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Good morning, and thank you for all joining the PointsBet Holdings Limited Q1 FY '21 Business Update and Activities Report. This is Sam Swanell, CEO, and I'm joined on the call today by our CFO Andrew Mellor.This morning, I would like to walk you through the Q1 FY '21 trading performance for the Australian and U.S. businesses. I'll then hand over to Andrew Mellor to talk to the Appendix 4C quarterly cash flow update released to the ASX this morning. Please note all numbers referred to are unaudited and in Australian dollars, unless otherwise stated.Turning to Slide 4. The Q1 performance of the global trading is businesses resulted in strong growth across the key KPIs compared to the prior corresponding period of Q1 FY '20 to be referred to as the PCP. Turnover was up 193% at $691.9 million, gross win up 282% at $70.4 million, net win up 222% at $38.1 million, active clients up 88% at 165,000.As can be seen on Slide 5, in Australia, active clients were up 73%, and in the United States, active clients were up an impressive 159% compared to the PCP. The company recognizes a structural change in the Australian online wagering market, including brand consolidation with the BetEasy brand recently being folded into Sportsbet and a shift from retail to online wagering.To capitalize on this opportunity, Australian marketing expense was increased to $11.3 million in the quarter, as the company acquired and retained clients during the recommenced NBA, NRL and AFL seasons and leading into the important spring racing period. As can be seen on Slide 5 that this increased marketing spend has had a direct correlation to the increase in active clients.In the United States, Q1 FY '21 saw the recommencement of the NBA and NHL, together with the commencement of the NFL and MLB. As a result, in July 2020, PointsBet U.S. resumed its targeted marketing investment in New Jersey and Indiana and launched operations in Illinois in September 2020, assisted by the NBC Sports media assets. Total U.S. marketing expense for the quarter was USD 11.8 million. As evidenced on Slide 5, these efforts have seen U.S. active clients increased from just under 21,000 for the 12 months to June 30, 2020, to almost 40,000 for the 12 months to September 30.Before turning to our U.S. trading results, I would like to provide an update on our partnership with NBC Sports. Turning to Slide 6. As previously announced on RMB August 28, 2020, PointsBet and NBCUniversal have entered into a 5-year media partnership. Under the partnership, PointsBet has become the official sports betting partner of NBC Sports, providing PointsBet access to leading national and regional television and digital assets with the largest sports audience of any U.S. media company, accessing over 184 million viewers.On the 1st of September, PointsBet began the utilization of these assets with some of the integrations seen on Slides 6 and 7, including integration of the NBC Sports designation and logo into our website and app. PointsBet odds and branding added prominently throughout nbcsports.com and targeted regional sports television networks, PointsBet sportsbook attribution in key sports broadcast and delivering over 4.4 million total digital impressions in September. These types of integrations are just the beginning, and we are thrilled with the progress being made, which speaks to the aligned interest as structured within our agreement.Now turning to Slide 9. I will touch on the U.S. trading results for the quarter. Q1 FY '21 saw the return of the 4 major U.S. sports. And as a result, the company saw an unprecedented level of activity from our clients. As a result of the COVID postponements, this was the first time that clients could legally bet on all 4 sports at the same time.As mentioned in July 2020, PointsBet resumed its targeted marketing investment in New Jersey and Indiana and launched operations in Illinois in September 2020, assisted by the NBC Sports media assets. PointsBet will not make significant marketing investment in Iowa until in-person registration is replaced by online registration on the 1st of January 2021.U.S. marketing expense was USD 11.8 million in Q1 FY '21, resulting in active clients during the 12 months to September 30, increasing by 90% to just under 40,000 compared to the 12 months to June 30, 2020. The U.S. business achieved a quarterly gross win of $9.8 million compared to gross win of $1.1 million in the PCP with a net win performance of $3.1 million compared to a loss of $800,000 for the PCP.Strong net win in New Jersey of $5.5 million at a net win margin of 4.1% was offset by negative net win in the recently launched states of Indiana and Illinois, as the company's strategy to acquire and retain collects resulted in promotions exceeding gross win in these states.During the quarter, the U.S. business achieved 6.5% market share in New Jersey and 3.2% market share in Indiana for online handle. The quarter also saw PointsBet enter into various strategic sports partnership deals with teams within the 4 major U.S. sports. In the MLB, PointsBet became a partner of the Detroit Tigers being the first sports betting partnership for a professional sports team within Michigan and the first for any MLB franchise. In the NBA, PointsBet partnered with the Denver Nuggets and Indiana Pacers. In the NFL, PointsBet partnered with Indianapolis Colts and Chicago Bears. And in the NHL, PointsBet partnered with the Colorado Avalanche.In addition, PointsBet became the official sportsbook partner of the Denver Nuggets home Arena, the Pepsi Center, recently renamed the Ball Arena. Under these deals, we certainly closer to markets where PointsBet is operational or will soon be. We gained usage of the team's trademarks and logos as well as sponsorship opportunities and brand visibility across various assets and databases.At the end of the quarter, PointsBet was operational in 4 states: New Jersey, Iowa, Indiana and Illinois, with the next launches planned for Colorado in November and Michigan in Q3 FY '21. Michigan will also see the launch of PointsBet's iGaming product.As per Slide 11, PointsBet has brought together a highly experienced iGaming team and is well advanced with the development of our in-house proprietary iGaming platform, remote gaming server and administrative tools. The iGaming team is led by Kieran Power, a previous CTO Ainsworth Gaming and former VP Advanced Products and Intellectual Property at Aristocrat. Mr. Power reports to Manjit Gombra Singh, President of Product and Technology, who has a deep background in online casino, including in his former position as CTO of Aristocrat.We are focused on ensuring that both our Sportsbook and iGaming platforms and products are customized for the U.S. market. Our proprietary iGaming platform will be complemented by targeted licensed third-party iGaming content, including a live dealer solution together with a focus on innovating and developing our own content.Now turning to Slide 12. As mentioned earlier, there was a clear structural change occurring in the Australian market. As a result, the Board and management have agreed to capitalize on this change. The acceleration of the transference of retail to online and the cessation of the BetEasy brand has made management more bullish on the Australian opportunity than we have been for some time.There is now a growing opportunity for PointsBet to achieve a 10% market share in Australia by 2025. It is currently estimated that the Australian online wagering market generates $3 billion of net win per annum. We expect the transition of betting activity from offline to online to continue over the next 5 years and for the online total addressable market to grow above $4 billion by 2025.The PointsBet strategy involves growing our in-house digital and analytical marketing teams, increasing targeted marketing spend and continuing to take full advantage of our strategic media assets, including the Channel 7 horseracing coverage. This strategy will result in continued growth in net win across FY '21 and beyond, whilst ensuring that the Australian Trading Business remains EBITDA-positive and does not require any further group of funding.Now turning to Slide 13. The Australian Trading Business continued its strong performance, achieving a net win for the quarter of $35.1 million, up 178% from the PCP. Net win margin of 6.6% was down from 7.7% in the PCP as a result of increased promotional activity. This promotional investment is reflected in active client growth and turnover with 124,715 active clients to September 30, an increase of 73% on the PCP and Q1 FY '21 turnover of $527.7 million, more than tripling compared to the PCP, up 221%.The recommencement of AFL during June 20 saw the company benefit from its exclusive partnership with FOX Sports AFL. Towards the end of the quarter, the company continued international broadcast role as an exclusive Channel 7 Victorian odds integration partner for the spring racing coverage. This will be an important media asset in Q2 FY '21, especially given the current brand consolidation and reduced attendance at racetracks pubs and clubs over the spring. The Australian Trading Business marketing expense for the quarter was $11.3 million, generating a net win of $35.1 million.Before I hand over to Andrew Mellor, I would like to make some brief comments on our in-house technology platform. As I've regularly spoken to, owning and controlling your technology stack is unquestionably a superior position. To provide some tangible evidence of our recent product deliveries, as can be seen from Slide 14, we recently launched an improved app in New Jersey, Indiana and Illinois, where the user experience is more than 2x faster than the average Sportsbook. This will certainly aid the in-play experience of our customers in the U.S.The right-hand side of the slide highlights our recent focus on the U.S. parlay or multi as its referred to in Australia segment, including the launch of Single Game Parlay, Parlay Booster and In-Play Parlays, which are traditionally higher-margin products and drive client engagement.It was encouraging to see PointsBet's focus on user experience recognized by [indiscernible] in their recent review of New Jersey's 17 operator apps. They commented that our app was fast and intuitive and enhances the user experience with its attention to detail. They stated it is the most polished and modernized on the market. The report also spoke to the learnings from the U.K. market emphasizes that a customized user experience is of the utmost importance.I will now hand over to Andrew Mellor to talk to the Q1 FY '21 Appendix 4C quarterly cash flow update released to the ASX this morning.
Thank you, Sam. And good morning to those in Australia and Asia, and good afternoon and evening to those in the U.S. and the U.K. Now turning to the Q1 FY '21 Appendix 4C cash flow summary released earlier today, and please refer to Slide 15 of the presentation.At the September 30, 2020, the company's corporate cash balance was $436.5 million with the quarterly AUD-USD FX movement, resulting in an unfavorable FX translation of $4.1 million during the reporting period as the company held a significant portion of its corporate cash in USD. The company has no corporate borrowings.On the 25th of September 2020, PointsBet completed a $353.2 million capital raise. Under the offer, PointsBet raised $200 million at $11 per share under replacement and $153.2 million at $6.50 per share under 1 for 6.5 pro rata accelerated renounceable entitlement offer with retail rights trading. Eligible shareholders in the entitlement offer received 1 new option for every 2 shares issued under that offer at no further cost to them. The new options will be exercisable at $13 and expire on the September 30, 2022. The company will receive an additional $153 million in funds should these options be exercised in full.Receipts from customers or net win for the quarter totaled $38.1 million as previously detailed by Sam. Net cash used in operating activities in the quarter ending September 30, 2020, was $10 million. Excluding the movement in player cash accounts, net cash used in operating activities was $21.6 million.Major operating cash outflows during the quarter were cost of sales of $19 million, noncapitalized staff costs of $6.4 million, marketing costs of $28.6 million and administration and corporate costs of $5.8 million. These cash flows primarily resulted from the resumption of targeted marketing investment in New Jersey and the launch of full operations in Indiana and Illinois. The prepayment of some U.S. marketing obligations and the increase in cost of sales payments as the U.S. business grew in this quarter and the Australian business grew through the last 2 quarters.Net cash used in investing activities in the quarter ending September 30, 2020, was $15.3 million. This predominantly related to market access payments of $10.8 million, a significant portion of which related to the Illinois Gaming Board licensing fee. And further, the capitalization of our technology and product staff costs of $2.7 million.I'll now hand back to Sam to provide some concluding comments.
Thanks, Andy. Turning to Slide 16. This slide reflects the sports wagering and iGaming market opportunity over the term of the NBCUniversal partnership to 2025. This opportunity is predicted to be at USD 12.1 billion of annual revenue. This is the immediate opportunity in front of us as we pursue our target market share.Moving to Slide 17. PointsBet continues to execute on its strategic and operational objectives. Since listing in June last year, the company's strategic objectives have included gaining additional U.S. market access, achieving strong market share in New Jersey, launching operations in additional U.S. states, reaching profitability in the Australian Trading Business and executing a media deal with the market-leading U.S. media company, NBCUniversal. We plan to launch in Colorado in November and Michigan in Q3 FY '21 for both Sportsbook and iGaming, followed by iGaming in New Jersey.One of the important goals of our technology team is to improve the efficiency and speed of the rollout of our state infrastructure with the aim to ensure that we are on the starting line for future state launches, supported by the NBC Sports assets and their ability to help facilitate a fast start in these new states. It's a truly exciting time for the business.Thank you for your time today, and we welcome any questions.
[Operator Instructions] Your first question comes from Alice Li from Crédit Suisse.
My first question is on the margins. So in the U.S., I believe some of your competitors commented that they had low yield this quarter because voting was held behind closed doors and the results are unpredictable. Your margins, at least in New Jersey, growth and net win are reasonable. So I wonder there's some luck factor in there or maybe some bookmaking techniques.
Yes, I think, obviously, our gross trading margins in New Jersey were good, 6.8%. But I think to balance that out, Indiana was 2.6% and Illinois was 0.3%. So we had some, let's call it, some luckier clients in Illinois and Indiana that capitalized on. Yes, there were some favorable results to punters in sports betting in the U.S. in September, and that's been reflected in those wider results.So I think our results do reflect that, although there is some differences between what's occurred in New Jersey and what's occurred in Indiana and Illinois. The right result is probably the blend between the 3.
Okay. And in Australia, the margins are still emerging relatively high despite the compensation and the fact that sports have returned so not just horse racing anymore. So for PointsBet, as well as the broader market, do you see these levels sustainable?
Yes, it's a good question. I mean, look, sports, you're right, sports did resume, and that's undoubtedly led to some -- it should lead to some evening off of margins from the previous quarter where obviously racing dominated.Look, we obviously historically guide to those 10% gross margins and sort of 8% net in a normalized environment. But I think that's a low bar. We'd like to outperform that.So I think in summary, we're happy with the 11.5%. I think that's a good result, as you said, considering the resumption of sport and the fact that it would make up a higher portion of turnover compared to the previous quarter.
Okay. Sure. I just have one more question on the U.S. market assets. I actually haven't heard too much news market-wise in terms of new state legislation as well as PointsBet obtaining new market access. So just wondering what's happening in the broader market and if PointsBet still having conversations with potentially new market access partners.
Yes, most definitely. It's a constant focus for the company to ensure that as new states are legalized that we're in a position to be operating in those states. I think we talk about Colorado and Michigan being our next 2 states. A state like Virginia is getting ready to launch. We haven't announced any partnerships in terms of Virginia, but we're -- we back ourselves into secure market access there and be operating in Virginia when Virginia goes live.I think another state like Massachusetts is a state to watch. There's moves afoot there. And again, we're working hard to ensure that we're in Massachusetts and have confidence that we will be.So our position is, is that we were already -- we've already secured those 12 market access arrangements through a number of partners, which talks to, I think, the faith of those partners in the industry that PointsBet is going to be a material player and that we are a good partner to secure. I think on the back of having the NBC assets behind us, there's been the sports betting partner and the intent that, that signaled, I think, our position in the marketplace and securing market access has only been enhanced. And that not only ensures that we get into markets, but ensures that we get into markets on the best possible terms. So it strengthens our position in terms of what our partner fee may be in terms of what we have to pay those partners.So I think well into the momentum is still there in terms of states legalizing sports betting. It's only been, I think, enhanced by, obviously, state-based budgetary problems. I mean I think even a state like New York is looking far more likely on the back of the budgetary issues that they're having and the possibility of passing an overall revenue page bill.So I think the momentum is well and truly still there, and I think PointsBet's ability to ensure that we're in states that legalize has only been improved post the NBC deal.
Your next question comes from Jed Kelly from Oppenheimer & Co Inc.
Great. Just circling back on Illinois. When did you -- when were you actually live in that state? And then can you give us since you've launched anything you're sort of seeing with the trends in October?
Yes, Jed. Yes. So we only launched, I think, it was the 10th of September. So we got 3 weeks of operating. So 3 weeks of operating. As you know, we were the fourth to go live to DraftKings, FanDuel and Rivers had been live before us, in that -- in what is currently the mobile registration environment.So we were the fourth to go live around September 10. I think it was the first weekend of NFL, and we were ready to go and activated assets and got going from a marketing perspective.I think we're -- everyone's pretty happy at what they're seeing out of Illinois. I think Illinois is -- I think it was always a state that we had -- we thought would have a strong DNA for sports betting and get out of the gate strong. And we're certainly seeing that that's the case.And obviously, the fact that there's only 5 competitors. I think William Hill launched after we did, 5 competitors in what is the biggest state to legalize so far. Obviously, we have the Chicago RSN assets plus the other assets that we're leveraging up in Illinois. So it's certainly taking up a decent portion of our focus and our marketing investment. And we're seeing the results. All in all, very good.
All right. That's helpful. And then a lot of the sportsbooks, I guess, they do use third-party providers. And I think a couple of weeks ago, there were some outages in a couple of states. I mean have you -- I mean can you talk about, like in terms of how your outages compared to some of your competitors?And then just on the Parley Boost or the Parley product, what percentage of that is coming from like in-game wagering? Do you have those stats?
Yes. I'll come back to the latter. I mean in terms of outages, I think our performance in that space has been outstanding. Again, it's one of the cores. We view priorities from a technology perspective in terms of being -- first of all, you've got to master stability and scale. There's no point having bells and whistles and features if your app is breaking down regularly and going offline.We've -- in recent weeks in our Spring Carnival here in Australia, we've obviously processed some very high volumes with success. And once you've got the stability and the scalability, then you want to move to user experience and speed. And then you worry about the bells and whistles, the real sort of finite features on the end.So we put a lot of emphasis on reliability. And I think our performance in America and Australia has certainly been at the top. There was an outage, I think, early this week or late last week, which were all of the geo location functionality on all the apps came down. We basically all use a single vendor there that had some problems. So if that's the one you were referencing, that was not really a result of anyone's platform. It was the third-party geo location provider.But even prior to that issue, some of our competitors in America certainly had some pretty serious outages. And touchwood so far through our preparations and hard work, we haven't had experienced anywhere near the same issues that they have.In terms of the Parlay Boost, I can't give you the exact stats of how much of that is happening In-Play. I will say that the American market from a product perspective, we've spoken regularly and others have speak to it as well that we see 2 -- from a U.S. perspective, 2 of the focuses need to be In-Play. So that In-Play experience being as quick and your bet slip being as efficient as possible to to facilitate In-Play, and we're seeing In-Play numbers approaching 50% of turnover in America already, and we expect In-Play to go -- well above that over the long term.And then the other element is Parlay. Parlay is that opportunity to increase engagement for your clients and to produce some larger margins. And when you combine the 2, if we're facilitating clients being able to have an In-Play bet on 5 basketball matches that are going on at the same time or 5 sporting events that are going at the same time and to Parlay them up In-Play, that's a pretty good experience for the client. And the users that can or the operators that can facilitate that sort of seamless experience, they're going to have success.
All right. And then just one more for me. We do have the Breeders' Cup in the U.S. coming up in a couple of weeks. It's on NBC Sports network. I know you're not completely in the U.S. with horseracing, but is there anything you can do or do customer acquisition around that event?
No is the simple answer. I'm pretty sure that, that event has a pre-existing commitment. And as part of signing the NBC Sports partnership deal, there were some existing commitments that were flagged and called out, and they have to effectively run their course.So the short answer is no. I'm pretty sure we can't leverage that one. And I'm pretty sure it was in a pre-existing element of the deal. That's not to say that in the future, there might not be opportunities.
Your next question comes from Rohan Sundram from MST Financial.
My question has been answered on the U.S. yield front. But maybe just a follow-up on the U.S. gross margin, which looks quite solid actually. I just wanted to ask, is it not too early to attribute any of that performance to the tech stack? Or is it too soon?
Look, in this instance, I would say because there is disparity between the states, I pointed out that from a just a trading gross win margin perspective, that New Jersey was at 6.8%, whereas Indiana was at 2.6% and Illinois is 0.3%. And the industry sort of commentary that results were tough for sports bookmakers, in particular in September. Obviously, that was when the NFL resumed. That was accurate. And it was a sort of a tough quarter.But to your point, most definitely, can tech and product make a difference to improving improving gross yields. I mean we've just been talking about the role that Parlay can play in that front, the focus that we have on that part of our product. So if you can -- the difference between having 10%, if you turnover in Parlay of 20% or 25%, will make a meaningful difference to your gross yield.And then the other part to that is the mix of your client base. As your product improves, if you lead the product, we believe product will win. And what that means is when it comes to recreational customers who aren't necessarily price-sensitive, they're not just shopping around for the best product, best price, they're more likely to end up on the best product, the best product features, the best functionality, the fastest app, and those recreational clients, obviously, will have a higher natural yield than a sharp client who shops around for price.
Okay. That's clear. So on that note, in markets like New Jersey, where you've got a net win of 4.1%, which also seems pretty solid early on, are you saying that there's also a yield aspect to that based on product and mix? So would you expect to grow that net win over time as well rather than just a turnover story?
Yes. Well, there's 2 parts to it, let's call it, the trading margin, the gross win margin, which is a purer view of how you've traded and how the results have gone from a sports perspective. And then there's how much you give away in generosity and promotions from that to end up in net win margin. I think it's really telling, and this is part of our, let's call it, our model, is that, obviously, in New Jersey, we've been live there, circa 21 months. So what happens there is you've got a client base or a business that is more mature. You've got more retained clients.Obviously, when new clients are coming through, you're giving away more in generosity, but that speaks to closing the gap between gross win and net win margin because you've got a more mature client base, a more mature business in states like Illinois and Indiana and Iowa come 1st of January when we really kick off marketing there. In the early months, our strategy is to give away any gross margin in generosities and promotions for going net win because you want to scale up. You want to add clients. You want to get them in, trying your app by giving them back generosities. You get them through having 8, 10, 15 bet milestones. And if you can get clients having going through those milestones, they're starting to appreciate how fun sports betting is. They're getting used to the app and the navigation, and that can start to distinguish between a good app and a bad app. So that's the modus operandi.As states mature, like in New Jersey, you'll see improved net win margin and the gap between gross win and net win closing. As states launch early on, you'll see us giving away that gross margin in pursuit of client active scale. And that's the strategy.And I'll point out about Indiana. Even though we launched in Indiana in March, we only had 1 week live. And so effectively, then we went back into sort of hibernation mode until the sports as a result of COVID until sports resumed again in late July, and that's where we picked up marketing again. So we view Indiana very similar to Illinois, in that it's a recently launched state.
Our next question comes from Don Carducci from JPMorgan.
So it looks like you added about 18,000 actives in the U.S. from the fourth quarter into the first quarter and spent about USD 12 million to get there. So the back of the envelope customer acquisition cost math means that you're in the low USD 600 per head. So was this cash spend focused on defending the New Jersey turnover share, which seems to have dropped from 9% to 6%? Or was this all due to early Illinois sign-ups?
Yes, Don. I think in terms of New Jersey market share, when we spoke last quarter about achieving 8.7%, we were pretty clear not to take credit -- to put too much emphasis on that because it was off low activity as a result of there being no main U.S. sports. And we spoke about the fact that until we launch our U.S. iGaming products, in New Jersey, we estimated that we would stay around the 6% to 7% market share percentage because that's the level of marketing spend that we're doing. So to maintain that 6.5% in a growing market on the back of sports resuming and obviously, everyone in the marketplace starting to spend from a marketing perspective, again, we think that's a great outcome.In terms of Illinois, yes, that is a big focus. It's not only the biggest state. We've spoken before about a rough guide. This differs state-by-state depending on the makeup of the State. But if you take the Illinois, let's say, is an $800 million revenue state, we're aiming to be 10%. That's $80 million of revenue. And then we guide that we spend roughly 30% of that on marketing.Now that's not going to be spent equally across various months because seasonality will play a big role in that. And this -- if you're talking about seasonality, this is as strong as it gets with the big 4 sports all operating and, obviously, us launching into a state where there was only 3 existing competitors and being the biggest state to go live so far, it's definitely a focus of marketing.But we're spending in Illinois and Indiana according to, let's call it, that 30% of 10% model. And in New Jersey, we're spending less than that. We're spending more toward sort of a 6% to 7% market share position until we launch the iGaming product next year.
Okay. So to refocus that, so the USD 12 million that was spent in the quarter, was that predominantly weighted towards focusing on those 3 weeks in Illinois where you feel like you've got the initial game punters at launch, so we shouldn't see an equivalent tick up in actives into the second quarter? Or just keen to understand where those 18,000 actives came from.
Yes. Now you can assume a big chunk of them came from Illinois because it's that biggest market, let's say, it's $800 million versus Indiana being $300 million, it's 2.5x the size. So logically, even if all other things were equal, we would spend 2.5x more in sort of in Illinois than we would, Indiana. And we probably even overemphasized in Illinois, a little because of the more favorable setup in terms of number of competitors.So you're right in saying that, first of all, the amount that was spent in September was more than was spent in July. So July, August, September would have been the peak months of the quarter because of, obviously, the sporting calendar and return of the NFL.And in terms of focus of that spend, we were only live in Illinois for 3 weeks. But on a -- if you may amortize that over the 4 weeks, it was certainly our biggest spending state.
Great. And then it sounds like the Board is happy to focus on Australia a bit more. And with the growth expectation of $3 billion online, getting to $4 billion by 2025, can you talk about what underpins this assumption? Because I think it's been well-known that those 5 brands on Slide 12 were going to dissolve, and that's been well-known for quite some time.So keen to understand, again, what underpins that assumption of $3 billion to $4 billion. Whether it's based on maybe an over-index of fixed odd sports growing? Or is this really just you guys are taking or seeing all that retail money just converted to online?
Yes. I mean I think we've previously flagged that we had seen, even before the cessation of the BetEasy brand, we had seen some heat come out of the market a little bit. And we would -- obviously, we've been able to secure the racing deal and the Channel 7, the Foxtel deal, which on terms that we were comfortable with, which was probably reflective of some of the heat coming out of the market.But the BetEasy brand was obviously a big brand. And so that too no longer exist, provides a great opportunity. But I think, no doubt, the biggest factor was the transference from offline to online has been fast. That was always going to occur over the next 5 years, but it has been fast-tracked by the COVID impact. And our expectation is that activity, only a portion of it will return offline or is returning offline.So what that's meant is we've had a fast-tracking of the online opportunity. As we stated, we think it's above $3 billion now, which is very encouraging and will continue to grow. And so I think our success in getting to EBITDA positivity and those market factors, what that's meant is, we believe that we can grow revenue very strongly, while still maintaining EBITDA positivity. And that's a pretty attractive proposition.
Your next question comes from Phil Chippindale from Ord Minnett.
First question, just talking about the Australian market and the marketing expenses that you're incurring at the moment. So first of all, just for FY '21, how should we think about that marketing expense over the balance of the year? You called out the $11 million that you spent in the quarter just gone. So should we expect that to sort of ramp up potentially over the balance of the year?And then secondly, sort of a follow-on for that is, obviously, the 2025 target that's going to require significant investment from a marketing perspective. So again, can you maybe paint some picture about how we should be thinking about that?And Sam, maybe, yes, you connect it with your earlier comment about that sort of 30% number and how you think about that for the U.S. Is that a similar approach we should be thinking about here? Or again, just be interested in your guidance.
Yes. I mean taking the end, I suppose. Look, we don't -- I wouldn't take 4x our quarterly spend on marketing as a hard and fast annualized result. This quarter was -- it was pretty extraordinary. And again, we are mad about American sports in Australia. So to have the 4 American sports going plus the 2 AFLs, 2 Aussie domestic sports, footy sports plus racing plus still a portion of lockdown, sort of most definitely in Victoria and even restrictions in other states, it made sense to capitalize on that.And again, our approach when it comes to marketing is, let's call it, responsive and intuitive. We -- if we see the early signs that the payback is there then we have some flexibility where we can up spend a little bit. And if we see that the payback is sort of not there from our, let's call it, our plans, then we'll dial it down.So we certainly were seeing encouraging results from that increased spend. And you can see that in the active clients, but you can also see it in the turnover for the quarter for the Australian business, which it's pretty remarkable number, to be honest. So that encouraged us that, that spend is getting the return on investment as well as the other measures that we use internally to do that. But that takes you through to the end of September.Obviously, spending continues through to now and couple of weeks because that's still peak period. So then it really -- we go into a quiet period through just second half of November, December, January. And then you look at the start of AFL and NRL seasons again and you step it up.But I wouldn't go to 4x the quarter to sort of get a view on what marketing spend will be. I suggest that it will be less than that. But again, we have some flexibility in our plans based on the results that we continue to see.In terms of that pathway forward, I mean, the first point to note is all of our growth will be achieved within EBITDA positivity. That's the strategy is to space self-funding. And a little bit it will be formed by, again, what we see from a marketing perspective. If you're spending $30 million or $40 million on marketing, it's a little bit different potentially the efficiency than if you're spending $60 million or $70 million on marketing.But if we take that $4 billion market, $4 billion revenue, say, for the Australian market in 2025 and you estimated that we can be 10% market share, that's AUD 400 million revenue in 2025, based on what we've been talking about, a rough 30% model, you'd be spending, what, $130 million on marketing.Now I don't think you'll be spending quiet at that level because you do get some dropping off or pulling back of the marketing investment. I think if you look at most of our competitors who are operating, let's call it, a more advanced stage of their life cycle, their marketing investment is probably more around 21%, 22%, 23%, 24% and maybe high teens.So I think once you get to that sort of scale, you can see margins pull back from that 30% marketing spend. But within a model of EBITDA positivity, we don't see our marketing spend sort of going beyond the 30%. And anything less than that, I suppose, contributes to that EBITDA margin. We delivered a nice little margin, obviously, this year and the aim will be to deliver a positive margin again in FY '21.
Okay. Can we maybe just shift to Illinois? I'd be interested in your assessment of your progress so far.And then as a follow-on, how should we think about that net margin profile in that state? Clearly, you're going to be investing with promotions, et cetera, for a period of time.And we can look at your New Jersey, for example, as a case study and how that profile has changed over time. Is it -- should we be using New Jersey as a guide for how we should maybe expect that net margin to change? And if not, why not? And how should we be thinking about that? Should it maybe take a little bit longer, just larger states, et cetera? Or yes, just be interesting any differences that you'd like to highlight for us.
Yes. No, I think you're pretty much spot on there, Phil. I think New Jersey is a good road map from a net margin perspective as to what you can expect in other new state launches, in particular, Illinois.There's a couple of points I'll highlight though. Again, gross margins do play a role in net margins. So we just spoke about sporting results sort of going against bookmakers in September. So the higher the gross margin, then the more chance that we would deliver positive net margins earlier. But I think in general terms, when you go through a period of wanting to ramp up your client numbers, get some scale, capitalize while there's less competitors, and that's certainly the plan.I think the other point that's worth pointing out is we've never been first or equal first to market. I think in New Jersey, we were like eighth and in Indiana, Illinois we're sort of fourth and fifth and even Colorado, which we'll launch in November, obviously, there's existing operators that are live in Colorado. And Michigan, depending on how quickly everything moves, we should be pretty close to the starting line, but I made a comment at the end of my introduction that we see a great opportunity now with the NBC assets as well for PointsBet and, let's call it, our greater operational tech capacity.We want to be on the starting line, let's call it, from April onwards next year of any new markets that open up. We definitively want to be on the starting line from for those states. And not only do we want to be on the starting line, we want to be warming up those states with the NBC assets, whether it's the free-to-play predictor app, whether it's their e-mail databases, other spend to warm up that state.And what that should mean is it will be a slightly different experience to what we've experienced in New Jersey, Indiana, Illinois, where you're coming in, your competitors have already had months, 2 months, 3 months of operations. That gives you that opportunity, let's call it, to grab the keenest sports fans from day 1.If I was in one of those states of being a person who loves to have a bet on sport, I'm signing up to the first operator that's live, even if the -- the app might be terrible, whatever else, because I want to have a bet on sports. So the closer we can be, the more that we can exploit the advantage of having a great app in those NBC assets. And so that will be an indicator, will influence how quickly we can move through our gears and gaining scale from the clients and perhaps move to more net positive, net win numbers as well.
Final question for me. Just on the Colorado and Michigan launches and their timing. What are the hurdles in it to be overcome in order for those launches to occur within -- what the time frame that you've indicated?
Yes, Colorado is very close. It's just us getting through, let's call it, the final stages of system sign-ups. So that's within touching distance. Michigan, the regulator there is just sort of finalizing, let's call it, their rules and regulations, and they will publish them. And then the expectation is, is it shortly after operators will be available to go live.Now that's probably going to be around in January. And if it's around January, that will be sort of in line when operationally, we're ready to go. And that's why I say we'd hope to be on the close to the starting line in Michigan. If it's around that sort of current time line that's been talked about, if it gets pushed back to sort of February or March, then we'll definitely be on the starting line, all other things being equal. If it came forward to sort of November, December, we'll then we may miss the first month or so. But I think the current expectation would be around January, and that's going to be pretty close to when we can launch.
[Operator Instructions] Your next question comes from Damien Williamson from Bell Potter.
Just in terms of Illinois, can you give us an update on what's going on with the in-person registration process because it appears it's going online at the moment? And also, in terms of your customer acquisition strategy, what -- have you seen any traction from your NBC Sports Chicago network partnership to this stage for your customer acquisitions in Illinois?
Yes, in terms of in-person, look, I think given the current COVID environment in Illinois, our expectation would be that it gets extended again in November unless there's there's a quick -- some quick dropping of sort of COVID infection rates, et cetera. So we're continuing at the moment as if remote registration will continue for the foreseeable future.Obviously, we would have a strong competitive advantage if in-person resumes. But look, the impact of being the remote registration is that the market will grow more quickly. The 5 operators that are there will invest from a marketing perspective, and we'll get, let's call it, the sports betting, potential sports betting customer thinking and converting to becoming a customer.And again, in the long term, we think our product wins out. So the quicker the market grows, we'll accept that. And we'll accept the remote registration. We'll compete. We're happy to compete. And we think, again, our product will serve us well for the long term.In terms of the NBC assets, yes, as we highlighted, we've certainly been putting into use. I would say that we're only going to get stronger. The lowest hanging fruit is the easiest stuff, logos and banners on their telecasts and the like and heating up some of their digital assets. And -- but it's going to be the deeper integrations into programming that we want to move towards, and we are moving towards where we have someone from our team will speak to their team nearly every day. There's multiple meetings going on in multiple different streams, and the partnership is well and truly heading down the path that we hoped it would, which is great.One point, I think it's worth pointing out about marketing is, is that I've been pretty clear about the fact that in New Jersey, historically, we hadn't implemented a full brand strategy. One of the things we would like to have done was announce to the market that there is an alternative to Draftkings and FanDuel. But because of the media DNA taking content from New York and Pennsylvania, we would have wasted spend into those states.So our marketing mix in New Jersey had been very digital-focused. And I think that talks -- that is a different approach to what we're now implementing with the NBC assets behind us and in Indiana and Illinois, in particular.We want to build a brand for the long term. We want to announce to the marketplace and the sports betting consumer that there are alternatives there, the FanDuel and DraftKings. That's why it's so important to have the NBC logo on our app to build that trust and credibility, so people feel comfortable depositing their money. They know they're going to get paid out if they win $0.5 million on a big multi.That's a very big part of this industry. And that's something that we haven't been able to do in New Jersey, but we are doing now going forward on the back of the NBC asset. So that will build a brand. That takes time. But over time, we expect that to have an efficiency impact on our other marketing channels, and that is a different approach to, obviously, what we had previously been doing in New Jersey.
Yes. Okay. And just a second follow-up question. In terms of your NBC deal, looking at all the other big media companies in America, your deal seems to the most comprehensive. You recently have seen Turner do a deal with FanDuel and DraftKings and DraftKings deal with ESPN. Other than your deal, which other deals do you rate as being decent deals that other bidding companies have done with the media companies?
Yes. I think the only one that compares is obviously the FOX, Stars Group deal, now owned by Flutter. I mean the fact that they use the FOX brand and there's some equity changing hands, that's obviously a pretty deep relationship. But I think you're right. I think the others are nowhere as deep as ours.It was interesting to hear Caesars talk about their takeover of William Hill. And their plans post that takeover, which is to go back to their various media partners and to seek deeper relationships and integrations. And I think that's a flag to say -- that's a nod to what we've already done. That's -- they would like, I suppose or they're going to attempt to move down the path of the type of deeper relationship that we've secured with NBC.But I think NBC through their equity and options based on current share capital, that represents 28% of our company, obviously subject to shareholder approval at our upcoming AGM. So that gives them very real skin in the game. And I listened to a podcast recently where one of the key execs that certainly we worked over this process talked about getting the deal done and then putting the agreement in the drawer because they didn't need to look at the detail of the fine print or the causes because our interest was so well aligned. They have that 28%, potentially 28% position. That produces great alignment.That's why they gave us the favorable terms that they've given us because they want to give us a competitive advantage to ensure that we achieve our market share aims and to ensure that they receive a return on investment on that 28%. There's no point taking 28% if you're going to set us up to fail by putting in place punitive commercial terms. That's why they're putting place favorable commercial terms. And that speaks to the structure that we wanted in the relationship. So unless other media partnerships try and structure up their deals in a similar way, I don't think they're going to be so effective as ours.
Your next question comes from Larry Gandler from Crédit Suisse.
Look, I was quite impressed by the number of active customers in Australia, 125-plus thousand. It's almost about 1/4 of the size of TabCorp's active customers. So just doing comparison, and the turnover per customer is quite similar, believe it or not, but the -- obviously, the net win you guys collect is significantly lower.I was wondering if, usually with sort of a lower yield, you'd get some sort of elasticity on the turnover. Why do you think your customers maybe aren't turning over more than your typical punter out there given your yields are lower? Is there something you guys can do to stimulate turnover a bit more?
Yes, probably. Look, I think I'm following the math that you're doing there. You're definitely right in that a lower yield, a lower net yield should stimulate higher turnover, all other things being equal, over a long time. Obviously, over a short period, people can redeposit or withdraw and all those sorts of things.Look, I suppose what I would talk to, Larry, I would expect that the people that are betting with Tabcorp are still, let's call it, the dyed-in-the-wool Tabcorp customer that's been with Tabcorp through the absolute long term. Have you ever guessed that Tabcorp's customers probably have less accounts on average than the average corporate bookmaker account?But I think that does talk to -- if we are -- I don't -- I obviously don't believe that Tabcorp have an overall superior product than ours. But I think there's definitely something to be said for the fact that their brand has been in the market for 80 -- 60 years or something and had billions of dollars invested and they have every shop in Australia RWA branded. So all of those things bring advantages for Tabcorp that may mean that they have just that more loyal customer that is giving them 100% of their share.
Okay. So it sounds like it's something that is an obvious thing where your revenue per customer is lower than, say, Tabcorp, you would expect some elasticity. But in terms of getting that, is that something that you can -- is it digital marketing, specific marketing techniques that...
Yes. I think to -- there's 2 or 3 things. First of all, as our client base gets more mature, you will see net yields improve. They've got a very mature client base. I mean we -- as you can see, be seen by our actives numbers, we've acquired a large number of clients in the last quarter. This was the most we ever spent on marketing in the last quarter. We were very aggressive with generosity.So the more -- the larger portion of your client base that is made up of first-time betters or new clients, that has a negative impact on your net yields. But over time, as we get a more mature client base, and as we further improve our product, I think we're going to get a more stickier recreational client base.There's no doubt that Tabcorp and then Sportsbet have the strongest brand. They've been around the longest, and so they have the greater recreational mix of clients. But also importantly, they have a very established retained client base whereas ours is still growing rapidly as can be seen in those numbers.Having said that, we'd expect net yields in Australia to improve from what we reported this quarter on the back of generosities easing off. So yes, we went particularly hard this quarter. We went particularly hard from a marketing spend perspective, and we went particularly hard from a generosities perspective. But at the gross level, delivering 11.5% growth, if you look at Tabcorp's and Sportsbets' gross, they're going to be higher than that. So there's those 2 elements to it.
Okay. And just following -- continuing on that train of thought, so as your customer base matures, is that changing profile of an existing customer? Or is that a churn of customers and bringing in more punters that are perhaps less sophisticated?
I think it's both. I mean, the clients, let's call your retained clients, they're your stable clients. They bet with you each month. A portion of them churn and a portion of your clients are first-time better. So as you move through and 10% of your clients are -- if 80% of your clients are retained or 60% or 90%, that's going to make a difference to your yields. The higher your percentage of retained clients in your overall client mix, the better your net yields are going to be because you're giving away less, I suppose, to acquire them or to reactivate them. So that talks about net yield.In terms of gross yield, as much as your brand grows and trust and credibility grows and as your product improves, that will improve gross yields. And the reason I say that brand will help you attract and retain a longer, bigger portion of recreational customers.It's a bit like what I said before about America is that the first clients to find a new bookmaker are price-sensitive clients because they're shopping around for the best prices. So your client base starts off by being the more sophisticated client and then as you improve your brand and your product, you add to those, let's call it, more sophisticated clients with less price-sensitive clients, more recreational clients, and that helps improve your gross margin.But you can also help improve your gross margin, obviously, through what we've just been talking about, about a multi product, driving products proactively from a marketing perspective to higher-yielding products. Not all products are equal, as we know. Not only do some products yield lower sports versus racing, for example, but some products have higher cost of goods sold attached to them. So once you even get below the net win number and you start thinking about your product mix from a gross profit perspective because there's certain products that we don't pay any product fees on, and there's some that we do. So all of that comes into play.
Your next question is a follow-up question from Alice Li from Crédit Suisse.
So my questions have been answered. I withdraw. Thank you.
Thanks, Alice.