Flutter Entertainment (LON: FLTR) fell to a full-year loss in results announced yesterday. This isn’t a good look for a company which exists to take our money off us – which is a decent enough description of a bookies.
This performance isn’t quite as bad as the £288 million full year loss makes it look. For the real numbers are here “Reported loss before tax of £288m after £543m charge for non-cash amortisation from acquired intangibles”. In that is the secret to any realist valuation of Flutter shares.
We’ve two different landraces going one here. A landrace is when a new territory is opened up and there’s that speed required in trying to conquer it. The exploitation, the profit, can come later, it’s the staking out the claim right now that is important.
The first such landrace is simply that move of betting online and then onto mobiles. This requires getting the technology right of course, and also significant investment in advertising and promotion. The bet – sorry – is that once on a platform then the punter will stay with that platform.
The second landrace is in the US. Betting on sports has always gone on but near entirely illegally. The laws are changing, state by state, to legalise. It’s difficult and expensive to gain licencing in any one state, which limits competition once established. So, there’s that race to become licenced in all the states which will allow it.
This means, sometimes, buying in companies that already have market positions – that means those amortisation write-offs. The reported loss, that is, is coming not from operations, but from the costs of the landrace.
There is something a little more worrying in the results “ during a Champions League weekend in October, 15 of the 16 favourites had emerged victorious, costing the company a significant hit in payouts. Boxing Day, a big betting day, was also painful as five of the six Premier League favourites came away with a win.” and there was something similar on the Tyson Fury fight. That just shouldn’t happen – a book should be balanced, making a profit whatever the outcome. To lose like this means Flutter’s been taking a position which really isn’t how it is supposed to be done.
As to what is going to happen to Flutter shares a reasonable position to take is that the market accepts the landrace argument. There simply isn’t anything that matters quite as much as staking out that ground, that market position. So, Flutter shares are going to be valued on the success of that stakeout rather more than they are on the basis of operational results or profits or losses. Given market conditions – it’s not a mature market – Flutter is likely to be valued as a growth stock, by the rate of growth.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.