In the world of wagering, few names carry as much weight as Flutter Entertainment. Before Flutter, there was Paddy Power. Under Patrick Kennedy, Paddy Power became a major player in global wagering. A pivotal move was the acquisition of Australian operator Sportsbet, which set the blueprint for future international success. In 2016, Breon Corcoran led a £5.7B merger, creating Paddy Power Betfair, which laid the foundation for Flutter’s future dominance. In 2018, Peter Jackson took over as CEO, with the 2019 rebrand to Flutter Entertainment signalling ambitions far beyond a name change. Today, the ‘Flutter Edge’ - a combination of scale, product, technology, and expertise - continues to position the company as the dominant force in global wagering.
Data hasn't always been as central to sport and wagering as it is today. Michael Lewis’s book Moneyball, popularised data’s role in sport. As the internet grew, companies like Sportradar and Genius Sports emerged. Today, data companies drive everything from broadcasts and advertising to fantasy sports, wagering and league operations. AI and machine learning continue to unlock new opportunities for fan engagement, especially in the wagering industry. Racing & Sports, with whom Waterhouse VC has entered into a strategic partnership, is now poised to lead the transformation of racing.
Becoming the dominant force early in an industry can lead to significant competitive advantages, brand recognition, and customer loyalty. In the UK, Ladbrokes and William Hill emerged as the market leaders amongst a wide field of operators. By 1999, at the dawn of the internet era, there were 8,500 UK betting shops. The internet changed the way people ‘shop’ for bets, leading to a steady decline in high street betting shops. In their place, technology-lead operators like Flutter and Bet365 emerged.
The fund started on 19 August 2019 and is approaching its 5 year anniversary. The fund returned +53.3% for the 2024 financial year and generated a positive return in 8 of the last 12 months. Two businesses in particular, Project Tennis and Saintly, contributed significantly to the fund's performance. As the fund matures, deal flow has accelerated, particularly in professional betting syndicates.
In 2023, Waterhouse VC generated a strong return of +39.5%, strongly outperforming the S&P500 (+24.8%) and the ASX200 (+7.8%). In 2023, there were two stand out contributors to the fund’s +39.5% performance:
Project Tennis - a professional betting syndicate founded by Tom Dry focused on tennis (first discussed in December 2022 and invested in on 1 July 2023)
Saintly - a crypto wagering operator and B2B platform (see more here) - position exited in August 2023.
Relying solely on their monopoly position is not an optimal strategy for monopolies, particularly in the context of increasingly accessible unregulated wagering. Unregulated wagering will compel monopolies to engage in at least some level of competition and they must deliver an attractive product offering and customer experience. As regulated monopolies face continued pressure from unregulated operators, they must consistently innovate to retain and attract customers.
Balancing gambling regulation/taxation is crucial to ensure a harmony between safeguarding consumers, thwarting criminal activities, and cultivating a market that is both fair and competitive. A well-crafted regulatory framework effectively considers the interests of betting operators, consumers, and the broader community.
‘Local heroes’ are wagering operators that have been successful in attracting customers from a single geography. The largest global operators, including Flutter, Kindred, Playtech (which also has a large B2B arm) and Entain, have effectively grown by acquiring local heroes and assisting them with expertise and technology. Most recently, in September, Flutter acquired an initial 51% stake in MaxBet, the second largest sports wagering and gaming operator in Serbia, for €141 million. Flutter has an option to acquire the remaining 49% of MaxBet in 2029. In the 12 months to June 2023, MaxBet had around 20% market share in Serbia and generated revenues of €145 million (44% from online).
With 214 million people and 217 indigenous languages in addition to Portuguese, Brazil is a large and complex market. It is one of the largest online sports betting markets in the world with 42.5 million unique users. Wagering operators generate significant revenues in Brazil by leveraging influencer marketing and numerous sports sponsorship deals. Brazil's Chamber of Deputies recently passed a gambling regulation act, allowing online gaming and omnichannel wagering, with operators able to buy three year licences. However, operators will be prohibited from offering bonuses and will pay an 18% tax on revenues.
The rise of pro gamers and dedicated fan bases has boosted user numbers on streaming platforms like Twitch, which Amazon bought in 2014 for $970 million. The opportunity in streaming is vast, with just a handful of platforms dominating the US$3.8 billion industry. Kick continues to attract fresh streamers, with its alluring 95/5 revenue split supporting the platform’s growth from 9,000 active channels in January to 67,000 active channels in April. With such strong growth and a positive attitude towards gambling streaming, Kick poses a formidable challenge to Twitch's dominance.
While the US and other newly regulated markets present exciting opportunities for affiliates, we are particularly enthusiastic about the prospects for affiliates focused on directing bettors towards crypto wagering operators. Similar to the US market dynamics, numerous crypto operators are currently vying for market share and affiliates are well-remunerated for delivering depositing bettors to crypto operators.
World-renowned investor Warren Buffett and numerous other famous investors were initially influenced by betting and bookmaking (particularly horse racing) before transitioning to financial markets. The new wave of professional bettors are now finding success in financial markets as well, with significant cross-over in the statistical analysis and thought processes applied across the two domains.
In May last year, we first discussed the opportunity of crypto wagering, which is the fastest growing part of the wagering industry. Some online crypto operators have rapidly become large businesses and well-recognised global brands, such as Stake.com and Sportsbet.io. Whilst there are numerous existing B2B wagering platforms for fiat operators, there are just a handful of platforms built for crypto operators.
The large betting syndicates receive generous rebates from pari-mutuel/tote betting for providing liquidity. This gives them a significant edge over other participants. To receive this rebate, bettors need to turnover vast sums of money.
There has never been more data and technology applied to professional betting as there is today. The increasing power and prevalence of AI is the latest wave of technological disruption, which presents opportunities and threats to betting syndicates.
