Flutter Entertainment PLC

LSE:FLTR

Earnings Call Analysis

Strong Q2 performance with increased guidance for 2024

The company had a strong Q2, delivering revenue growth of 20% and adjusted EBITDA growth of 17% to $738 million, exceeding market expectations. The U.S. segment saw revenue growth of 39% and adjusted EBITDA growth of 51%, driven by FanDuel's market leadership. For 2024, revenue guidance is raised to $6.2 billion with adjusted EBITDA projected at $740 million. Outside the U.S., revenue grew 10%, supported by significant gains in the UK and Italy. Despite a challenging Australian market, overall momentum remains positive, positioning the company strong for H2 2024.

Accelerating Momentum and Strong Financial Performance

During the recent earnings call, it was made clear that the company experienced a robust quarter, with a significant 20% increase in revenue and a 17% rise in adjusted EBITDA, reaching $738 million. The net income skyrocketed to $297 million, aided by the amortization of acquired intangibles and a gain from the fair value of the FOX option.

U.S. Market Leadership

In the United States, the company's growth trajectory was impressive. The revenue surged by 39%, while adjusted EBITDA grew even more substantially by 51%. This remarkable performance was driven by a 41% growth in Sportsbook revenue, derived from a robust 35% increase in stakes and expanding net revenue margins. Furthermore, iGaming revenue climbed by an outstanding 47% as a result of strategic product enhancements and targeted market efforts.

International and Diversified Growth

Internationally, the group posted a 10% revenue increase, despite facing a softer market in Australian racing, which saw a 10% decline. The UK and Ireland proved to be vibrant markets, buoyed by the European Football Championships, resulting in an 18% revenue and adjusted EBITDA growth. Product innovations and strategic event captivation played crucial roles in these gains.

Operational Highlights and Strategic Moves

The company highlighted its strategic move to the main operational headquarters in New York and recognized the dedication and impact of its late founder. The successful product innovations and marketing strategies, particularly around marquee events like the Euros and leveraging proprietary technology for FanDuel Casino, highlighted the company's continued market leadership and operational efficiency.

Financial Robustness and Updated Guidance

Financially, the earnings per share saw a dramatic increase, with diluted EPS soaring by 290% and adjusted EPS by 56%. Importantly, free cash flow swung to $171 million from a previous cash outflow, demonstrating robust financial health. The company also updated its 2024 guidance, projecting U.S. revenue to hit $6.2 billion and adjusted EBITDA to reach $740 million—reflecting year-on-year growth rates of 41% and 219%, respectively.

Challenges and Mitigations

Despite encountering a $40 million tax impact from new Illinois legislation, the company outlined plans to mitigate half of this cost by 2025. It anticipates a slight EBITDA loss in Q3 but expects significant earnings in Q4. Regulatory and tax environments remain focal points, with strategies in place to manage these evolving challenges while maintaining strong market positions.

Investment and Future Outlook

Looking ahead, the company remains committed to robust customer acquisition strategies, allocating $20 million for these efforts. The expectation is for continued growth and operational efficiency. The company is also investing in its proprietary technology stack for long-term benefits and exploring opportunities for market expansion and M&A activities that align with its strategic goals and financial leverage targets.

Earnings Call Transcript 2024-Q2

[Operator]

Good afternoon, and welcome to the Flutter Q2 results call hosted by CEO, Peter Jackson; and CFO, Rob Coldrake. There will be a chance to ask questions later, but I will now hand the call over to Paul Tymms, Group Director of Investor Relations. Please go ahead.

[Paul Tymms, executive]

Hi, everyone, and welcome to Flutter's Q2 results call. With me this afternoon in New York, our Flutter CEO, Peter Jackson; and CFO, Rob Coldrake. To this short intro, Peter will open up with a brief summary of our operational progress during the quarter, and then Rob will run through the Q2 financials and our updated 2024 guidance. We will then open up the lines for Q&A.

Some of the information we are providing today, including our 2024 guidance constitutes forward-looking statements that involve risks, uncertainties and other factors that could cause actual outcomes or results to differ materially from those indicated in these statements. These factors are detailed in our earnings press release and our SEC filings.

In addition, all forward-looking statements are based on current expectations, and the company undertakes no obligation to update any forward-looking statements, except as required by law. Also in our remarks or responses to questions, we will discuss non-GAAP financial measures. Reconciliations are included in the results materials we have released today available in the Investors section of our website.

And I will now hand you over to Peter.

[Jeremy Jackson, executive]

Thank you, Paul. I'm delighted to be joining you today from New York, the home of our new operational headquarters, following our primary listing move back in May. With me is Rob Coldrake, Flutter's CFO. This is obviously Rob's first call since he started as CFO on May 31. It certainly hit the ground running given his experience within the group, and I know looking forward to meeting you all in due course.

It's also appropriate to acknowledge that in recent weeks, one of the group's founders, David Power passed away. There is a long-standing support of this business and a great [ tanning ] board for me, a generation of the Flutter leaders, may he rest in peace.

I'll now turn to the performance of the business in Q2. It was a very strong quarter for the group and ahead of market expectations. We delivered AMP growth of 17% and revenue growth of 20%, reflecting excellent execution against our strategic priorities and positive sports results. We have outperformed in our major markets, U.S. sports and iGaming, the U.K., Ireland and Italy, providing great momentum for the second half of the year.

In the U.S., FanDuel had an exceptional quarter with nearly 40% share of the entire U.S. sports betting and iGaming market. Our market-leading products, underpinned by the Flutter Edge and continued disciplined customer acquisition investments and driving our performance in the market. The improvements we delivered in our NBA, WNBA and MLB products are increasing pilot penetration, driving up our structural hold and player retention rates, resulting in continued strong returns on player acquisition investment.

In the quarter, both AMPs and new players increased by over 30% of sportsbook and iGaming compared to the prior year. This reflects the strong start in North Carolina, where we had 59% of the market and 20% growth in new players from pre-2022 states. These excellent KPIs point to a long runway of growth in these states and the market more forwardly.

They also indicated a consistent posture we've taken since the market launched by investing behind FanDuel's excellent return on customer acquisition. In iGaming, we completed an important milestone for the migration of FanDuel Casino onto our proprietary technology. In time, this will unlock important benefits through access to in-house content, promotional capabilities and also greater platform stability. This, combined with the launch of more exclusive titles and promotional features in the quarter are further evidence of the fantastic road map of improvements we still have for iGaming players.

Outside of the U.S., the group's scale and diversification contributed to AMPs and revenue growth of 15% and 10%, respectively. The euros of the marquee event of the quarter with our UKI and Italian businesses delivering same game product improvements for players in advance of the tournament. Sisal is the first operator to offer same game parlay in Italy, true for the benefits of Flutter's Edge when it comes to delivering compelling product advantages for our brands in their local markets.

Sisal same game parlay accounted for nearly 20% stakes on euros and helped deliver a record market share performance for Sisal in the quarter. This encapsulates a strong performance in Sisal since acquisition, where on a pro forma basis over the last 2 years, AMPs have increased by 60% and revenue by 37%.

In the UKI, all our brands are delivering excellent growth, combining for a tenth straight quarter of market share gains based on gambling commission data. In iGaming, we leverage the Paddy Power brand and launching Paddy's Mansion Heist, our most successful live casino game launch ever.

In Australia, the previously noted and anticipated declines in the rating market were ever seen in the quarter. However, we saw strong customer engagement around marquee rugby events, where player acquisition doubled year-on-year.

Overall, the group had a very strong quarter, strengthening our leadership position in the U.S. and delivering excellent momentum in our diversified ex U.S. business. And with that, I'll hand you over to Rob.

[Rob Coldrake, executive]

Thanks, Peter. Good afternoon, everyone. Thanks for joining the call. It's a really exciting time to be settling into the CFO role, and I'm delighted with the current momentum in the business.

The group delivered a really strong performance in the quarter with revenue growth of 20% and adjusted EBITDA growth of 17% to $738 million. The group had net income of $297 million on a reported basis which is after noncash expenses, including the amortization of acquired intangibles of $147 million and a $91 million gain on the fair value of the FOX option.

Diluted earnings per share increased 290%, while adjusted earnings per share increased 56% due to the strong financial performance and the positive movement in the FOX Option. Free cash flow was $171 million versus a cash outflow of $95 million in the prior year.

Our strong deleveraging profile saw our leverage ratio reduced to 2.6x from 3.1x at the end of December 2023. We are almost within our medium-term leverage target range of 2 to 2.5x. We look forward to updating you on our capital allocation framework and the range of capital allocation opportunities we have on our Investor Day on September 25.

Turning now to each of the segments. In the U.S., the exceptional quarter noted by Peter translates to excellent financial returns with revenue growth of 39% and adjusted EBITDA growth of 51%. Pleasingly, the strong growth is across all state cohort types with pre-2022 state launch revenue up 33% year-over-year, including pre-2020 launch is 27% higher.

Sportsbook revenue grew 41% from stakes growth of 35% and a further expansion of our structural sportsbook net revenue margin. iGaming revenue is 47% higher, reflecting the gains we are making in the direct casino segment of the market and the product improvements the team has delivered over the last 2 years. This revenue performance, combined with operating leverage and sales and marketing helped deliver adjusted EBITDA of $260 million well ahead of market expectations.

Outside of the U.S., revenue increased 10% due to the strong performances in UK&I and international. The UK&I, the combination of continued iGaming momentum, the European Football Championships and positive sports results drove revenue and adjusted EBITDA, 18% higher. Sports results were very favorable in the quarter, adding 190 basis points to our sportsbook net revenue margin. Positive results were most notable during the Euros, which continued into July.

The previously noted softer Australian racing market resulted in associated year-on-year declines in that market with revenue down 10%. In international, the addition of MaxBet and 12% constant currency revenue growth in our other consolidated and invest markets, growth revenue 16% higher on a constant currency basis.

Turning now to our updated guidance for 2024. In the U.S., we have increased our midpoint revenue guidance to $6.2 billion and adjusted EBITDA midpoint of $740 million. This equates to year-over-year growth of 41% for revenue and 219% for adjusted EBITDA. This reflects the strong momentum we have in the business, including the excellent performance in Q2, including the sports results benefit and is after the $40 million net impact of the tax changes introduced in Illinois in July.

The gross tax impacted Illinois is $50 million in 2024 and we expect it to mitigate 50% of the tax from 2025 onwards. That is prior to any additional second-order benefits such as market share gains from subscale players, which we're typically seeing where regulatory or tax changes have been implemented in our other markets.

On a quarterly basis in the U.S., we expect a small EBITDA loss in Q3 and significant earnings to be generated in Q4. In the group ex U.S., we now expect both increased revenue of $8 billion and adjusted EBITDA of $1.77 billion at the midpoint of our guidance. This equates to year-over-year growth of 8% for both metrics.

As always, our guidance is provided on the basis that sports results are in line with our expectations for the remainder of the year. Current foreign exchange rates, no new state openings for the remainder of the year and in a consistent regulatory and tax environment. This guidance demonstrates the strong momentum we have across the group.

With that, Peter and I are happy to take your questions. In the interest of time, can we ask that, as usual, we limit to two questions per person. With that, I'll hand you back to Jeremy to manage the call.

[Operator]

[Operator Instructions] Our first question comes from Clark Lampen from BTIG.

[William Lampen, analyst]

Peter, I wanted to see if we could open up by talking about U.S. performance. 2Q results were nicely ahead, full year guidance was raised out of Illinois. I think Rob said pre 22-state growth was up 33%. Could you give us a little bit more color around, I guess, just what's sort of driving sort of strong results right now and what also is embedded for back half guidance?

Second question I have is related to the $40 million net headwind that you guys called out from Illinois. As we think about managing potential additional increases in taxes going forward, what are the key levers that you guys have at your disposal to mitigate those headwinds? And is the potential tax surcharge on player winnings maybe part of that calculus?

[Jeremy Jackson, executive]

Thank you for the questions, Clark. It's nice to be talking to you in your time zone for once and long may this continue. Let me give you some just thoughts around the U.S. performance. And then I think I'll probably ask Rob just to give us the major building blocks.

As I said in my opening remarks, I'm really pleased to see the strong performance in Q2. And I think it's a really good indication of the posture that we've adopted in the market of acquiring as much business as we can whilst ever we meet our return criteria. And to remind you, that's just to make sure that we can see less than a 2-year payback. And I think we pushed hard in the first half, and you can definitely see the benefits of that come through in the player numbers, the increase in acquisition that we saw in Q2. I think it stands as really good stead as we go in the back half of the year.

But Rob, maybe you want to just talk about the building blocks.

[Rob Coldrake, executive]

Yes. I think, first of all, Clark, I'm delighted to be talking about an upgrade to the full year guidance for revenue and EBITDA in my first earnings call.

As Peter said, we had a terrific performance in Q2, and that's partly driven by the positive sports results. What we see as a result of that is extremely strong drop-through in Q2. Without looking forward to the second half, the second half of the year still accounts for 40% of the revenue upgrade, but that won't directly drop through to EBITDA for a couple of reasons.

Firstly, we're choosing to invest a fair of $20 million behind customer acquisition, given those returns that we continue to see well within our kind of 24-month payback that we've previously stated. That momentum should set us up really well for 2025 as we take a larger business into next year.

In addition, we've got an additional $20 million of operating costs, and that's partly due to the higher payment costs, which have been driven by the change in player behavior and more frequent deposits and withdrawals and partly due to some additional costs associated with the Beyond Play acquisition. If you then factor in the net Illinois impact of $40 million, you get to the full year guidance. So essentially, the full year upgrade, excluding Illinois, drops per at 35% or it's 15% ex Illinois. So we're absolutely delighted with that.

[Jeremy Jackson, executive]

Thank you Rob. And look, I suspect, Clark, you've got a question around the situation in Illinois. And I can imagine that a number of other people will have questions around how we're thinking about positioning ourselves in it.

So I think it probably makes sense for me just to give a slightly more expansive answer to that question. And then I don't anticipate us needing to answer the question and subsequently for the people.

To start with, I think it's important to recognize that there's a happy medium for tax rates that enables operators to maximize market growth, provides the best experience for customers, and over time, maximizes revenue for states. And most states have taken a sensible approach to date. I do think though that instituting a graduated tax system that punishes those who have invested the most to grow their businesses is wrong. I think it will drive customers to offshore operators or potentially to onshore operators who are operating unregulated and untaxed sport parlays under the guise of sweepstakes.

We have lots of patent recognition of operating internationally in high tax locations. And our experience is that moderating levels of generosity or indeed reducing local marketing is the best response. As Rob mentioned, we often find as well that smaller players may also have to increase their prices which leads to us capturing more share, which provides an offset for us. And so we think that the moderating levels of generosity are reducing local marketing is the best customer option and we have no plans to introduce a surcharge for winners.

[Operator]

Our next question comes from Jordan Bender from Citizens JMP.

[Jordan Bender, analyst]

Maybe just to follow on the CPA questions. In 2Q here, that's been a big theme or topic across most players in the space. So are you seeing acquisitions costs fall kind of equally across iGaming and sports betting. And can you maybe point to why is this happening maybe year-to-date?

And then the second question off of that, the updated U.S. guidance implies an increase in OpEx for the full year even after kind of accounting for the Illinois impact. Are the declining CPAs kind of that core reason why you're stepping up investment here? Or is there anything else you're seeing into the market or into football season here that kind of allowed you to invest more?

[Jeremy Jackson, executive]

Thanks, Jordan. On a CPA basis, if I look at it, Q2 this year and Q2 last year, we actually would see that our costs have come down a little bit, even with the significant increase in customers that we -- customer numbers that we've acquired. It's often difficult to try and look very precise because you do get an impact of new state launches, which can often dilute the CPA cost because of our large DFS customer base that we can cross-sell into and other mechanisms that we have to give us advantages.

But I think what's important is that we're maintaining the consistent posture that we've had in the market to acquire as much business as we can whilst we meet our return criteria. We're very confident in offering the best prices to customers in the market and the best products in the market and we will maintain high levels of customer lifetime value. And together with the significant benefits we get in customer acquisition, it gives us real confidence to continue to acquire as much business as we can.

[Rob Coldrake, executive]

I think -- the second part of your question, Jordan. So as Peter said, a, we're investing behind what we're seeing at some very strong payback. I think from an operating cost perspective, we've got the Beyond Play costs that I mentioned in the second half of year, we're also seeing some slightly higher payment costs and we're very comfortable with the position that we've got for the second half of the year.

As I mentioned also earlier, we've got some very good momentum coming into the second half of the year from a revenue perspective. One of the other things that we'll be very focused on for the second half of the year moving forward is actually driving more operating leverage. All the costs are coming into focus. We're really looking to be as efficient and optimal as we can from a cost base perspective. But we do have a couple of additional costs.

I think in addition, you've got the costs that we previously outlined in terms of investing behind the Flutter Edge capabilities and also some regulatory compliance costs in conjunction with our U.S. listing. But we've previously signposted both of those that are in line with our expectations.

[Operator]

Our next question comes from Ed Young from Morgan Stanley.

[Edward Young, analyst]

My first question is on the cohort growth that you talked through, Rob, on Slide 6. It presents us very bullish to see obviously, strong growth across all these different cohorts. I perhaps wonder if broadbrush you could give some color on the relative mix of AMP growth and revenue per AMP growth you're seeing across those different cohorts just given us an understanding over what's driving some of that across the different areas?

And then second of all, perhaps a novelty of a non-U.S. question. In UK&I, obviously, the Euros was known to be a good event, but you've obviously had much stronger iGaming growth than sports betting growth. I just wonder if you could give a bit more color on what's driven that and how you've seen the tournament progressed from where you were pre-tournament?

[Jeremy Jackson, executive]

Ed, let me give just a few thoughts about the cohort growth to make -- and I think this is probably where you're coming from. But we continue to see an increases in things like our parlay penetration in our historical cohorts. I think that's been something which has been very beneficial to us. If I think about that together with the step-ups we've seen in our sort of structural margin position has really helped drive the historical cohort performance. I think it's as true, and you can see that in all of the different time frames that we lay out.

Rob, anything you want to answer that?

[Rob Coldrake, executive]

Yes. I think specifically, I think we're very confident in the major cohorts and the growth they're driving, pre-2022 state acquisition. Revenue was up 16%, AMPs are 20% in 2022 and 2023, cohort state revenues up to 45%. So we've got some incredible growth coming through that.

With regards to the U.K. performance and the Euros specifically, I mean, we're absolutely delighted. The fact that Harry came and have his shooting boots on helps us with that mostly exited Q2 with some great momentum. And that continued into the third quarter with the first half of the month with the Euros.

In addition to that, I think what's almost more encouraging for the U.K. is the gaming performance. So we're seeing some excellent gaming momentum this year. And actually, all 4 brands in the U.K. are posted gaming growth of 20% plus year-on-year, which we are particularly happy with. So U.K. is in very good shape at the moment as we move into H2.

[Operator]

Our next question comes from Ryan Sigdahl from Craig-Hallum Capital Group.

[Ryan Sigdahl, analyst]

Want to start, there's been a couple of rumors, you might sign an agreement with Diamond Sports Group during naming rights for regional sports networks, separately potentially looking at Pen Interactive, the ESPN bet, no need to comment specifically on those rumors or directly, but curious how you think about media tie-ins and what you've learned from other markets?

And then secondly, second question, Caesars sold their intellectual property for World Series of Poker to GGPoker, your main global competitor there. Just curious how you think that may impact the competitive dynamics in your strategy around Poker?

[Jeremy Jackson, executive]

Thank you, Ryan. Look, I think we've always been able to benefit from our strong media times here in the U.S. Scale is definitely our friend. And we -- I think if I look at historically in the way in which we've been able to showcase our products and pricing with good integrations. I think it's always been important for us. And I think it's part of what's helped with our strong customer acquisition performance.

I think it's -- of course, really important you've got quality products you can back it up with, right? There's no point in people testing and trying your products and finding that they like it. And we're fortunate that we have the best product in the market.

I think from a sort of Caesars perspective, you're right, they have done this deal with, I think, with GGPoker, is the global competitor to our poker business, albeit one which operates in a lot of markets that we wouldn't be compared to operators. I think there's some interesting questions there for some of those people are involved. I think the PokerStars business, it provides us with an important opportunity in the U.S. market. I think the extent to which we can get share liquidity across states, it can give us some advantages. There is so -- when you look at it around the world, poker is breaking down into smaller segments from a liquidity perspective. And I think we're reasonably in a -- reasonably in strong position in some of those regulated markets because of the strength of the local hero brands that we have.

[Rob Coldrake, executive]

Yes. I think just to add to Peter's point, from a poker perspective, we talked about Q1 and the fact that we've started to embark on a transformation for PokerStars. That's progressing really well. We're very pleased with the progress and actually by later this year, we'll see our poker platform rolled out in [ Switzerly ] which I think demonstrates our agility and how quickly we can move there.

Also from a performance perspective, a, PokerStars is doing very well. In the U.S., we're seeing some real green shoots and we're very optimistic about how big that business can become there. I think secondly, when you look at the PokerStars business in the rest of the world, we continue to see the positive impact of some pricing initiatives that we've put in place. We've made some changes to both the loyalty, which has resulted in cost savings. And we've also had a number of offset savings across our casino products. So really happy with the way that we're trending on poker overall.

[Operator]

Our next question comes from James Rowland Clark from Barclays.

[James Clark, analyst]

My first question is on Australia. You said there's no change to underlying trends and the upgraded EBITDA guide is sports results driven. Can you just give us some color on what you're focused on, particularly there that provides some confidence that trends have bottomed out as you previously mentioned?

And then secondly slightly mitigating question on the interest charge, which is guided up from $370 million to $405 million due to a delay in previously expected interest income benefit. Is this just raise interest charge in [ outer ] years? Or is this just a timing thing?

[Rob Coldrake, executive]

Yes. So I can pick up those questions. So firstly, in Australia, I think we're really pleased with the performance that we've seen in the quarter. I think it's demonstrating a very resilient performance in the face of quite a tough regulatory backdrop. So as we said, we're seeing really good customer momentum and underlying trends are in line with the expected market declines that we've previously signposted.

We're particularly seeing strong customer engagement on marquee events like the State of Origin games and Rugby where we've doubled the customer acquisition year-over-year. So some really good momentum in sports, in particular, in Australia outside of racing. And yes, as we said, we've had a benefit from sports results in the Q as well. So factoring all of that in, that's driving the upgrade in Australia, which we're very pleased with.

I think from an interest perspective, some other projects that we had talked about previously to unlock cash efficiency across the wider group. Now we've [ land ] until 2025 when we originally envisaged from H2 2024. So that's making up part of the change.

In addition, when I've come in and we've had a look at the forecast, it was quite evident that some of our interest rates and cash assumptions in H2 were quite optimistic. So we have tweaked those and revise the forecast accordingly, which is always now seeing a slightly higher number. But we're very confident in the number that we've now got, and that's what we think we'll hit for the full year.

I think just to add to that as well, we did finance -- refinance some very expensive Euros and U.S. debt in May, and we'll see that the benefit of some interest cost savings in that versus the current run rate in H2.

[Operator]

Our next question comes from Dan Politzer from Wells Fargo.

[Daniel Politzer, analyst]

The first one, Peter, maybe you could remind us on some of the parameters through which you evaluate M&A. And how do you think about U.S. opportunities or maybe balancing these relative to opportunities in Brazil or other jurisdictions and acknowledging here your leverage, I believe, is 2.6x, your target is 2 to 2.5x. Maybe how high would you be willing to go for the right deal?

And then secondly, your flow through, I believe you mentioned it was about 35% for the back end of this year, ex Illinois. Is that kind of the right ballpark to think about your flow-through on a normalized basis from here? And that's it for me.

[Jeremy Jackson, executive]

Thanks Daniel, I'll answer the M&A question and Rob will talk to you about this -- the flow-through. I think the first thing to remind is, we've done a lot of M&A here in the U.S. and internationally. We recently acquired Beyond Play. We also bought the [ financial ] business back in 2018 as well. So we will be happy to make acquisitions in this market if we think it will help us.

It's also important to recognize that internationally, there are many, many markets in either regulated or soon to be regulated markets, where we're not yet present with either podium position or certainly a gold medal position. And we've had a great track record of acquiring businesses in those markets, supplying the Flutter Edge and see a big step-up in performance. Sisal is a great example of that. Actually, Tombola is another example of us doing it in market. Our experiences in a [indiscernible] all around the world, we've got great experiences.

We find ourselves on making sure that we look at less everything that gets traded in our space. And if necessary, we will go beyond our leverage target to do the right type of deal if we've got confidence we can deleverage quickly. And thinking of that is what you've seen us recently, we're bringing our leverage share now off the back of the very strong growth in earnings in the U.S.

[Rob Coldrake, executive]

With regards to the flow-through question, a couple of points to mention on this. I mean, a, we are going to see some difference in flow-through by quarters as we move forward because it can be impacted by a number of factors, including both sports results and seasonality. And also, where we see opportunities to continue investing at the level of paybacks that we talked about, we'll continue to do so because that's what's driving our superior returns. That's what's driving our market share gains and yet our overall kind of virtual firewall is the business. So we're not holding ourselves or anchoring to a specific number. But we are quite confident at this stage that given the momentum we've got, we will continue to see a decent drop-through on the incremental revenues that we're driving.

[Operator]

Our next question comes from Paul Ruddy from Davy.

[Paul Ruddy, analyst]

Just two for me, well, probably both interconnected. Just on the -- maybe the competitive intensity. Firstly, maybe in iCasino, when you think about BetMGM speaking to increased investment in iCasino, is there anything there you feel you may have to respond to?

And the second, similarly, in the sports fear, there's a couple of operators speaking about refreshed product launch. Could you kind of give us some detail on why you think your product advantage will retain into the new NFL season?

[Jeremy Jackson, executive]

Paul, I mean, fairly straightforward responses for you. I think from a competitive intensity perspective, we've always maintained what I will describe as a robust posture acquiring as much business as we can whether that's in the states, which just do sports or the states are doing sports and iGaming. Of course, we get the benefit the cross-sell for iGaming. But look, we're very pleased with the forward to the first half, we talk about Q2 today and what is referenced what we're going to do to think about continuing to push hard in the second half of the year.

It's not just around the investment in marketing. We have also been investing a lot in building out our product capabilities. I'm really pleased when I look at the performance of parlays and MLB at the moment. Historically, it wasn't an area of strategy for us. And we've almost got to the same level of penetration as we would do in things like the NFL. So clearly, the product advantages within having -- we've been doing a lot around live betting and there's a stack load of things that we're going to deploy to take our product forward into the new football season that launches at the beginning of September.

So we've got the best product in the market. We've got the best pricing in the market, and we intend to work very hard to keep a long way ahead of our competitors.

[Operator]

Our next question comes from Joe Stauff from SIG.

[Joseph Stauff, analyst]

Peter, Rob. I had two questions for you on the U.S. AMP growth in the quarter, 27%. I was wondering if you could disaggregate that for us between OSB and iCasino.

And then two, with respect to the effort to in-source a lot of the, say, technical and tech stack capabilities of your US iCasino offering, where are you in that process? The reason I ask is I'm trying to anticipate say, the gross margin pickup you get once that's fully in-house?

[Jeremy Jackson, executive]

Joe, well, it's a great question because I'm delighted to tell you that we've actually brought our iGaming product in-house in the U.S. And it's not a cost play, but it's certainly going to improve our ability to deploy our own in-house content into the U.S. market, which is not something we've been able to do in the past. It is also going to help improve things like the stability of the platform as well. So we will definitely drive benefits of it.

I think there's a lot of exciting initiatives that we can deploy off the back of it. Then Rob, you want to just talk about the AMP?

[Rob Coldrake, executive]

Yes. In terms of the AMP, we're 30% both sportsbook and iGaming. A small decline on DFS, as you'd expect in a bit of cannibalization being we're really happy with the growth across the both sportsbook and iGaming. That's very much continuing into the second half of the year.

[Joseph Stauff, analyst]

And just to clarify, Peter, so it is 100% then, say, in-sourced at this point in terms of the iCasino tech stack say?

[Jeremy Jackson, executive]

Yes. Look, I mean, clearly, the big part of iGaming is working with third-party providers. We'll continue to work extensively with partners in that space. But when I look at all the work that we've done around deploying our own cross-product promotional engine into iGaming, the stuff that you'll see us doing around that, what we've done around, there's also lot of stability to control. There's a lot of things that we've been able to bring from our experiences around the world and into the U.S. market. And we now sit on our own in-house tech stack.

[Operator]

[Operator Instructions] We will continue with Monique Pollard from Citi.

[Monique Pollard, analyst]

Okay. I'll stick to one then. On the U.S. gross margin. The gross margin was really good in the quarter, 45.1%. Presumably, if I just think about sort of how you've been growing in the different states, there's been some scaling therefore, of the non-tax COGS. So I just want to understand what sort of initiatives are being put in place there? And also when we think about the full year gross profit margin, we've talked about 43.5%, obviously, that was excluding the Illinois tax impact. Is that still the guide ex the Illinois tax impact? Or has that been also increased?

[Jeremy Jackson, executive]

I think one of the points I just made is to remember the impact of the sports results, which has quite a profound impact, particularly when not all of our cost of sales are -- 25% impact on handle. So it's -- that will have a barring, but Rob are there any more details you want to?

[Rob Coldrake, executive]

I think there's probably a couple of points to mention, Monique. I mean one is when you look at cost of sales more broadly, we now expect it to be roughly 56.8% of revenue, which is very much in line with the previous guidance of 56.5%.

When you look at the composition of our cost sales and as Peter said here, some of it's driven by sports results. But there are some other levers that we can pull in cost of sales, and we will pull over time. If you look at payment costs, for example, we had an increase in payment cuts as a function of our deposits of withdrawal system that we've got set up for our customers, which essentially makes it easier for them to deposit withdraw, they love that feature. But as a percentage of revenue, the payment costs are about 6% for our revenue.

So quite a significant cost, but we've got significant pattern recognition from other markets across the world, other jurisdictions where we've lent into payment costs and reduce them over time, and we definitely see some opportunities to do that in the U.S. There's actually a system coming in next year where we think we'll start to make some in-road payment costs. You've got other things as well. We've got sales [indiscernible] applied costs. But we also think that over time we'll be able to address.

So yes, in line with guidance, and there's a number of things that leave us that we think we can pull on cost of sales moving forward to stay within the longer-term guidance that we've previously outlined.

[Operator]

Our next question comes from Robert Fishman from MoffettNathanson.

[Robert Fishman, analyst]

Peter, in your recent write-up on the similarities between Flutter Edge and Fergie’s Manu, you discussed the importance of developing and maintaining a distinct competitive advantage. So I'm just kind of curious if you can talk about your confidence of maintaining or even growing your #1 position in the U.S. And if you want to speak about the success of North Carolina as an example?

[Jeremy Jackson, executive]

Robert, I think it's -- I'm pleased you read the article. Look, I think it is important when you look at the business that we've assembled globally and the way that we've been able to do that in a way that empowers each of our local markets. I think businesses are trying to do things in a substantial place can often get bogged down with trying to coordinate things around product road maps and stuff like that. We think it's really important to have local teams delivered and delivering on what's required in the local market.

But what we're doing through the Flutter Edge is we ensure that in a small number of areas, we have really good examples of the team supporting each other. I'd call out actually what we're seeing here in America with our -- the strength in our casino business, a lot of the team who are leading that have come from around the world and have had great experience and patent recognition of having run big casino operations for elsewhere. We've been able to bring things like our reward mechanics into the market from our U.K. business, and we've been able to bring technology from other markets as well. So I think what we've done here in casino is a great example of the Flutter Edge coming to life.

When you look at the same game parlay, we're the first to bring that to Italy and I mentioned earlier, 20% of our customers in Italy use that in the Euros. That's another great example of the Flutter Edge in action.

[Operator]

Our next question comes from Jed Kelly from Oppenheimer.

[Jed Kelly, analyst]

Just going back to the taxes, and I get not implementing the surcharge. But can you talk about just given your experience in other jurisdictions how you flutter can be proactive in terms of preventing sort of some of the state contagion, especially if some of your wind margins continue to go up?

[Jeremy Jackson, executive]

I think you probably sneaked in, in terms of a slightly different approach to the point I made earlier. We do operate in a lot of different markets around the world. And I think it's -- when you look at -- there are plenty of examples we can highlight where in some places where they push the tax rate up, they've actually seen the tax take decline. So these are not straightforward decisions for these bodies to take because it may not actually achieve what they're aiming for.

We'll be familiar with the latter curve, there are optimal points, we believe, for taxation to be set. And look, we try and spend as much time as we can in educating and showing our experiences with safe bodies to ensure that they can achieve the best outcome for themselves and the customers as well.

[Operator]

Our next question comes from Joseph Thomas from HSBC.

All right. Our next question comes from Simon Davies from Deutsche Bank.

[Simon Davies, analyst]

Just one from me. Brazil, it looks like it's finally set to launch in the new year. Can you just talk a bit about how well you're positioned in that market? And is it one of those markets where you might need to bring in M&A to scale up?

[Jeremy Jackson, executive]

Simon. Yes, look, it's -- I can remember talking about Brazil in our probably earnings call in 2018. So I mean we're finally getting there when the regulation is going to pass this time. We are excited about it, so tremendous congested, a lot of time there, and they will absolutely sort of soccer map. There's obviously a lot of betting that happens in the market today.

I think we're reasonably well placed with our Betfair brand in that market. And of course, we also operate PokerStars out there as well. We are ambitious, right? We like to have podium positions. And I really would like to have gold medal positions.

We've been able to do that organically in many markets around the world, but we're also, in time, often resourcing to M&A, and we think that when we did that, we were able to apply the fluctuation in supercharges businesses. So we will work out what we want to do in Brazil and when we made a decision, we'll let the market know if there's something to say.

[Operator]

Our next question comes from Andrew Tam from Redburn.

[Andrew Tam, analyst]

So at the start of the year, you flagged pretty well that it was attacked towards leaning into customer acquisition. Are you satisfied with your efforts during the first half. Do you think you could have gone harder in that regard?

And then just as a follow-on, is there a natural tapering of expectations given the hit to customer on TVs in certainly in the Illinois market, given the change there? And does that mean there's a reallocation of spend out of that market into other states?

[Jeremy Jackson, executive]

Andrew, we have talked in the past about having looked at historical performance in which in we've leaned in and done more. And partly that's because we found that the lifetime values of customers have ended up being greater than we had originally anticipated. I think that -- and that's in part because of better retention in part, it's been a stronger cross-sell into iGaming. It's also been because of the expansion of our adverse margin and parlays penetrations and things like that.

If you look at the performance in Q2, I mean all of those things continue to be true. And so I think historically, we would always wish we had acquired more business. I think we did push hard in Q2. We kept it in our guardrails. And I think the team delivered a great job. We continue to refine our playbook. And if we think of further opportunities to push and we can deliver the great returns we will.

[Operator]

And our final question of the day comes from Robin Farley from UBS.

[Robin Farley, analyst]

I wanted to circle back to your not having plans introduce the surcharge. I'm just kind of curious why you wouldn't see it as an opportunity to recapture a significant part of not only in Illinois, but also in New York and Pennsylvania and maybe even prevent future states that might be falling what Illinois did.

I mean if you as a market leader, it seems fairly low risk if the two market leaders both pass along the cost and no one's really at a competitive disadvantage. So just kind of curious why not take that opportunity?

[Jeremy Jackson, executive]

Robin, I doubted that earlier, and I don't have anything further to say.

[Operator]

Now we will get a question from James Wheatcroft from Jefferies.

[James Wheatcroft, analyst]

Just a question really around product and development as you go into the next NFL season. I'm particularly thinking about best in play and how that's going to be incremental to the parlay product, how that will shape over the course of this following season and into next year, please?

[Jeremy Jackson, executive]

James, I think if we look at Q2, we were really pleased actually with how our investment in live betting helped us. I think we mentioned that we saw the proportion of customers in betting in the NBA playoffs was a 4x higher than we had done in previously. Look it definitely helps when we improve the quality of the product. And for the NFL, we've got some great initiatives and plans that we -- plans to get behind us at the same game parlay lies for the season start. So yes, it's an important product for us.

[Operator]

All right. And that does conclude the Q&A. I will now hand it back over to Peter and the team for closing remarks.

[Jeremy Jackson, executive]

Okay. Thank you, everybody, for joining the call. It's been fantastic to do it from here in our operational headquarters in New York. And I hope all of our U.S.-based analysts have appreciated not getting up in the middle of the night in a further seasoning sprint. But we're delighted with the performance in Q2 and look forward to catching up with you all soon.

[Operator]

That concludes today's presentation. Have a pleasant day.