Paddy Power and Betfair owner Flutter sees pre-tax profits fall 70%

Merger costs contributed to a 70 per cent first-half fall in profits at Paddy Power and Betfair owner Flutter Entertainment to €27 million, the gambling giant said on Thursday.

Flutter merged with Canada's Stars Group, owner of Pokerstars and Skybet, in May, creating the world's biggest betting business, after shareholders in both companies voted for the deal.

Dublin-headquartered Flutter’s pre-tax profit fell to £24 million (€27m) in the first six months of the year, from £80 million during the same period in 2019.

Increased once-off costs contributed to the fall in profits. These stemmed from the Stars Group merger as well as dating back to other deals, including the tie-in of Paddy Power and Betfair in 2016, and last year's purchase of Adjarabet in Georgia in eastern Europe.

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It also emerged that Flutter continued to pay 3,100 Paddy Power bookie shop staff in Ireland and Britain from its own resources while those outlets were closed during the two-month Covid-19 shutdown. The closures left the 623 shops with a total £10 million loss in the first half.

Chief financial officer Jonathan Hill said the group did not avail of government wage supports for any of its 13,000 workers during the period when many of the sports on which its customers bet were cancelled.

“We felt that these schemes were put in place by different governments for businesses that would be in difficulties or would have laid people off had these schemes not been in place,” he said.

He added that as Flutter was “profitable and thriving” it did not feel it was right to apply for the schemes.

Flutter’s first-half accounts, which include Stars Group’s contribution from May 5th onwards, show that revenues rose 49 per cent to £1.52 billion in the first half from £1.02 billion in the opening six months of 2019.

Sports betting revenue grew across all the group’s divisions before various countries shut down in the face of Covid-19 in mid-March.

Flutter Entertainment’s shares closed 0.29 per cent down at €139.60 in Dublin on Thursday, but had traded at a high of €144.15 early in the day.

Mr Hill said that the Irish group continued to see the US as a key growth market as individual jurisdictions there continuing to legalise online sports betting.

Revenue there grew 71 per cent to £278 million, while the cost of sales more than doubled to £116 million from £46 million.

Mr Hill noted that the extra cost reflected the legalisation of sports wagering in Pennsylvania and different regulatory charges.

A fall-off in its sports fantasy business, which is not subject to taxes or levies, during the lockdown also contributed to this.

The group spent a further £88 million on sales and marketing there in the first half of 2020, an increase of 67 per cent on the same period last year. The group now has 350,000 US customers.

Merging

Flutter has begun merging operations with Stars Group. This will include moving 300 Pokerstars support staff from Cherrywood in Dublin to group headquarters in Clonskeagh.

In a statement Flutter said the possibility of further Covid-19 disruptions and regulatory changes made the outlook uncertain

Chief executive Peter Jackson said: "The second half has started well, with good sports betting performance following the return of major sport events, whilst gaming performance has remained resilient."

The Irish company also announced that Rafi Ashkenazi, former Stars Group chief executive, has stepped down as a non-executive director of Flutter.

Mr Ashkenazi joined Stars Group in 2013. He became chief executive in 2016, remaining in the role until the merger with Flutter was completed in May.

He will continue to work as a consultant for the Irish group. Sources indicated that the move was not unexpected in light of recent developments.