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Thank you for standing by, and welcome to the PointsBet Holdings Limited Q2 FY 2022 Appendix 4C Investor Presentation. [Operator Instructions]. I would now like to hand the conference over to Mr. Sam Swanell, Group CEO. Please go ahead. .
Thank you. Good morning, and thank you all for joining the PointsBet Holdings Limited Second Quarter Financial Year 2022 business update and activities report. This is group CEO, Sam Swanell, and I'm joined on the call today by our Group CFO, Andrew Mellor; our U.S. CEO, Johnny Aitken in Denver; and our Group Chief Operating Officer, Mark Hughes, who is joining us from Dublin. But before we begin, please note all numbers referred to are unaudited and in Australian dollars, unless otherwise stated.Turning to Slide 3. The December 2021 quarter as well as the month of January has been a period of great progress for PointsBet. During the quarter, we saw improvement in relation to many of our core financial metrics, and we've also made great strides in terms of expanding our addressable market and delivering on our product vision. This has been headlined by our exciting launch into New York this week. New York is expected to be one of the largest markets in the United States, and we are very proud to be 1 of only 9 licensed operators to gain access. This is in addition to our launch in Virginia last month and will be followed by our launch into Pennsylvania in February. These are obviously very substantial markets and allow PointsBet to leverage key NBC Regional Sports Network assets in each market. We also, this week, launched iGaming in West Virginia. We will continue to grow our total addressable market rapidly, with Ontario Canada likely to follow Pennsylvania and at least a further 7 states are expected to be added in North America in calendar year 2022. In November, we were thrilled to deliver our first major in-play product upgrade following the acquisition of Banach Technologies, now known as PointsBet Europe. Sports betting is the product that is leading the expansion of online betting across the U.S.A. To win market share and deliver success in the U.S. market, we will require excellence in sports betting product and execution. As sports betting is legalized across the U.S., we anticipate that 75% of all online bets will be placed in-play, that is once a match has already started. Providing an elite optimized client experience for in-play betting is beyond the capabilities of most operators who do not have modern in-house proprietary technology combined with advanced models and automated real-time trading systems. U.S. sports, in particular, continues to be poorly serviced in terms of the in-play client experience.PointsBet's superior optimized client experience, in particular around in-play will clearly differentiate us from our position. The PointsBet Europe upgrade has now been applied to NFL and recently NBA. Further sports will swiftly follow. The impact on our NFL KPIs has been impressive and provides huge encouragement regarding the path we are on. In-play handle was up 44% since the upgrade and Group COO, Mark Hughes, will speak to other impressive positive indicators later in the presentation.It is also worth mentioning that this month PointsBet became the first operator in the U.S. to offer in-play betting with 0 suspensions or 100% uptime across the core markets of NFL spread and moneyline. Most people would be unaware that the majority of operators are operating at just 70% of uptime, meaning that when a client attempts to place a bet, the market is suspended 30% of the time.It's not hard to see the difference in player experience between the 2 outcomes and thus the positive sentiment and ultimately ongoing patronage that will be earned by the superior product experience. In addition to in-play betting, another key product battleground is parlays and in particular, same game parlays. As such, it gives me great pride to announce that this week PointsBet released its market first NFL and NBA in-play or live same game parlay. PointsBet same game parlay has proven incredibly popular with our clients, and providing them with the opportunity to place these bets during a game is a further example of how PointsBet is hitting its stride, leveraging the capabilities of our proprietary technology and models. As you'll see in today's numbers, it's also great to see U.S. net win increased 64% quarter-on-quarter to reflect the improvements we've made across the business. That improvement also includes iGaming. As is well recognized, PointsBet was late to the U.S. market from an iGaming perspective. We were not in New Jersey pre-PASPA repeal like many of our competitors, and we took the time to build our own in-house proprietary platform as we set the business up the correct way for long-term success. But we are now making swift ground. In November, we released the Evolution live casino product set into Michigan, and this was completed for New Jersey in January. iGaming net win was up 145% quarter-on-quarter.And with West Virginia having launched this week and Pennsylvania and Ontario upcoming, we will see iGaming revenues continue to climb on the back of our ever-improving product suite. In Australia, the December quarter saw the seamless delivery of record activity across the Spring Carnival. It is imperative that we deliver a reliable, secure and scalable system that meets the needs of our clients on peak days such as Melbourne Cup Day.On Caulfield Cup and Everest Day, PointsBet Australia processed over 4,000 bets per minute, up 2.5x from last year. On Melbourne Cup Day we processed over 683,000 bets for the day, setting a new record. This continues PointsBet's impressive record of successfully managing peak days without incident in both Australia and the U.S. To wrap up my introduction, I want to return to the U.S. In New Jersey, we've historically operated without the benefits of iGaming revenue and without the benefits of also being live in Pennsylvania.Many clients crossed the border between New Jersey and Pennsylvania, and we'll not use an app that is not operational in both markets. We have the Philadelphia regional sports network via our relationship as the official sports betting partner of NBC. This delivers us integration exclusivity for all 76ers, Phillies and Flyers games, an extremely powerful asset. We've been utilizing this asset to reach the South Jersey audience, but will shortly be able to unlock its full benefits by being live in Pennsylvania. Following our New York launch earlier this week, we are now amongst an exclusive group of operators that will be live in New Jersey, Pennsylvania and New York. In New York, we are again leveraging our NBC partnership through Sportsnet NY, a part of the NBC Sports Group. SNY is the regional broadcast home of Major League Baseball's New York Mets, in addition to carrying supplemental coverage of the NFL's New York Jets. They offer PointsBet year-round multi-platform media and marketing opportunities.In parallel with these exciting developments, PointsBet continues to deliver on its product vision. Recent months provided a taste of what is to come with market-leading innovation as we now leverage the hard work that's gone into building our proprietary technology and product. While it is disappointing to see the recent performance of our share price, we continue to focus on achieving our key operational priorities, investing in our proprietary best-in-class technology and working towards our long-term growth goals. We will now drill into particular focus areas.Slide 4. Compared to the group results for Q2 FY 2021 to be referred to as the PCP, in Q2 FY '22, sports betting turnover was up 11% at $1.33 billion. Our sports betting gross win was up 60% at $133.8 million and sports betting group net win was up 61% at $71.9 million. Q2 FY '22 iGaming net win of $5.4 million represented a 145% increase quarter-on-quarter.Now turning to Slide 5. The Australian Trading business continued its strong growth performance, ending the quarter with turnover of $727 million, up 34% compared to the PCP and net win of $53.1 million, up 7% from the PCP. However, net win was marginally lower than Q1 FY '22, reflecting the business' focus on promotional activity during the Spring Carnival. Gross win margin and net win margin were 12.7% and 7.3%, respectively. Now turning to Slide 6. The Australian Trading business' Q2 marketing expense was $22.6 million, which assisted in delivering 12-month rolling cash active client December 31, of 232,875, an increase of 63% compared to the PCP. To take advantage of the latter parts of the NRL and AFL seasons and the Spring Racing Carnival, the FY '22 marketing budget was skewed towards H1 and to build our brand and to acquire and retain clients over this important period of the sporting and racing calendar. Marketing expense in H2 will be substantially lower than H1 as we execute this strategy to front-end marketing expense this financial year and leverage our fantastic Shaq asset. Now turning to Slide 7. Compared to the PCP, the Australian Trading business has been -- has seen improvement across several KPIs. We saw a 15% growth of first-time betters. This was particularly pleasing given 2020 saw both AFL and NRL finals shift from September to October, resulting in increased first-time better activity in the PCP. PointsBet's app download volume grew by 121.3% compared to the PCP, representing the largest gain across all major competitors. For context, Sportsbet increased volume by 34.5% and TAB by 33.9%, respectively, compared to the PCP. And PointsBet's brand awareness grew significantly. As mentioned earlier, I'm also very pleased to report that our in-house proprietary system successfully processed record betting activity through the Spring Racing Carnival.We saw new peaks reach for scale indicators such as bets per minute, concurrent active user sessions and settlements. Success on such big days in Australia provides the global team with even more confidence in the stability and scalability of our tech stack and trading systems as we enter into the NFL finals and launch in more U.S. states. I'll now hand over to U.S. CEO, Johnny Aitken, to provide commentary on our U.S. business.
Thank you, Sam. Turning to Slide 8. In leading off, I wanted to say that we are pleased what we achieved during quarter. As communicated in January 2021, the December 2020 quarter for handle, gross win and net win results was impacted by short-term by trading variances, which reversed in January of 2021. And as such, the PCP comparison growth rate should be viewed with this in mind. Pleasingly, Q2 net win of $24.1 million represented quarter-on-quarter growth of 64%. We remain focused on generating net win in our U.S. business and doing so in a sustainable and disciplined fashion. Please refer to Appendix 1 of the presentation for a state-by-state breakdown of handle, gross win and net wins. Handle for the quarter was $598.9 million, up 72% quarter-on-quarter. Handle shows a decline on PCP, but please note my earlier comments on the impact of last year's short-term trading variances. I'd like to take a moment you to outline a very important part of our strategy. We are extremely focused on ensuring that every dollar of handle we book will ultimately drive value and revenue. In line with this, our focus is aimed at ensuring every client we acquire is capable of being revenue-generating. Rather than focusing on the sheer number of actives, our experienced customer intelligence and trading analytics teams are intensely focused on calculating the lifetime value of our clients, ensuring they are accurately and quickly profiled. Targeting, procuring and retaining the right clients continues to be very important.PointsBet blended U.S. online handle market share in the states we are operational in consolidated was 4.2% for the quarter compared to 4.5% in Q1 of FY '22. A further breakdown of market share for a state can be found on Slide 8. Whilst Handle is one indicator of business scale, we remain focused on growing net win. Our strong sense is that analysts and operators agree that the market will transition from being heavily promotional-driven to one where the product experience is the primary driver of operator success combined with scale distribution, and we certainly have the latter via our partnership with NBC. I note the heightened gross win margin, the PointsBet has delivered in New Jersey compared to all other states which is partly due to variance but is also being driven by the more advanced life cycle of the New Jersey market as customers adopt more diverse products such as parlays and player props away from the traditional lower pregame margin spreads totals and moneyline bets. This is an encouraging forward-looking trend that plays to PointsBet's innovation strengths controlled by our proprietary tech and internal trading models. Our Quick Parlay Builder, Parlay Booster, Same Game Parlay and now in-game Same Game Parlay are just the beginning of ongoing top product feature enhancements.Now turning to Slide 9. Q2 marketing expenses were USD 29.7 million, and I'm pleased to report that the overall U.S. working media cost per FTB was again under $500. We continue to invest in marketing and growing the brand across the U.S. Cash actives grew to $211,000, up 210% compared to the PCP. It should be noted that this metric also reflects our retention effort, not just acquisition volumes. Further, sizable portion of this quarter's marketing investment was into audiences outside of what was 8 live states. This investment targeted upcoming states like Virginia, New York and Pennsylvania, and more broadly acts to build brand awareness in the database nationally to assist the future state launches.We noted in the FY '22 Q1 call that there was an opportunity to better utilize our tactical promotions. A number of optimizations were made during Q2, refining our approach with a focus on rewarding our high-value engaged client cohort and gaining an improved share of wallet from them. We reinvested a smaller proportion of gross gaming revenue on the promotions in Q2 compared to Q1. While slightly lower than the peak seen in September and October, competition remained significant in the quarter, specifically, is it related to promotional activity. Thus, it was important to retain and incentivize our valued clients with all 4 of the major play sports together being active along with college basketball and college football. However, it should be noted that we expect to gradually bring down the rate of promotional investment further in time as we continue to focus and lead with our superior products. Turning to Slide 11. We are excited by the opportunity for us this calendar year as we target to be operational at least 17 states in the U.S. and also Ontario, Canada by calendar year-end. Our mid-December launch of online sports betting operations in Virginia with our partner, Colonial Downs, marked the 8th operational state for PointsBet and one of our most successful state launches to date when looking at FTBs driven from NBC properties. Virginia represents a large market opportunity with a population of $8.5 million, a comparable size to New Jersey and with a rich sports history.Tapping over 22,000 leads at launch largely driven by our partnership with NBC and leveraging local legend and a 11-time NBA Star, Allen Iverson, a PointsBet brand ambassador, our Virginia launch exceeded our execution goals. In the first week of launch, Virginia STBs acquired by NBC channels were almost 5x higher than STBs acquired in the first week post launch in the state of Michigan. This launch demonstrated that we continue to improve our strategic go-to-market plans that are leveraging our NBC partnership and execution capabilities. Viewers have been familiar with the PointsBet brand through our exclusive odds integrations and expert analysis during key NBC television broadcast, including Sunday Night Football, where PointsBet brand ambassadors and NBC and NFL talent Drew Brees and Chris Evans post the PointsBet Pulse segment, with an audience of nearly 20 million people each week. Notably, NBC's Washington regional sports network affiliate is prominent throughout the region, including Maryland and upcoming launch date for 2022. And says that the exclusive regional broadcast home of the NBAs Washington Wizards and the NHL -- now Washington Capitals.By utilizing NBC's regional sports networks and owned and operated broadcast stations unlocks a daily presence with local market teams and top sporting events, creating a familiarity with the PointsBet brand prior to launch. In December, we were named the official and exclusive sports betting partner of the University of Maryland Athletics. This multiyear agreement marks the first ever sports betting partnership within the sport Big Ten Conference and follows our deal with the University of Colorado, which has provided a template to work within the university space.The University of Maryland Athletics has more than 3 million fans worldwide with nearly 200,000 located in the DMV region, which stands for Washington DC, Maryland, and Virginia. Also, as announced on the 25th of January 2022, PointsBet launched operations in New York by representing another major milestone for our company, our brand and our technology. As Sam mentioned earlier, New York is expected to be one of the largest markets in the United States, and we are very proud to be 1 of only 9 licensed operators in the big apple. We will again look to leverage our NBC partnership through SportsNet NY, a part of the NBC Sports Group. SNY is the regional broadcast home of the Major League Baseball New York Mets in addition to carrying supplemental coverage of the New York Jets. They offer PointsBet with year-round multi-platform media and marketing opportunities across its unmatched portfolio of events. PointsBet will have additional leverage opportunities as 1 of only 6 operators that have a New York access and official NFL partnership status.As we plan for Pennsylvania to launch next month, our focus will be on the significant Philadelphia and Pittsburgh markets. Since going live in New Jersey in 2019, we have been utilizing NBC Sports Philadelphia to reach the south-sided for the Jersey audience. This includes linear inventory and integration across the Flyers, the 76ers and the Phillies, which taps into their hometown affection for their teams with both -- with digital, both on the national sites, with targeted ads in New Jersey, and by utilizing nbcsports.com RSN specific website. As made public by the New York State Gaming Commission on the 30th of August 2021, PointsBet as an approved platform provider will also provide the Resorts World, a wholly owned subsidiary of the Genting Group with a B2B mobile sports, so wagering service in the state of New York.This strategic B2B agreement should be viewed as an accretive and valuable partnership for the company if not indicative of a large B2B strategy of PointsBet. Aside from the unique economic opportunity represented by the results for betting in New York, PointsBet remain solely focused on our B2C sportsbook and our gaming operations. Turning to Slide 12. Industry analysts keep increasing the estimated size of the U.S. online sports betting, gross gaming revenue TAM opportunity. As we launch new states in 2022, our coverage of the U.S. population and with that our TAM opportunity continues to grow considerably. We have seen some estimates point to an online sports betting TAM maturity of U.S. about $42 billion. And on top of that, the USD 18 billion for iGaming. We would note that horseracing is not commonly included in these -- the U.S. TAM estimates. However, from our experiences in Australia, we do think there is future upside in this category to be realized in the U.S. Hence, why we bought PTC, a U.S. advanced deposit horse, a wagering business last year. With the recent launch in New York, the 9 States PointsBet is currently live and represents the total target population of 62 million people with an approximate Sportsbook TAM a USD 10.5 billion at maturity, adding in near-term launches of Pennsylvania, Ontario, Louisiana, Tennessee, Maryland and Ohio, represents a further target population of 46 million, an additional $6.8 billion sportsbook TAM opportunity.Turning to Slide 13. The NBC and PointsBet partnership entered its second year at the start of September 2021, and the partnership continues to drive results and break new ground in the category. It should be noted that at the end of the quarter, only 16.5% of the total NBC lead base was a direct first-time better opportunity for PointsBet. However, that number will jump to an approximate 26% come February 2022, once both New York and Pennsylvania are launched and grow even higher over the calendar year.I'm pleased with how the partnership is developing and excited to the innovation we have planned in H2. The coming period will include a more robust sort of digital plan, incorporating NBC's new by regional Connected TV and over-the-top plus solution spot on. There are also additional opportunities for inclusion on their quickly growing streaming platform, Peacock. This combination of national and regional networks, along with the local TV assets gives us the ability to create bespoke strategies to reach an audience. I'd like to now introduce our Group Chief Operating Officer, Mark Hughes, formerly the CEO of Banach Technology. Mark began his career working for Paddy Power, now part of the Flutter equation side, as a pivotal member of the quantitative analytics team. As previously noted, in-play betting is estimated to make up at least 75% in DAU as a whole sports wagering activity within the next 3 years and PointsBet acquired Banach Technology to take advantage of this in-play opportunity. Mark will highlight the progress we've made in this area again over the quarter integrating the Banach Trading Platform. Over to you, Mark.
Thank you, Johnny. Now turning to Slide 14. In-play is our North Star. We believe in the valuated sports betting brings and enhancing the viewing experience of the sporting event. And we are building a product to appeal to the user that enjoys that experience. We are on the journey to building an all-is-on experience that drives customer engagement and repeat usage, meaning more player days, more engagement for player day and ultimately a higher delivery of utility to the customer. Our data shows that in-play delivers the product experience to keep the user engaged and on app during the session. Our in-play customers demonstrate higher average bet size, they bet more frequently, they have more bets per play day and ultimately a higher average revenue per user.Turning to Slide 15. The launch of our enhanced in-house in-play model for NFL in October 2021, represented a big milestone for the company. PointsBet acquired Banach technology in early 2021 with the intent to accelerate ambitions to deliver a world-class in-play betting experience to our customers in the U.S. Banach Technology was founded with the vision to build a modern sports betting technology platform to support the delivery of a more enriched and quality betting experience for the in-play customer in the U.S. Since launching the new in-play NFL model, we have already seen key results when compared to the period immediately prior to release. Firstly, the improved betting experience. The new algorithm has reduced the amount of time our in-play product is suspended for betting by more than 40%. This results in a significant increase in volume of opportunities across [ country ] the best. This, coupled with improved bet placement journeys have led to a reduction of approximately 50% and bets rejected. Secondly, product expansion. We have increased fourfold the number of betting markets that our players can bet on. This includes the addition of player prop betting markets and the markets first In-Play Same Game Parlay. We also need our customers to show an appetite to engage with this new content. And the early statistics have showed huge promise with our proportion of turnover that finds the core betting markets increasing by 42%. Our users want to play this product, and we'll continue to deliver for them. This also offers a proportional increase in cash opportunities for our customers.And thirdly, results. Our stated North Star is in-play and our hypothesis is that the product improvements will drive our users to better in-play. Since the launch of our NFL model, in-play as a proportion of overall NFL has grown by 44%.We're continuing to push the boundaries of the customer experience, and with the integration of the official NFL data from Betgenius, we have seen further improvements in both in-play betting availability and bet delays. January has seen the introduction of our in-house in-play NBA product, and we will plan a fast follow for our in-house in-play NCAAB model, and an overall improvement in our in-play tennis offering with the introduction of [ ITF ] tennis. We're forecasting similar improvements on other in-house products and continued momentum towards our vision to deliver a world-class in-play betting experience to our customers.Evidencing our progress during NBC's playoff game on Saturday, 15th of January between the Raiders and the Bengals wildcard, we are proud to have become the first U.S. sports betting provider to offer clients live in-game betting opportunities with 0 suspension across the core markets of spread and moneyline. All of the aforementioned initiatives demonstrates our ability to continue to innovate and lead to market with unique and value-adding products.Turning to Slide 16. I would now like to touch upon iGaming. The iGaming product continues to show a strong quarter-on-quarter improvement with net win up 145%. We were particularly excited to have launched our live dealer table solution in Michigan in November and New Jersey in December, including Blackjack, Roulette and Baccarat.Online casino products have seen a rapid growth in the U.S. and the experience iGaming team at PointsBet is responsive to our users and eager to bring our customers the experience and gains they are looking for. The introduction of live dealer gaming is a welcome addition to PointsBet growing wagering product suite. Our live gaming options in Michigan offer top-tier choices for our players and will serve as a template as iGaming expands in other jurisdictions in the U.S. and Canada. We launched iGaming in West Virginia on January 27, and anticipate further launches in Pennsylvania and Ontario in the coming months. Importantly, we look forward to the continued product improvements we have in development as we move to the next phase of our iGaming offering, including a significantly enhanced games library, automated promotional, functionality, personalized offerings and other innovations. We will continue to see online casino in customer activity and revenue generation over the coming months. I'd now like to hand it over to our Group CFO, Andrew Mellor.
Thanks, Mark. Turning to Slide 17 for the quarterly free cash flow summary. As of the 31st of December '21, the company's corporate cash balance was $523.3 million. Net cash used in operating activities during the quarter ending 31 December, excluding the movement in player cash accounts, was $56 million. I'll now walk through each of the main line items. Receipts from customers for the quarter totaled $90.4 million. This includes net win from Sportsbook and iGaming verticals of $77.3 million, as previously presented by Sam and Johnny and the balance of $13.1 million includes cash receipts from our European B2B operations, cash receipts from our U.S. racing ADW business, and a partial New York license fee reimbursement received from Resorts World Bet, a subsidiary of the Genting Group as part of our B2B platform provider agreement to power the resorts for bets online sportsbook operation in New York State. As earlier presented by Johnny, this strategic B2B agreement should be viewed as an accretive and valuable partnership for the company but not indicative of a larger B2B strategy of PointsBet. Cash outflows during the quarter included cost of sales of $44.8 million, which grew in the previous quarter, in line with increased trading activity in both the U.S. and Australia. Noncapitalized staff costs of $18.9 million, with global FTEs growing to 539 at the end of Q2 as we continue to build the scale.And in addition, we have support staff, which are engaged via third-party service companies. Marketing cash outflow for the quarter was $65.6 million. This increase quarter-on-quarter with slightly increased marketing expenses as well as being due to the movement in prepayments and accruals from the prior quarter. As previously disclosed, the Australian marketing expense was AUD 22.6 million for the quarter, and the U.S. marketing expense was USD 29.7 million for the quarter.As noted by Sam, the Australian marketing expense will reduce significantly in H2 versus H1, and we expect the U.S. marketing expense in Q3 to be higher than Q2 as we launch new U.S. states, including the recent launch in New York and soon to be followed by Pennsylvania, our tenth U.S. state of operation. Cash outflows of administration, corporate costs and GST paid on Australian net win was $17 million for the quarter.Turning to investing activities. Net cash used in investing activities during the quarter ending of 31 December was AUD 43.6 million. The main driver of this outflow was the well-documented market access payment to the New York State Gaming Commission of USD 25 million required to receive our New York State mobile wagering license. Further, over the quarter, the company capitalized $7 million of technology and product staff wages as part of continued development of our sports wagering and iGaming platform. There was minimal cash flows from financing activities for the period, and the company has no corporate borrowings. At the end of December, we had $523 million in corporate cash. We take a disciplined approach to setting up the company for long-term success, investing in our unique and market-leading proprietary technology and product platform, continuing to grow the team to scale across the globe and investing in our marketing strategy. I'll now hand back to Sam.
Thanks, Andy. Turning to Slide 18 and in closing some brief words on Canada. We eagerly await the announcement of an official launch date for Ontario, which is imminent. Not be more pleased with what has been achieved by our team led by Canadian CEO, Scott Vanderwel. We are dedicated to delivering a brand and an experience that is genuinely Canadian. The deals that we have executed with DailyFaceOff.com and the Nation Network, Curling Canada, the National Hockey League, Alumni Association and the Trailer Park Boys are all true to the strategy. We are extremely confident in the efficiency of the cut through these partnerships will deliver to grow brand recognition and acquire clients. In launching PointsBet be Canada in Ontario, the Canadian team will leverage not only the proprietary technology and market-leading product that the company has built, but also the global scale we now possess with a one-team approach supported by staff in numerous continents. Thanks for your time, and we'll now take questions.
[Operator Instructions] Your first question comes from Rohan Sundram from MST Financial.
I might start with a question for Sam. Just how are you thinking about the long-term share aspirations of the business in light of the ongoing increases in estimated North America TAM. So would you be happy with, say, a 5% share of a $70 billion market as opposed to, say, 10% of the $30 billion market? Is that how you're thinking about it?
I could -- no, I think -- look, our aspiration remains to toward that 10% market share. I think the reality is, is what we thought in terms of a marketing budget that would allow us to achieve that is now effectively probably a marketing budget that's more akin to achieving, let's say, a 3% or 4% market share because as you sort of drawn the link to the size of the market has grown dramatically and the size -- the estimated size of the future market. So our competitors are being far more aggressive in line with that, and that they're being far more aggressive from a promotional perspective.So I suppose our relative budget, if you think about us spending $27 million last quarter and a little bit more this quarter, the market was probably spending close to $1 billion in those 2 quarters on marketing. So we're probably spending about 3% of what the market is spending for marketing. So it's a bit unrealistic for us to expect at this stage in the current environment to be heading rapidly north towards that 10%.But as I suppose as we assume the market transitions, interesting hearing Adam, the CEO of MGM -- BetMGM yesterday or the day before, talk about maybe there's another 12 months of this heightened aggressiveness in the market, maybe one more start of NFL season, but then their expectation is that perhaps things ease off a little bit. And we probably agree with that. And in line with that, obviously, we're continuing to make rapid progress on our product strategy.So we think those 2 things combined improving our brand. We're investing in our brand. We're investing in building databases. While it may take longer to get to that 10% given the growing TAM and the amount that's being spent, we still plan to get there as the market transitions have been more product focused.
Okay. And on the New Jersey share, I know it's not the main game, but I take into account the reduction there in turnover. But given the high net win, how would you share a look on a net win basis, especially given the third quarter was almost 8% net win?
Yes. Well, I mean that New Jersey is a very good example. So from a market share perspective, we came under a bit of pressure again. But from a net win perspective, net win quarter-on-quarter was at 24%. So that's a good example. We want to keep growing net win. Now if that's a smaller portion of the market that we thought would be, that's in some ways a positive because, again, it talks to the fact that the market is bigger than most expected and is growing more rapidly.Johnny made a comment during his part about the fact that New Jersey now it's becoming a bit of a trend that its gross margin yields are yielding higher than our other states. And we look at the reason behind that. And as you said, some of it is some variance. But some of it is definitely some differences in player behavior in terms of that slightly more mature market now because it's been open a bit longer, players gravitating through the higher margin products, the same game parlays, the player prop, et cetera. And we think, again, that's a positive trend for us. Because it shows that they're moving into the, let's call it, the sweet spot for PointsBet because this is where we aim to lead in terms of having the most engaging product set.
Your next question comes from Joe Stauff from SIG.
Sam, you talked about New Jersey, Indiana and Michigan were the states. The bigger states that you have exposure to in the third quarter where you lost share, but I guess the expectation rightfully wrongly, it would take a while to build those back given the advertising and the promotional environment, but you're able to rebuild in Michigan. And I was wondering can you describe or talk about maybe some of the methods that you use to recapture some of that lost share in the fourth quarter -- I'm sorry, in the fiscal second quarter versus the first quarter? That's the first question. And then I wanted to ask about customer acquisition costs. Johnny, you had mentioned you guys are still running about $500 or so. And with your newer launch states in Virginia and Pennsylvania in a month or in February and New York and your ability to rely on your RSNs, your NBC RSNs, would it be fair to assume that customer acquisition cost could come down in those particular markets?
Joe. So in terms of Michigan, look, again, I think the pleasing thing for Michigan, yes, our sports betting market share did go up. But again, even more importantly, I think we had $700,000 of net win last quarter and this quarter was something like $3.2 million. So again, really good growth in Michigan from a net win perspective. I think obviously, when you've got the casino products improving.When we think about states that have a mix of sports betting and iGaming, you really do have to look at them in totality because it goes without saying that if a client goes and loses some money playing Blackjack, Well, then that's perhaps less money than they have to turn over on sports betting. So the 2 are genuinely related. And thus, when you're looking at New Jersey, Michigan and soon to be West Virginia and Pennsylvania and states with mix. You have to look at the combined result, not -- there's a difference if you just have sports betting to having sports betting and iGaming. Johnny, is there anything you'd want to say about Michigan in particular?
No, I'd just add, Sam, that again, we view every state of its own country and each state sort of differs in terms of the dynamics and how, again, consumers consume sport the population by distribution, a market like Michigan is very unique. And in that particular, we're seeing, I guess, the early results of a very smart investment with Olympia entertainment. So they own the Arena were the Pistons and the Red Wings play. We made a smart investment into building a sports bar next to the main entrance of the stadium. And when you've got at least 82 home games of NBA, NHL and people are walking past the points of brand going in and out of the arena are going there and having a drink it played a role in making sure the points that's part of the local sporting fabric there and part of the consideration when people in Michigan and Detroit is thinking about where to place their next pedal sign up.
Thanks, Johnny. Yes. In terms of the [ CAC ], Johnny, I mean, -- we spent -- and Johnny made comment about this, we spent $29.7 million on marketing. And last quarter was similar in terms of -- because we were waiting to launch in Virginia, and we knew that we have upcoming launches, and we were waiting quite confident of a positive outcome in New York, and again are confident of a positive outcome with licensing in Pennsylvania. It's been a strange couple of quarters because a fair chunk of our marketing budget has gone into the Washington RSN, the Philly RSN and SNY in New York. So as those states go live, Virginia, now New York and soon Pennsylvania, that spend goes from being sort of out-of-state to being in those states. And so that proportion of let's call it, somewhat of spend that was going outside and maybe less efficient. Yes, it was building the brand and warming those states up. That then comes into state.So I don't necessarily -- I wouldn't necessarily say that [ CACs ] are going to come down because we're now going live into those states. But we certainly do believe that those -- it's the model that we've used, obviously, in Chicago that we're never going to outspend these big guys at the moment, but the audience watches live sport. We've got fairly Phillies, 76ers all the teams that Johnny spoke about, the Mets in New York, et cetera, getting in front of those eyeballs through those RSNs, we think is a very efficient mechanism to grow our brand and acquire clients.
Your next question comes from Desmond Tsao from Goldman Sachs.
I've just got a couple of questions around Slide 14 and 15. I think you guys provided some interesting detail on those 2 slides. Obviously, I think Mark noted a couple of industry-first achievements by the business in the U.S. and obviously now with Banach and the rise for in-play. I was wondering if you can just talk a bit more about the opportunity that in-play presents? And then more specifically, whether you have a sense of market share within play. Would it be fair to say that your share of the in-play market is actually far greater than the blended 4.2% share that you talked to today?
Good question. Yes, I think in terms of the opportunity, I really want this to be clear in terms of stepping through the dynamics of the U.S. market. We've been at a disadvantage because we didn't come from an iGaming background most of the companies that we're competing against. New Jersey legalized iGaming back in something like 2013. So all of -- most of our competitors have been operating iGaming in America in 1 state at least and maturing all of their products and practices for some time, pre-PASPA being repealed.Add to that, as I said, the fact that we took the time to build our own platform because we want to own it, we want to keep the margin for the long term. We have been at a competitive disadvantage from a product set perspective, but also from a revenue perspective of not having had -- having had that product. But as we think about forward-looking states, I think it needs to be clear that all the states that are going live now and launching are all sports betting only. So iGaming expertise is not going to necessarily get you anywhere if you don't have sports betting expertise. And our -- obviously, our blueprint is to win our market share on the back of our sports betting expertise. And then when iGaming does get legalized, the answer is 3 years later for a particular state, we've already got hundreds of thousands of clients, and we can cross-sell 40% of them or whatever that number is to iGaming versus someone who was focused on iGaming. Well, they won't have any market share. If they don't have [indiscernible] sports betting product, and they're not going to win that market share in the sports betting states. But within that earning of market share from sports betting. I don't think there's any operators out there that aren't talking about a 75% in-play market. So everyone is agreeing that 75% of sports bets will be placed in-play. And we're on a path to, we believe, leading within that sector. Now we want to lead within the entire product sector. So we want to have the best product full stop, and that includes improving our own gaming product.But leading the way and now starting to deliver on some of our product vision. Part of the challenge when you build something from scratch, we've built this tech stack from scratch, even in Australia. And at the start with not a lot of resources is it takes time to deliver things. And we're now getting to the point where we're delivering. We're starting to innovate as 100% uptime in-play same game parlays, et cetera. So when it comes to the in-play vision and how important it's going to be for winning market share and ultimately succeeding in the U.S., I don't think anyone is in doubt with that. And I hope the market is starting to see how PointsBet is already leading in this category, but he's going to put the foot down and continue to really put a gap on there.In terms of market share, in-play market share, I'll throw to Johnny, but I would just say -- perhaps I think it's still a customer journey, and that's what we're talking about from the New Jersey perspective that -- the market is still very focused on the promos, et cetera. It will gradually gravitate to be more product focused. And then there's the second part to that is, though, as clients get a little bit more sophisticated as we're seeing in New Jersey and they branch away from the core bet types into more creative bet types and higher-margin bet types. But Johnny, do you have a feel for whether you believe we're already over indexing from an employ perspective?
Yes, Sam, I think the true sort of read-through will be sort of Q3 numbers this quarter and onwards. And the reason being there that, again, in Q2, we saw NFL and NBA move on to our internal trading feeds powered by the Banach technology. And so now sort of for each quarter ahead we'll get a true read of the power that drives.One of the things I think is misunderstood by the market is that it isn't just about competing for in-play on the number of markets you have. It isn't just about building player pops and micro markets, really, the core tenet of offering an in-play experience that drives repeat usage and allows you to lean in on your product over sort of, again, sort of covering maybe with gaps in the product with heavier sort of promotions, centers around being up the longest, again, sort of aiming towards that 0 sort of betting suspensions and giving consumers that complete experience the place a bet, to cash out their bet without, again, the moment when the market is well suspended.And then the second tenet is around the speed to accept the bet. Again, we sort of note that our competition in general applies a 7- to 10-second bets delay when any in-play bet is placed. And then after that 7 and 10 seconds passes and the bet is then pinged again to the trading software that's being used externally by a lot of our competitors, 50% of the time the bet is being rejected due to a price change or again due to the market being suspended. Again, we're again actively working and sort of backing in the models that have been delivered by -- sort of backing in, again, the pricing efficiency that we have, that we have the confidence, continue to put as many clients as we can on 0 bet delay.And so not only matching again, as I said, that sort of uptime goal to again continue to increase that, but also accepting bets in sort of lightning speed. And if we're up the longest and quickest to accept, we think that combined with our product features and then you got, again, distribution of the message of points that being the king of in-play, particularly across the NBC platforms again, it's going to be a huge ongoing driver of client activity for the business.
Your next question comes from Larry Gandler from Crédit Suisse.
A few questions from me. Sam, just in New Jersey, I'm hearing how you guys evolved the management of that offering there. Can you talk to whether that involved a churn of customers? Or is it -- did you migrate existing customers into new patterns? How did that play out? And is this a sort of first state? How can we didn't sort of take this approach in Illinois yet? Is it just a different circumstance there?
Larry. I think across the business, we made a comment, and I think Johnny referenced it again that last quarter, we probably didn't focus enough on our existing clients or our higher-quality clients and with our promotions and focused on the acquisition period. And I think we do want to focus on quality clients without wanting to -- everyone's got their own strategies, but there's acquiring clients is not hard. We can run promotions and give away money and just acquire clients, but that doesn't necessarily remain that all of those clients are going to be of value. So we're trying to find the balance. And I think that's the message coming out that, yes, we'll keep growing. But we want to keep growing responsibly.So if adding another 10,000 active or 20,000 actives, if those actives are no good. And that's the same in terms of churn. There's no point trying to hold on to some clients if they're just genuinely not genuine. Then we make no apologies for doing that. So no, I wouldn't sort of say that we're actively targeting segments or disconnecting from certain segments, apart from unprofitable segments, clients are just not going to be worth anything. And in terms of Illinois, now it's very similar. It's very similar. The strategy is the same. It's about a focus on value, continue to grow. It's just the dynamics work out that in New Jersey, we grew revenue by that 24% quarter-on-quarter, lost a bit of market share in Illinois, we're be able to continue growth without losing that market share, but the strategy is consistent.
Okay. Excellent there. And with New Jersey, just continuing on that, I think you did about $15 million of net win in the half. Let's say we annualize that in a bit more. New Jersey has been funding marketing for new states. But if we kind of withdraw that new state support, are we getting close to breakeven in New Jersey alone to sort of isolate just New Jersey marketing?
Yes, I think we are, Larry. I mean, I think when we do 10.8% for the quarter, I would rather times that by 4 because the iGaming product has come in, and that wasn't necessarily present in previous quarters. There's a few -- there's a lot happening in New Jersey. There's a lot of market dynamics still there. So I'll call out a few. Obviously, going live in New York and being one of exclusive group that will be live in New York, New Jersey and Pennsylvania will be helpful going live in Pennsylvania. We spoke to that Philly audience. The continued growth of the iGaming product is going to be vitally important. But I think by the middle of next year, we think New Jersey is turning profitable. So post the PASPA cessation of sports, sport came back to the middle of -- post COVID, in the middle of 2020, sort of had to restart the business. And so we think by the end of next financial year, we're turning profitable.
Your next question comes from Don Carducci from JPMorgan.
Just a couple of quick ones from me. So if I think about the net new active customers, where did they come from? Was it the new markets? Or was it maybe those markets that you had been in for 12 months or more?
Don. Yes, I mean, look, obviously, we acquire clients in all new markets, the difference being that in a market like New Jersey, where you have been live for some time, you also churn clients out the back end. So the increase in active clients is a net effect. It's what you've added, obviously, the increase we've acquired more first-time betters than that increase in actives, but we've also turned some clients in the back end. So that's the net effect.
Yes. No, got it. I understand that. So I guess if I rephrase the question, I mean, you have churn, is the majority of this churn coming from new states? Or is it coming from the existing states that you've been in for 12 months or more like New Jersey, Iowa, Indiana?
Yes. By the definition, because we're giving a 12-month rolling number, it has to be states that we've been live in for more than 12 months because if we've been live in a state for 6 months, for example, all of those clients would be in the 12-month active number.
Got you. And then can you give us a little bit of clarity on the cash burn guidance maybe for next quarter, include license payments, et cetera, obviously, Pennsylvania, it's a steep one, New Jersey, but just kind of a little bit of guidance on what we should expect for that?
Yes. Sure, Don, it's Andy. I think just talk to cash burn generally, we're continuing to build, obviously, for the long term and investing in this opportunity, particularly in the U.S. and the product. And that is requiring a reasonable level of upfront investment, as you mentioned, the market access requirements, license requirements and the marketing investment, which I think it's pretty well understood as we roll out into new states. As it relates to the market access payment, obviously, this was a large payment that we made in New York, which was USD 25 million in Q2. The payment required for Pennsylvania is USD 11 million, which will be paid in Q3. So the business development payments for Q3 will be lower than Q2.
Thank you. There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.