US punt could add €240m to Paddy Power earnings

By Geoff Percival

Paddy Power-Betfair’s expansion into the US sports betting market may add as much as €240m to its annual group earnings by 2023, according to Davy.

In an in-depth research note on the betting and gaming services group’s US prospects, the stockbroking firm suggested that US sports betting activity could add between £120m (€135m) and £215m (€241m) to annual earnings, on an Ebitda basis, in the medium-term.

“Our proprietary model confirms that the US sports betting opportunity is extremely significant for Paddy Power-Betfair,” said Davy analyst Michael Mitchell in the report.

Davy said that prior to the betting group turning a profit in the US, its losses will likely “trough” in 2020 at around £150m. Paddy Power-Betfair’s US sports betting business is expected to make a loss of around £25m this year.

“The US sports betting market is an exciting prospect for Paddy Power-Betfair — that much we can say with certainty. However, almost everything else regarding this burgeoning opportunity remains unclear,” said Mr Mitchell.

Rising tax and regulatory pressures in more traditional markets - like the UK, Australia and Ireland - are pushing leading players towards the US in a bid to shield themselves from the effects. Paddy Power-Betfair already had a sizeable presence in the US via its TVG online horseracing outlet and a New Jersey-based online casino offering. However, its purchases of fantasy betting firms Draft and FanDuel in the last 18 months, have exposed it directly to the sports betting market.

The striking down earlier this year, by the US Supreme Court, of the so-called Bradley Act — which has outlawed sports betting in the US, save for a few states, since the early 1990s — has paved the way for multiple US states to legalise sports gambling. Davy’s earnings forecast range depends on how many US states legalise sports betting - the lower end of the range factoring in 15 states and the upper end 26 states.

Davy noted that Paddy Power-Betfair has yet to provide guidance beyond the current year, saying its own margin for error on forecasts is “greater than usual” as a result.

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