.7 million, bringing the year-to-date total to $48.5 million. Net cash used in operating activities in the quarter ending 31st of March, 2020, was $10.5 million. If we are to exclude the movement in player cash accounts, net cash used in operating activities was $7.9 million. Operating cash outflows were driven by cost of sales of $7.6 million, non-capitalized staff costs of $8.4 million, advertising and marketing costs of $7 million and administration and corporate costs of $3.9 million. These metrics were all broadly in line with the previous Appendix 4C estimates. Net cash used in investing activities in the quarter ending the 31st of March was $4.8 million, predominantly related to market access payments for Kansas and Michigan and the capitalization of staff costs. Total investing cash outflows was well below the previous Appendix 4C estimate as a result of reduced spending on a product and technology project, the timing of payments for the Illinois Sportsbook fit-out and the moving of the payment for the Denver office fit-out from the end of Q3 into Q4. As set out in the new Section 8 of the Appendix 4C, the company remains well funded to achieve its strategic objectives and planned activities. We do note the change to the Appendix 4C disclosures for this quarter relating to cash flows for the coming quarter and would like to provide some additional commentary. While this new statutory disclosure reflects the company has over 14 quarters of funding based on Q3 net cash used in operating activities, we would like to highlight that when U.S. sport resumes and the company is live in its current free U.S. states as well as in Illinois, Colorado and Michigan, the marketing cash outflow at that time will be significantly higher than that in Q3 full year '20. As it regards OpEx in Q4, assuming Australian racing maintains its current momentum, we expect Q4 operating cash outflows to be broadly in line with Q3, as Q3 expenses move through to the company's cash flow in Q4. And as it regards to CapEx in Q4, the major items we currently anticipate away from capitalized technology staff costs is the license fee payable to the Illinois Gaming Board and the costs associated with our Denver office fit-out. I will now hand back to Sam to provide some concluding comments.

[Samuel J. Swanell, Co]

Thanks, Andy. Turning to Slide 12. PointsBet is in a great position to continue its momentum in Australia and to slingshot out of the current environment when global sporting competitions resume. Racing remains strong in Australia and should this continue unimpacted, we expect the Australian businesses to meet our Q4 trading and performance expectations. In Australia, there has been a shift of traditional retail TAB betters moving online, and PointsBet has capitalized on this shift. Together with the cessation of the BetEasy brand in the coming months, management is even more optimistic on the future of the online opportunity in Australia. The flexible nature of our cost base has allowed us to pivot in the U.S., significantly reducing expenses to focus on the continued improvement of our technology platform, including ongoing development of our new iGaming vertical. Via these strong technology progress, when U.S. sports resume this year, it is anticipated that the timing of our launches in Illinois, Colorado and Michigan will see PointsBet at or very near the starting line in those states. The opening of the U.S. sports betting and iGaming market was already a once in a lifetime opportunity. However, the trend in consumer behavior is moving to an online environment as a result of COVID-19, together with the support of U.S. regulators for such a shift, will likely create an even larger and expediated opportunity for the company in the U.S. I'd like to thank you for your time, and welcome any questions.

[Operator]

[Operator Instructions] Your first question comes from Don Carducci from JPMorgan.

[Donald N. Carducci, Analyst]

Just a couple for me to start with. So obviously, a great outcome with Australia being EBITDA positive. And as you think about the cause and effect of this quarter, is that a result of retail closures, which means you saw new first time, probably, older customers? Or is this a one-off from the positive win results and we shouldn't expect this EBITDA positive result to repeat into the next quarter?

[Samuel J. Swanell, Co]

Yes, Don. Yes, I think we've been pretty clear with our communications in previous quarters that we expected this half to be EBITDA neutral to positive. And yes, we've delivered on a positive quarter here. So the anticipation is, is that, that can continue. I mean I think our performance is due to, obviously, the continued trajectory of the business and transference from things like the TAB outlets being closed. The decision, as we sort of spoke to there would then be, what do we do with marketing for next year and what does that mean for EBITDA? And at this stage, we're flagging that, given the momentum in Australia and the cessation of the BetEasy brand, that we do intend to increase marketing next financial year. Keeping in mind, the last 2 years have been sort of $16 million, $17 million, and that's what we anticipate this year to be.

[Donald N. Carducci, Analyst]

Sure, makes sense. And then another one for me, and I'll hop back in the queue. You benefited from a positive mix shift, you'd mentioned as clients transferred into that higher-margin racing product this quarter. Do you see these customers continuing to bet at similar levels across racing once sporting events resume?

[Samuel J. Swanell, Co]

No. I think once AFL, NRL, NBA, NFL, et cetera resume, some of that will cannibalize what's going to racing. But I think what's encouraging has been the propensity of clients to use what is the only sort of top-notch sporting events going on at the moment. So that's -- yes, I think, as I said, I think our results can be put down through continued momentum and trajectory that the business was already on. Obviously, the transfer to some of that offline TAB turnover online. But yes, sport, we still want sport to come back and it will only enhance the performance of the business.

[Operator]

Your next question comes from Desmond Tsao from Goldman Sachs.

[Desmond Tsao, Associate]

Just a couple of really quick questions for me. I guess, firstly, just given the unusual circumstances over the past couple of months contributing to a very strong result in Australia, I was just interested in any sort of interesting trends that you saw through -- particularly through your back book and as well as some of the new clients coming on board, whether you're seeing more of your typical sports betting, existing clients spending more towards racing or whether it's largely sort of the new clients that you bring on board that that's really driving this increase through the period.

[Samuel J. Swanell, Co]

Yes. I think it's both. There's an element of clients that love their sport and they're out having a bet. And while there might be -- if sport was happening, they might be majority sports focused. They also perhaps have a better spring carnival times and other peak times and -- without there being other sports to watch. That's definitely benefited racing turnover. So no, we expect that the, let's call it, the momentum that we've been generating, plus that transference from the TAB network, I think, most people would recognize that when TAB is open, it's unlikely that all of that turnover just goes back to the shops. And so online operators like us will hold on to more of that turnover. In a macro sense, the way we look at it a little bit is the total market in Australia for sports and race betting is estimated at about $4.4 billion revenue per annum. And it was roughly half and half online, offline. I think in the new world, post things returning, that online will take up a larger proportion of that total spend. And as an online participant, we are well placed to capitalize on that.

[Desmond Tsao, Associate]

Makes sense. And then just the second question, just around the BetEasy brand, obviously, migrating over into Sportsbet. You've noted that you're expecting higher marketing spending in the first half of fiscal '21. But just more broadly, like, what do you expect the impact to be more broadly for the industry, and as well as you guys as they work towards migrating clients over towards the Sportsbet system and app?

[Samuel J. Swanell, Co]

Well, I think Sportsbet are very good at what they do. But no matter how good they are, this is a big transition. The BetEasy business is very large and to do an integration like that is a big undertaking, a big project. So I think 2 things. One, the fact that a major brand is no longer in the market and they obviously held a lot of quality marketing assets, that will probably become available because I don't anticipate sports bet will take up all of them. They are not going to absorb all of BetEasy's marketing budget. That will increase their spend, but they won't increase it by the amount of BetEasy's budget. So I think some of those assets become available, and it's good timing for us because we're at a stage where we're building momentum, we've got confidence in our product and we're willing to spend a little bit more on marketing to capitalize on that. So I think that's positive for us. But technically, it's also positive for Ladbrokes or Bet365 that BetEasy brand doesn't exist in the marketplace. But I think we've got great momentum, and it's, as I said, good timing as our product improves. In terms of the impact on the industry, I'm not sure. I think there's good growth coming out of the online bookmakers. As I said, I think the main impact is just the switch from offline to online, and that really only impacts the TAB. We have a monopoly on offline.

[Operator]

Your next question comes from Alice Li from Crédit Suisse.

[Alice Li, Research Analyst]

There is clearly a priority to preserve capital, but as you [ pointed ] what should be ready to go when sporting events resume as well as the iGaming. So could you please explain to us what you think are some of the key points [ impacting ] technology? Is there something else that you think you shouldn't cut to ensure these capabilities?

[Samuel J. Swanell, Co]

I struggled to hear that, Alice, on the phrase. It's a very bad line. I really can't answer because it was really interrupted line. Could you maybe just try again, Alice?

[Alice Li, Research Analyst]

Sorry. Is that better now?

[Samuel J. Swanell, Co]

I think so, yes.

[Alice Li, Research Analyst]

Apologies. So just a question. Asking now there is clearly a priority to preserve capital at this time. But at the same time, you'd want to be ready to go when sporting events resume as well as your iGaming. So I wonder what you think. Other than technology as you mentioned, is there some other cost you think why you shouldn't be [ processing ] right now to ensure these capabilities?

[Samuel J. Swanell, Co]

I think I got most of it. But the end, again, was a little bit crackly. But look, yes, of course, we need to be cognizant of the fact that there's a lot of unknowns when it comes to COVID and the impacts of that on our business. We all know sports resume, there's a lot of talk about AFL, NRL, and in America, we're very close to talking to the leagues in what their plans are. But until it's absolutely definitive, you have to be a little bit cautious. But we think, as we said, we're the type of organization that's agile and flexible and can move quickly and adapt to the circumstances. But we do want to be ready to go. And I think when you're talking about America, in particular, I have spoken about the Australian environment and how [ Tabcorps the laws ] a little bit, and what that means and the opportunity here. But in the U.S., unfortunately, a lot of the big casinos -- and even if you think of our European competitors that have networks of shops and outlets, I mean, a lot of them are going through the laws pretty seriously. And so it's a definite focus for the business to ensure that while we need to be prudent, we also need to be ready to go because we honestly believe that when, let's call it, the market resumes wholeheartedly in the U.S., we're going to resume in a stronger position than we left off in early March. So whatever you thought our prospects were at that point, we believe that we're going to be better placed to compete, resuming by the fact that we're productively using this time that's very available for us to progress our technology and our go-live solutions, our iGaming product. And comparatively, unfortunately, some of our competitors are more in the wars than we are, and we think we're going to be well placed. Now of course, we're planning, we've got scenario A, scenario B. We will never waste marketing dollars, but we certainly won't use the jump when it comes for the market resuming. And we'll be there, and it is a definite focus for us to come out hard and ensure that we enter that market very strongly.

[Alice Li, Research Analyst]

That's great. That actually leads to my next question. I've got a question on Illinois. So we know it is going to be largely a retail market there and with your [ wholesome reporting ] at prime location. So how does this pandemic situation change your time line on that? Is there a danger when the rent resume and your annual -- is not ready?

[Samuel J. Swanell, Co]

Yes. Yes. Look, it probably helps us, Alice, to be honest. I mean we were going to launch mid-year for retail and then online for -- by NFL season. And that's still our time line. Now what that would have meant was that there might have been some operators, one had already launched retail in March. There might have been a couple of operators that were actually jumped ahead of us. But in reality, that time line is probably going to sort of fit in nicely with the resumption of -- or expected resumption of sports. And obviously, NFL season for the online in September. What we are seeing, I think, is it is slowing down the regulatory process a little bit in Illinois. The Illinois Gaming Board has been a little bit slower. But again, for our time line, being sort of July, September retail online, I don't think that's likely to be impacted if -- but some of the others that we're launching in March, April, May, would have been slowed down. It is an in-person registration in Illinois. That's our advantage that we'd have the best locations for people to open up an account. And obviously, yes, you might see an environment where people are going to come in, open their accounts and they may leave those venues and get home and use online rather than stay in the venues more so than they otherwise would have because of the current environment that we're in.

[Alice Li, Research Analyst]

Yes. That makes sense. I just have one last question, if I can. So I just wanted to ask if the sporting events resume in calendar year 2020 and beyond, do you think there will be some other permanent shifts in consumers' behavior? And by that, I mean, do you think people will continue to bet more on recurring events like table tennis? And do you think people will be [ life saver ] of cost per year? Or do you think they will actually bet more because of the pent-up demand?

[Samuel J. Swanell, Co]

Yes. Yes. I think there will be a lot of pent-up demand in the U.S. when sports resume. And I think if you think about a scenario whereby, like, they're talking about in the AFL and the NRL here that they are looking to play games on like 5 of the 7 days of the week. So there's going to be good content and good coverage and good exposure to it. And so I think, both in the short term when sports resume, there will be some pent-up demand. But I think the main thing is, Alice, in the long term, as I touched on at the end of my intro, that these states in America are going to be more keen on revenue opportunities than ever before. And we know that a black market exists in sports betting, pretty much in every state of America. And so this will only expediate, I believe, the appetite for state governments to legalize sports betting and iGaming, because they now know that their bricks-and-mortar casinos are not bulletproof, and bringing those services online is a way to future-proof. So I think there's only going to be more support for the progression of sports betting and iGaming across the states of America in the long term. And I think it's going to be expediated. So I think both in short-term macro when sports resumes, we should see some good stuff. And then I think longer-term for businesses like ours, I think you have to take a more favorable view of what that opportunity is.

[Operator]

Your next question comes from Phil Chippindale from Ord Minnett.

[Phillip Chippindale, Senior Research Analyst]

A couple of questions from me. Just firstly, in terms of U.S. customers, how are you keeping them engaged during this time? Obviously, there's very little sports happening in the U.S. at the moment. In Australia, you've obviously have the benefit of the racing opportunity. But how are you trying to keep your existing client base engaged during these few months?

[Samuel J. Swanell, Co]

Yes. I mean we've been working really hard to -- and I think in some ways, in the jurisdictions that we're operating, we've been leading the charge and getting approvals from the regulators on wider sporting leagues and events. So we've been putting up what we can, soccer, table tennis, some basketball leagues, some ice hockey leagues from various parts of the world. Yes, but it's been pretty lean. We're not trying to cover the fact that it hasn't been lean. And so you've got to sort of have a little bit of a balancing act through this period. You want to keep your clients active, but you've sort of got to recognize that the value that they can contribute from an acquisition perspective, but also from a CRM retention perspective is pretty limited. So you don't want to overdo it and give away margin unnecessarily. We think we've got the balance right, but there's no doubt that this is impacting acquisition and actives during this period. But I think as we said through the script that fortuitously, these are the quiet period for U.S. sports from April to August, and I think in everyone's mind, the date that we're all hoping for is September for the NFL season that some normality can be back by then. There is talk of NBA and other leagues doing things before that. But yes, it's hard no matter what product you put out there, unless it's -- sorry, NFL, NBA, college, ice hockey, baseball, et cetera. That's the vast, vast majority. Then you've got your tennis and your golfs. Golf is one sport actually that's talking seriously about getting back in June. They've publicized that. So that will be helpful. But yes, there is no doubt and we made a comment on the fact that, from an acquisition perspective, it certainly hurt the second half of March. And our numbers would have been far more impressive both in Australia and the U.S.

[Phillip Chippindale, Senior Research Analyst]

That leads just to my second question, so just on the timing of sports. So for the NFL, is your current expectation that a September launch is sort of a reasonable expectation?

[Samuel J. Swanell, Co]

Yes. Yes. We certainly -- look, I'm no more a doctor or a scientist than you are, but we can certainly talk to that, that is firmly the NFL's expectation and plans.

[Phillip Chippindale, Senior Research Analyst]

Okay. And finally, just for me, just wondering if the current situation has affected your anticipated timing for the iGaming opportunity. Obviously, your business looks very much beholden to sports at the moment. Does the current situation change your thought process in terms of maybe bringing that forward? Or just be interested in your thoughts on that.

[Samuel J. Swanell, Co]

No. No, it doesn't. Again, we're expecting sports to gradually improve over the coming months and sort of be back to full throttle around NFL sort of season. So no, it doesn't. And even with the iGaming product, our strategy is to be a sports betting company that acquires clients via sport and then cross-sells them into the iGaming.And look, we've got a time line and a project plan for iGaming to launch in Michigan and potentially other jurisdictions where we're looking at opportunities. And we still expect that to be the case. So late this year, early next year is the time line.

[Operator]

[Operator Instructions] Your next question comes from Don Carducci from JPMorgan.

[Donald N. Carducci, Analyst]

Just one final question from me. What can you tell us about the recently acquired customers? Are they exhibiting similar behaviors as your incumbent punter, such as bed size or maybe frequency of engagement? Just kind of keen to understand any insights you folks might have on kind of the Aussie punter in this environment, specifically those freshly acquired customers.

[Samuel J. Swanell, Co]

Yes. I think the main thing is, Don, is that, as is always the case with racing, there's a lot more content. I mean if you're a, let's say, you're someone that has $50 normally for a bet on the football, you might have a $50 bet on the NRL or the AFL, and that's your bet for the 2, 3 hours that you're watching that event. With racing, you might not get $50, you might get $20 on a bet, but there is another race going in another state pretty regularly. So we're certainly seeing, as racing becomes, obviously, the only game in town, we've certainly seen that average number of bets per active goes up because racing facilitates that. So I think average number of bets -- so if you call that the engagement, the amount of time someone's betting with the platform has gone up and then the margin has gone up. I suppose, what's really impressive, I think, about our Q3 results in Australia is the fact that we've done that. When you have sports turnover, gross turnover, I suppose, at the expense of margin. So part of our increased margin is definitely, as we said, that related to racing being the predominant factor. But for the fact that turnover has been strong, seasonality adjusted is really good as well. So I think overall, again, I want to talk about the momentum of the business, combined with the fact that racing is the only game in town and that transference from the TAB network.

[Donald N. Carducci, Analyst]

Great. And actually, if I can, maybe just rephrasing one of the previous questions in terms of, you have the one state growing very strongly with New Jersey, the 2 states that have recently commenced in Iowa and Indiana and then, call it, 2 or 3 new states for late calendar year '20 was Illinois, Colorado, and maybe Michigan. How are you thinking about managing and allocating time across these states, especially the growth jurisdictions once sporting events resume in terms of allocating your marketing and your time and attention?

[Samuel J. Swanell, Co]

Yes. I mean we were and we are planning to continue to increase our capability from an operations perspective. So as we've spoken about before, when we go into each new state, we don't add a whole new equivalent head count as we've had for New Jersey. We get scale and benefit. But there's no doubt that there's a bit of extra marketing effort and CRM effort, et cetera. So we're not sitting here saying that it's a perfect synergy, and there isn't a little bit of extra effort and there will be. When we go into each state, Don, we've spoken about the fact that we go into that state with a starting position of wanting to achieve a 10% market share, all other things being equal. And then we, I suppose, model up our marketing spend on that basis. And that's generally 30% of that 10% market share in a mature state after 3 or 4 years. So we'll -- each state that we go into from Day 1, we'll be planning to spend our modeled marketing amount in each of those states. So as Andrew talked about, when we get towards the end of this year, that investment will be kicking in. So that's been clear from the start. In states like Iowa, it's worth talking about Iowa and Illinois where there's in-person sign-up, there is 2 sort of contrast there. So Illinois, we have the advantage of the in-person sign-up footprint. We have strong locations, and we will spend or adjust our marketing spend accordingly. And in Iowa, where we have an average location, while there's in-person sign-up, our investment in that state is very low until it moves to a full mobile environment because we just wouldn't get the return on investment in Iowa. So it is worth flagging that Iowa is that one state that as we continue to report on future quarters, I think it won't get the same marketing investment as other states, and you can expect pretty conservative revenue numbers to come out of Iowa.

[Operator]

Your next question comes from Matt Schoch from Catena Media.

[Matt Schoch;Catena Media;Lead Michigan Writer]

Sam, you mentioned Michigan as kind of a precursor for iGaming for you and also being the first one with native American access for you guys as well. Is Michigan actually your very first iGaming, first of all? And is there anything else that's been unusual about the launch there that you guys are undergoing? Because for retail Sportsbook, they are actually open for business now, virus notwithstanding. Is there a time line for that also? And is there anything else that stands out about Michigan in particular?

[Samuel J. Swanell, Co]

Yes. Yes. I mean look, Michigan will be important because, yes, you're correct. It will be our first state with iGaming. It -- the Michigan regulators guidance had been that iGaming -- sorry, online for sports betting and iGaming will not launch until early 2021. There has been some talk about them maybe trying to fast track it given the current environment. We are monitoring that situation closely. If that means that we can get live a little bit earlier than otherwise planned, then we would work towards that. I mean I think the fact that the opportunities via the tribal agreement from the job that we go in and do from an online promoting the business and running the business doesn't really change much, but we will have that iGaming opportunity seeing side-by-side with sports betting, which is really important. So yes, while there might be some retail launch in Michigan, I suppose our view on it is twofold. One, that while there's no sport, the launch really doesn't mean too much, and we don't feel like we're losing any ground. And secondly, until online happens, that's when 95%-plus of the market opens up.

[Operator]

[Operator Instructions] Our next question comes from Damien Williamson from Bell Potter.

[Damien Williamson, Fixed Income and Hybrids Analyst]

Sam, Andy, great result. Just a question on the New Jersey market share. There's no disclosure in the announcement on the high-staking clients. Is there any shift in strategy with that segment?

[Samuel J. Swanell, Co]

Damien, yes, look, I think we put the high-staking clients segment separately really to give some extra clarity to the market around how, I suppose, the mass market digital business was progressing and to be helpful, I suppose and not mislead in terms of perhaps some of those turnover numbers. But it probably confused the market, to be honest. It portrayed or some were viewing it that we were sort of chasing professional turnover or professional betters, and that certainly wasn't the case. I will say this, and I made this comment, I think, last time, is that the high-staking clients that we had were particularly focused on the NFL, and the NFL season sort of came to end with the Super Bowl in early Feb late Jan. And in particular, some of the teams that these guys supported actually finished earlier than that. So yes. The -- it's a combined -- we don't plan on separating out the high-staking clients going forward because it blurs the waters. But that segment, I can tell you, anecdotally, did contribute less. And one other point, I think, just worth making is that in terms of seasonality from the December quarter to the March quarter, the March quarter is historically 19% lower than the December quarter in the U.S. from a seasonality perspective.

[Damien Williamson, Fixed Income and Hybrids Analyst]

Okay. And just also another -- just on the Indiana entrance. The Indiana Gaming Commission data showed there's 6 online operators there. Are you aware of anyone else following you in? Or is the sports being stopped? Has that sort of stopped anyone else coming in behind you? And do you sort of say that the tough financial conditions will prevent new entrants in states such as Indiana?

[Samuel J. Swanell, Co]

I don't think so. I mean there could be an element of where the Indiana Regulatory Board has slowed down a little bit with their processes, because the urgency isn't quite there while sports is suspended. As I said, we are going through a little bit of that with the Illinois Gaming Board at the moment. They are just a little bit slower. So that may be the case with Indiana. But no, we certainly expect that the vast majority of players that were going to be there pre-COVID will be there post-COVID.

[Damien Williamson, Fixed Income and Hybrids Analyst]

Okay. And just one final question. Just in terms of if AFL, and assuming NRL and AFL get up and running in late May, early June. Can you -- have you been offering AFL, NRL to your American clients? And can you get vision of that sport to those clients?

[Samuel J. Swanell, Co]

Yes. Yes, we did actually. So after sort of the American sports closed down, there was a short period of -- obviously, that 1 week of AFL and a couple of weeks of NRL, and we actually got a little bit of traction. And it was -- and it certainly helped our social media and digital marketing efforts being known as the Australian bookie, and we were sort of riding some of that. So yes, I wouldn't call it material. I go back to the fact that the big 4 American sports, tennis, golf, they clearly lead the way in America.

[Operator]

[Operator Instructions] There are no further questions at this time. I'll now hand back to Mr. Swanell for closing remarks.

[Samuel J. Swanell, Co]

Nothing further from us. Look forward to talking to some of you over the coming days. Thanks very much for your time.

[Operator]

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