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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Thank you for standing by and welcome to the PointsBet Holdings Limited Q3 FY 2023 Appendix 4C Investor Presentation Conference Call. All participants are in a listen-only mode. [Operator Instructions]
I would now like to hand the conference over to Mr. Sam Swanell, Group CEO. Please go ahead.
Good morning and thank you all for joining PointsBet Holdings Limited Q2 FY 2023 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 regional CEOs and our U.S. Chief Strategy Officer.
Before we begin, please note all numbers referred to are unaudited and in Australian dollars, unless otherwise stated.
Turning to slide three. Before speaking to our quarterly results, we were pleased to announce this morning that we have agreed to amend the media services agreement with NBCUniversal originally dated August 27, 2020. The original agreement had a five-year term ending in August 2025, and the parties have now agreed to extend the agreement by two years to August 2027. As a reminder, we are currently in year three of the agreement, which runs August 2022 to August 2023.
PointsBet has trialed and gathered key learnings from a media perspective since going live in the U.S. market. We are thrilled to have agreed with NBCU on mutually beneficial adjustments to our agreement that fit perfectly within our more targeted, localized strategy, which is informed by those learnings. Put simply, we firmly believe a dollar spent in marketing on any other platform does not come close to rivaling the terms and efficacy of the partnership we now have with NBCU. The remaining committed marketing spend for the final three years of the original agreement will now be invested over the remaining five years of the extended term, being August 2022 to August 2027, significantly reducing the marketing spend in each remaining year to match our desired level of investment under the more localized targeted strategy.
The total committed marketing spend for the five remaining years to August 2027 is US$294 million, with US$25 million of its commitment being already been paid as at December 31, 2022, leaving US$269 million remaining. The total commitment for the current year ending August 27, 2023, is US$50 million, a reduction of 42% from the original agreement. It should be noted that over the next four years of the term, August 2023 to August 2027, the maximum cash payment in any one year will not exceed US$56 million.
Should the options issued to NBCU at the time of the original agreement not be exercised instead of a lump sum repayment of the option premium value of AU$105 million by the company at the end of year five, this amount will now be applied to pay for the media services across year six and seven. In this scenario, the total cash commitment over the remaining five years of the term applied largely on an equal annual basis will be US$270.4 million, less the US$25 million already paid this year, with the balance to be covered by the remaining value of the shares previously issued to NBC.
To provide further context, we expect the U.S. marketing expense for FY 2023 to be circa US$90 million, down from US$118 million in FY 2022. We will provide some details later in the presentation regarding the superior effectiveness and ROI we are seeing from our more targeted marketing strategy.
I will now ask our U.S. Chief Strategy Officer, Eric Foote, to provide some further insight into our marketing strategy and how the media properties of NBCU and Comcast under our amended agreement will assist. Eric?
Thank you, Sam. As a result of our learnings referenced by Sam earlier, we have shifted our marketing strategy from investing in large-scale national assets, which mainly focused on brand building, to highly targeted investment into states where PointsBet is live. The local focus is aimed at acquisition and retention of clients in our immediately addressable markets and delivering a direct return on investment from the marketing spend.
In the current year of the amended term, 99% of total spend with NBCUniversal is being utilized locally or through geo targeted assets, such as NBC-owned and operated broadcast stations, NBC Sports Regional television networks and Comcast Effectv. PointsBet continues to enjoy favorable media pricing across NBCUniversal's various media platforms and retains its status as official sports betting partner and exclusive online casino partner of NBCUniversal and NBC Sports.
The unrivaled media properties of NBCUniversal, of which PointsBet have access to include; exclusivity on local and regional assets in both the sports betting and online casino categories, including integrations with its NBC Sports Regional television networks and our successful alternative television sports betting experiences called BetCast, and first-look rights on any new local and regional sports betting and online casino partnership opportunities across Comcast and NBCUniversal properties such as NBC Sports, Peacock Sports, Comcast Effectv and any new digital properties, platforms and products developed by NBC Sports during the agreement.
Further, the amended agreement allows PointsBet to more heavily utilize Comcast Effectv platform. With an estimated reach of 96 million U.S. adults, Effectv allows PointsBet to target audiences with hyper local level precision across a wide variety of linear TV inventory. Further, leveraging the best-in-class X1 voice remote in certain markets, PointsBet can serve a targeted call to action. Viewers are promoted to say PointsBet into the remote and then directed to the sign-up page via text messaging that includes special offers. As a result of our focused and targeted strategy, PointsBet has relinquished integration exclusivity over NBCUniversal's National Media assets.
During the first two years of the partnership, the NBCUniversal National Media assets have successfully assisted PointsBet with establishing strong national brand recognition. However, we have learned that this approach is not the most productive tactic at this current juncture. Now PointsBet can execute on its highly effective local focused advertising strategy, while the reduction in the annual commitment marketing spend to NBC for the remaining five years of the agreement provides flexibility with the company's overall U.S. marketing budget. Additionally, if desired during the life cycle of the agreement, PointsBet will maintain second look rights on these national properties.
An external brand lift analysis conducted by Kantar in October 2022 indicates that between December 2021 and June 2022, we saw a 27% increase in brand favorability and an 18% increase in consideration intent against our key audience demographics via NBC advertising.
Throughout the term, we will continue to refine our spend to ensure we achieve optimum efficiency, maintaining and building upon momentum. NBC has been an excellent partner and very flexible through the process of the structuring. I can speak on behalf of our entire team when I say that we are excited to enter this new phase and look towards 2023 and beyond.
I will now hand back to Sam.
Thank you, Eric. Turning to slide four. The December quarter has been another period of progress for the company, achieving record net win across the group as well as each region. From a market launch perspective, on 24th of November 2022, we successfully launched online sportsbook operations in Maryland. This was followed by our launch in Ohio on the 1st of January 2023. In both states, PointsBet launched on the starting line representing the company's 13th and 14th online sportsbook operations in the United States. We've been very pleased with the activity we've seen since both state launches.
During the first three weeks operations, Ohio has delivered the highest number of first-time bidders of any state launch. This is very pleasing as Ohio is the seventh largest population in the U.S. with 11.7 million people.
As we've mentioned previously, these early results highlight the importance of being on the starting line in order to improve state launch effectiveness. From a product perspective, during the quarter, we delivered continued enhancements of our broader live betting product with the successful launch of additional lightning bet contingencies, including important NFL markets such as result of [indiscernible]. Further, our in-house odds factory soccer model was released for the start of the FIFA World Cup, offering a market leading array of live betting opportunities, including live player props and additional lightning bet options as we continue to focus on broadening the depth and breadth of our market leading live betting offering.
In addition to the FIFA World Cup, soccer odds factory markets are now available across 18 international leagues, including LaLiga, MLS, French Ligue 1 and UEFA Champions League, providing customers even more betting opportunities across numerous time zones.
Turning to slide five. Compared to the group results for Q2 FY 2022 to be referred to as the prior corresponding period, or PCP, in Q2 FY 2023, sports betting turnover was up 56% to $2.06 billion, and total group net win was up 34% at $103.4 million. As you will hear from our regional CEOs, the U.S. continued its strong trend of net win growth, while Australia was back into growth mode, having cycled through a strong PCP comparison that lapped lockdown assisted months.
I'll provide some concluding comments at the end of the call and will now hand over to the regional CEOs to provide an overview of their regions. Firstly, our U.S. CEO, Johnny Aitken.
Thank you, Sam. Now turning to slide six. Compared to the PCP, the U.S. trading business ended the quarter with sports betting handle up 75% at $1.05 billion, and total net went up 68% at $40.6 million. The strong growth in net win compared to the PCP was assisted by our strategy to focus on targeting, delighting and retaining a super user customer through product and service excellence.
Given our focus on the super user, it was pleasing to see our net win growth, which increased 68% compared to the PCP, outpacing our player growth with rolling cash actives growing 39%, to 192,000 [ph]. This implied growth in player value is driven by our continuously improving product and has impacted our customer Net Promoter Scores, bets per player days favorably. This has achieved while simultaneously reducing our bonus investment.
Our primary objective, sports betting net win grew 51% when compared to the PCP. Gross trading margin at 5.2% was impacted by some short-term negative VIP barring late in the quarter. However, margins have corrected higher in January as trading normalized with January net win expected to significantly exceed the December quarterly monthly average net win. This increase in net win growth momentum is pleasing to see.
Looking to the rest of H2 FY 2023, we would guide towards an expected net win margin in excess of 4% for sports betting. This forecast for H2 is above the year-to-date trend, but in line with what we have observed to date in January. This shift is enabled by the continuous evolution of our pricing model and trends in consumer behavior towards parlay bet types. Both of these trends are enabled by continued improvements with our betting platform.
iGaming delivered a 128 increase -- a 128% increase, I should say, in net win compared to the PCP. This meant we achieved a new record high for iGaming net win performance in Q2 driven by the overall growth of the casino-only cohort and an ongoing improvement in our ability to convert and retain cross-sold sports betters on our gaming.
From a product perspective, Q2 saw improvements, with every content launching in Michigan and gaming realms [indiscernible] game type launched in New Jersey and Michigan, supplementing content addition and improvements through existing suppliers. The iGaming lobby saw improvements in look and feel, with game category creation functionality deployed to support customers finding new and favorite content as well as a more optimized game layout, ensuring more content is exposed above the fold. However, we believe we have continued headroom to improve our iGaming product and the net win contributions iGaming can deliver to business in live U.S. states.
Our marketing efforts are hyper focused. This means investing in our target customer and in regions and markets where PointsBet is live. Despite increasing our total addressable and being live in five more states this quarter compared to the PCP, total marketing expense reduced by 78% [ph] to US$24.5 million. The aforementioned growth in player value is driven by three factors fundamentally. Number one is marketing. With our continued increased brand values, combined with more efficient and targeted investments.
Number two is product, which fundamentally improves ability to retain and engage customers. The impact of our investments have been evident this half year in our internal Net Promoter Scores as well as the [indiscernible] externally published product rankings where we continue to be ranked in the top three online sports betting apps in the U.S. And number three is our iGaming, with our ability to target both new direct casino customers and better engage our sports space, which has significantly helped drive up our player values in live iGaming markets.
The improving marketing ROI can be seen by the increased net win versus the decreased marketing investment. It can also be clearly seen via our internal marketing investment to net win payback ratio. Tracking with our forecast, our payback ratio being more than 2x our FY 2022 H1 in our PCP number. Payback is defined as the relationship between the expected lifetime by value clients and the cost to acquire them. Our working CPA -- our working media CPA, I should say, for the quarter was well below US$400.
On a like-for-like comparison, our same-state total net win grew 36% compared to the PCP despite the reduced marketing investment as we realize the benefits of retained client cohorts. As has been reported by some other operators, PointsBet is seeing combined revenue from acquired clients in a given month, increasingly material -- increased materially from year one to year two. That is acquired clients as a group are more valuable in year two than year one.
During Q2, we launched one new state, Maryland in November, and also launched Ohio on January 1, 2023. That growth has meant that PointsBet is now live with its proprietary sports betting platform in 14 states of the U.S. Each new market launch carries expectations of improved velocity from day one in terms of FTB and overall activity as we continue to harness learnings from prior launches and optimize our go-to-market strategy. Despite Maryland being a smaller population size in comparison to launches in Illinois, New York and Pennsylvania, for example, it broke internal records for third five-day FTB volume compared with our prior 12 online sports betting launches. Our launch in Ohio followed on the 1st of January 2023 where we again proceeded to beat the FTB record set in our prior Maryland launch.
Turning to slide seven. We continue to shift more key sports onto odds factory, our proprietary trading platform, which powers our stated mission to own and create the best live betting experience for North American customers. Odd factory to date has enabled PointsBet customers to experience a comprehensive depth and breadth of live betting markets supported by increased market uptime and faster bet acceptance than competitors.
It is worth emphasizing some key data points on live betting and why it forms the foundation of our strategy and ability to win with the super user customer. This includes significantly reducing NFL suspension times versus the 2020 to 2021 season. The inability to place a live bet because of suspension is a key customer frustration, and we've invested considerably in delivering a leading betting experience in this respect, enabling customers to place faster bets with minimal interruptions.
Our lighting bets products also referred to as micro markets continues to attract our users, bringing them closer to the live action, allowing them to bet, for instance, on the NFL on the outcome of every play in drive. The Q2 2023 FY, lightning bets accounted for an average of 20% of all cash in-play debts.
We were pleased to have again ranked third in the Eilers & Krejcik U.S. sporting apps testing, continuing to demonstrate that we have one of the leading apps in the U.S. market. Also in the quarter, we debuted a market-leading suite of 130 live betting options for the Soccer World Cup. Customers had access to an unmatched number of one-minute and five-minute lightning bet markets, along with the ability to build a same game parlay pre-match or live maximize their live betting experience.
As we articulated previously, we expect net win margin performance to be sustainable above 4% as we continue to reap the benefits of owning our in-house sports betting technology and odd factory, our proprietary sports betting trading feed solution. This will allow us to continually decrease promotional investment as we lean on our product and service excellence to drive sign-ups, retention and continued net win growth.
I would now like to hand it over to our Australian CEO, Andrew Catterall, to provide an overview of the Australian trading business.
Thank you, Johnny. Now turning to slide eight, Australia. In Q2 FY 2023, the Australian trading business delivered PCP and quarter-on-quarter growth in turnover, gross win and net win. Our net win in Q2 was a record, not just for the second quarter or any quarter in the company history.
Total turnover was $938.5 million, up 29% compared to the PCP. And net win was $57.7 million, up 9% on the PCP. We cycled out of book down impacts on PCP comparisons by mid-November. December 2022 was the first full month in FY 2023, clear of lockdown impacts for PCP comparisons. Pleasingly, in December, we delivered 21% growth in cash actives and 14% growth in net win compared to December 2021, validating the underlying growth in the mass market appeal of the PointsBet brand in Australia.
Sport continued to be the primary driver of growth in actives, turnover and net win in Q2 FY 2023. In our last report, we called out a net decline in free code racing turnover for the first quarter, primarily due to the hangover of lockdown impacts on Victorian and New South Wales based customers. As we cycled out of these lockdown impacts from December onwards, racing performance returned to a consistent, slightly positive year-on-year trend.
Our overall trading margin was lower at 10% for Q2 FY 2023 compared to 12.7% in the PCP and 11.9% in the previous quarter. Turnover continued to weight towards sport versus racing through Q2, thus lowering margins despite the fact we made material improvements in the margin performance of multis. We continue to prioritize improvement in multi performance in our combined local and global product roadmaps. The global roll bet [ph] of improved same-game multi products powered by odds factory has delivered material increases in activity and net win for the FIFA World Cup soccer and season-to-date performance for NBA and NFL, which we anticipate will also benefit in H2.
We continued our strategy to improve the efficiency of our client promotions and to prioritize the retention and reactivation of known positive value clients over a less valuable promotion led clients during -- recruited during the lockdowns. The rate of client promotions as a percentage of gross win improved to 38% versus 42% in the PCP. The average monthly cash actives for the quarter was up 6% on the PCP.
The 12-month rolling cash actives as at 30th December 2022 were nearly 235,000, up 1% on the PCP. Total marketing expense was $20.1 million for Q2, down 11% on the PCP and down 20% quarter-on-quarter. This is a continuation of our strategy to invest hard in brand promotion in Q1 and scale back from Q2. Our forecast marketing expenditure for the H2 FY 2023 will be less than 50% of the H1.
In Q2, we extended brand partnerships with Seven Racing, Fox Footy and Australian Community Media and secured a new partnership with ESPN, which will underpin our marketing efforts in H2.
I'd now like to hand it over to Scott Vanderwel to run through highlights for Canada.
Thank you, Andrew. Now turning to slide nine. We have been live in Canada since the market opened in April and have completed three operational quarters. This past quarter, we were pleased to see growth, and momentum continue to build across both our sportsbook and online casino offerings. Total sportsbook handle was $80.4 million, up 284% quarter-on-quarter.
With the NFL regular season in full swing, the NBA and NHL season is returning to action, our in-play mix of total handle grew to 63% in Q2, up from 59% last quarter, as customers continue to experience and enjoy this new form of betting, particularly during the recent FIFA World Cup. Sportsbook gross win was $3.5 million, up 121% quarter-on-quarter. And net win came in at $2.1 million, 4.8 times higher than Q1.
On the online casino side, we delivered $2.9 million in net win, an increase of 128% quarter-on-quarter. In total, across the full offering, we delivered a total net win of $5 million, a 192% increase over our first quarter results.
The competitiveness of the Ontario market continues to rise, with 67 licensed gaming sites from 35 different operators as of the end of December. Within that highly competitive environment, we continue to be pleased with the strength and quality of the customers that are making the choice to play on PointsBet. Our growing cash actives growing to almost 21,000, up 57% from Q1 and average turnover per customer continuing to grow. Our marketing spend was $8.2 million in Q2, and our marketing to net win payback ratio is very strong.
We continue to make gains in strengthening our brand awareness and consideration and building our presence in the local community. We recently opened our Canadian office in the heart of downtown Toronto, providing a permanent home to our local staff supporting our Canadian clients. Our approach of working hand-in-hand with iconic partners and ambassadors, including Maple Leaf Sports & Entertainment, is helping to build connections with customers. And we see continued value in leveraging these trusted relationships as we build the PointsBet brand in market.
Looking ahead, we expect to continue to deliver sequential performance improvements in Q3 as our base of customer grows. Our already class leading product continues to innovate and improve. And the scoring calendar continues to be robust through the NFL playoffs, Super Bowl and the second half of the NBA and NHL seasons.
I would now like to introduce our Group CFO, Andrew Mellor, to provide an overview of the cash flow statement.
Thank you, Scott. Turning to slide 10 for the quarterly 4C cash flow summary. I'll move through each of the main line items.
Net cash used in operating activities, excluding movement in play cash accounts in the quarter ending December 31, was $64.7 million, an increase on the $58.5 million of operating outflows in the prior quarter. Receipts from customers for the quarter totaled $105.8 million, a quarterly record for the group. This includes net win from sportsbook and iGaming verticals of $103.4 million. And the balance includes cash receipts from our European and New York B2B operations and cash receipts from our U.S. racing ADW business.
Cash outflows during the quarter included cost of sales of $61.3 million, which was higher than last quarter driven by timing of payments as well as by increased trading activities across the three regions in Q2 versus Q1. Non-capitalized staff costs $25.7 million lower than Q1 due to the timing of the FY 2022 annual performance payment during Q1. Marketing cash outflow for the quarter was $67.5 million, higher than last quarter due to the timing of payments of accruals and prepayments across the quarters.
As previously spoken to, the Australian marketing expense was $20.2 million for the quarter, below Q1 of $25.2 million, and the U.S. marketing expense was US$24.5 million, slightly higher than Q1 of US$22.8 million. The Canadian marketing expense was CAD$8.2 million above Q1 of CAD$5.5 million. Administration and corporate costs and GST paid on Australian net win was $18.9 million for the quarter, slightly higher than Q1.
Turning to investing activities. Net cash used in investing activities during the quarter ending December 31 was $16 million, higher from the $14.9 million in the prior quarter. Capitalized development costs were lower than Q1 due to the timing of the FY 2022 annual performance payment during Q1. The U.S. business development costs increased on the prior quarter, and this was driven by market access and regulatory-related payments for the Maryland and Ohio state launches. There was $1.1 million used -- there was $1.1 million cash used in financing activities during Q2 versus $0.9 million in the previous quarter.
It should be noted that there was a negative impact of $12 million from the movement in exchange rates due to the move in the USD/AUD spot price during the quarter given the majority of corporate cash is held in USD.
The company has no corporate borrowings at the end of December '22, had $320 million in corporate cash.
Now to provide some commentary on the H2 FY 2023 cash flow outlook. Based on our expected trading performance for the second half, we currently anticipate the H2 FY 2023 net cash outflows excluding movement in player cash will be circa 35% lower than H1. The operating cash outflows for H1 FY 2023, excluding movement in player cash, was $123.1 million, and H2 operating cash outflows, excluding the movement in player cash, not anticipated to exceed $70 million, a significant reduction versus H1. This will be driven by continued trading momentum of the three trading businesses. Further in Australia, we front loaded the marketing expense into the first half, with marketing in the second half to less than half of H1. In the U.S., we expect the marketing expense in the second half lower than the US$47.3 million in the first half, with marketing -- with total marketing for the U.S. FY 2023 to be circa US$90 million, down from US$118 million in FY 2022.
In closing, we would note that the velocity of hiring into FY 2023 reduced significantly versus FY 2022 with a focus on hiring into a low-cost locations up to the end of December. At the 31st December 2022, we have reached operational scale, and the group has implemented a global headcount freeze. We look forward to presenting our half year financial statements later in February.
I'll now hand back to Sam.
Thanks Andy. The end of the calendar year marks a turning point for PointsBet. In Australia, we look forward to delivering another full year of growth and EBITDA positivity on the back of an improving product and greater promotional efficiency.
In Canada, we are seeing strong ROI from our early investment in a jurisdiction structured favorably for operators with iGaming and a reasonable tax rate. In the U.S., we've delivered strong PCP revenue growth through H1 while reducing marketing investment materially. As previously communicated, we expect New Jersey to be EBITDA positive by June 2023.
With operational scale now having been reached, the impact of our growing revenues will begin to be seen in H2 as cash burn reduces by circa 35% from H1. We will report our half yearly results in the coming weeks. However, as can be seen from our H1 trading results, together with the realigned NBC deal and commentary on our cash flow outlook, we believe this is an important and positive juncture for the company and for our path to profitability.
Thank you for your time, and I will now take questions with regards to our amended NBC partnership and our quarterly results discussed this morning. Before we do, please note that today, we will not be commenting on or answering questions on the ASX announcement dated 28th of December, which addressed speculation regarding our Australian trading business. As noted in that release, PointsBet will continue to keep the market updated in accordance with our continuous disclosure obligations. Thank you.
Thank you. [Operator Instructions]
Your first question comes from Rohan Sundram from MST Financial. Please go ahead.
Q - Rohan Sundram
Hi, team. Just I might to start with a question on iGaming. And Johnny, you might have touched on it in the call. I might have missed it. But I noticed in the states like Michigan, there was a step change up in the revenue in the December quarter versus previous quarters. Can you just recap on what is driving that? What changes have you made that's driving that? And is that a sustainable increase? Is that a new base we should now expect to see from iGaming and further strong ramp up?
Go ahead, Johnny.
Sure. Thanks Rohan. Good to speak. Yeah. I think it's a combination of three things. Firstly, we're getting better and better at knowing when the cross-sell engage sports betters into casino with an improving product depth and game lobby. So, when they're cross-sold through to the PointsBet casino, it's on par from an experience compared with other again iGaming products.
Secondly, we're starting to invest in acquiring as a casino player. That's someone that thinks and bets first someone that's more drawn to play slot games, and we're seeing them be quite engaged again off a low space and spend, but something that will continue to ramp up with efficiency. And again, part of our NBC deal realignment is the ability, for instance, to invest through a marketing mechanic called Effectv, which allows us to go sort of over the top in sort of local markets around America. And again, we'll be doing that with casino branding and messaging in the state of Michigan.
And then the third is the team just continues again to execute better and better. We're identifying customers earlier that are high value that are both playing across sports and casino, and those that are playing across casino and giving them more personalized experiences, messages and offers. So, there's not one, I guess, sort of silver bullet thereon. It's been a combination of those three key factors that has seen our sort of revenue performance in Michigan growth.
Thanks Johnny. And maybe one more just for either Sam or yourself, Johnny. Just how are you seeing the competitive environment at the moment, especially in those new state launches? I appreciate that always going to be competitive. But how are you seeing it now versus say 12 months ago?
Go again, Johnny.
Sure. Again, what we're seeing is still a very, I guess, obviously, heavy-duty assets from all competitors that go live on sort of day one, both in, call it, brand spend and promotional spend. Again, we're being very tactile and efficient with how we go-to-market in states. For both Maryland and Ohio, we were tactile in evolving our strategy to invest ahead of day one to continue to build a database that has been through the sign-up flow, again, without the point of depositing. But again, being through a sign-up flow, so when you get to day one, they're sort of in our net, call it, and then able to step-up and become first-time depositors and first time betters. And I think that sort of materially added Sam and I articulated upon setting FTB records for first five days of sort of Maryland's a record and then, again, Ohio eclipsing that.
On the 1st of January, I am surprised that competitors are continuing to be really heavy-duty sort of with promotional spend. A lot of competitors are still investing 200% to 300% of their gross earnings and promotions months sort of one and two, which probably overstate to a degree their sort of market shares where sort of monthly onwards it starts to wash out as operators act more sort of normal and sort of rational, which we're sort of doing from month one. But I'd say, Rohan, in general, the launches in Maryland and Ohio competitors have been as competitive as ever with the brand and sort of promotional spend.
Thanks Johnny.
Thank you. Your next question comes from Phil Chippindale with Ord Minnett. Please go ahead.
Thanks gentlemen. I appreciate the time. Just firstly on this marketing switch in the U.S. with NBC. You've highlighted this sort of switch or focus, if you like, to more localized marketing. Can we just unpack that a little bit why are you convinced that that's the way forward. Perhaps you can reflect on your experience to date and just outline a bit more of the strategy.
Yeah. I'll go first, and then Johnny can chime in [indiscernible]. Yeah. I think we've learned, obviously, through the first couple of years of the NBC agreement. And I would note the changes to the agreement effectively -- we've been operating sort of under the expectations of this adjusted agreement since August. So, while we're talking about we've seen a sort of a forward-looking way, we've been talking for the last couple of quarters about the more targeted localized strategy that we've been implementing, and that's been critical to the success and the efficiency that we've seen.
So, we've been moving in this direction since post the NFL launch season in 2021 when the market obviously went really, really hard, and it got all over heated, and we said, okay, we need to be more targeted with the target client that we're after and we need to be targeted with our marketing. We can't just be generic. And I think we just feel that it's not -- it's probably not hard to see that if you're spending money nationally across all of America, while you're live in 14 states, there's a bunch of states out there that you're not immediately monetizing. And at this juncture, we want to be monetizing and getting direct ROI from the states and where we're live.
So, we saw the benefits in terms of the impact it could have on brand by being on those national properties around the NFL, et cetera. But when it comes to marketing payback, making sure our marketing dollars are getting us on that path to profitability, it's far more efficient to focus them locally and regionally where we're live and making sure we're getting that right rather than perhaps worrying about when California might go live and the amount of marketing dollars that would be going into that jurisdiction from a -- if you're still spending nationally.
Johnny?
Yeah. I think, Sam, sort of again articulate that really well. So that firstly stepping up our performance when it comes to cost of acquisition to lifetime value and again, investing more and more of our sort of marketing dollars in states where live and operational very much assist that growth.
From a local or sort of regional front, we really like those assets. We've obviously used them now for two and a half years. We've tested sort of robustly again on those assets, and we have most freedom working with the leagues and then the sort of regional network, for instance, in Chicago and Philadelphia, to sort of integrate inside this morning broadcast for NBA, MLB, NHL being sort of one-on-one when doing those integrations, integrating our offers, our talent and really adding to the storytelling the broadcast. At that point there wants to be, we want to be very authentic and bring to life what makes the company special product, taking big bets, odd movements and talent as such. So, we feel we have the best chance of bringing to life the brand with those key sort of regional and sort of local assets and again, very pleased with the deal amendment that was announced today.
Okay. Thanks. Just one more, if I may. If we can just pivot to the Australian business. Sam, can you make a little bit of a comment as to the competitive environment that you're experiencing here. If I look at between that, that gross margin is obviously down a little bit versus PCP, but you've said that's due to the mix to sports. But yeah, I'd just be interested in that broad sort of promotional strategy that you've got here and how well or how aggressive you think the market is here at the moment.
Yeah. Again, I'll get us going, and then Andrew Catterall can join in with some comments. I mean, look, I think there's no doubt there's a lot of competition going in Australia. Obviously, there's a big brand that's coming in, in bet hour [ph] during sort of the half, and you've still got a long tail, I think, of operators that came in. Some are probably emboldened by the growth that was experienced through that lockdown period. I mean I'll be really interested to see other operators report this period. We're back in growth mode. I'd be interested to see if others are back in growth mode. I think it will be a marginal thing.
So, we believe -- I think I said at the end of the last financial year, with Andrew coming on board, we really believe that our Australian business hadn't had a lot of love. And that if we put some product effort into it along with Andrew's focused leadership, we had a lot of improvements still to come. Perhaps took a little bit of while that first quarter after Andrew coming in for that to sort of start flowing through, but also as we highlighted, we're cycling out against the COVID period. But I think we're now seeing that. We've got great confidence in our continued growth through the rest of the financial year.
We stated that we'll be growing again this year, and we'll do it within EBITDA positivity. But yeah, the market is definitely competitive. Again, it'd be interesting to see how behavior sort of goes if others aren't necessarily growing as they come out of that period. Again, our principles were improving product, greater use of promotional efficiency. Yes, there's been a little bit of a surprising change in yields due to the overweight of sports. We do think we can get those trading margins back above 4% as an example, as a starting point because there was some particular turnover that we saw during the quarter on some really low-margin product like tennis sort of head-to-head staffing things. So, on a normal product mix, even with sport growing, we think those margins can come back up. Probably still the most of your -- Andrew anything you'd add.
No. I think you've answered it well. Maybe you've covered the margin issue. And just with respect to the competitive environment, I'll just reiterate that we're back in that growth mode as reported in the presentation. We've made a deliberate strategy to be much more efficient in our promotions and focus on that the below the line, direct to target customer -- positive value customer activity. That's where the promotional tokens things referenced in the presentation really take effect and also making sure we're competing more aggressively on our product offering where the odds factory initiatives have a lot of traction, especially for NBA and soccer and even other elements like our fast retrial implementation with [indiscernible]. So, we're not just impeding on the promotional battle. It's the other dimensions such as our brand partnerships, our product, our withdrawals, et cetera, et cetera. So, I think you answered it quite well, Sam.
Great. That’s all for me. Thanks.
Thank you. Your next question comes from Ben Brownette with Jarden. Please go ahead.
I just had one for Johnny, too. Can you just clarify, are you saying in the second half, you'll see much better gross margin now or net win margin. Can you talk through that? And then talk through the market share. Was that lower than expected? Or was it within the range that you expected? And what the key driver of that was in the second quarter versus first quarter?
Yeah. Look, I think in terms of market share -- answering the second part first, look, the market -- we're growing very, very strongly. And as we've said, we know that there's been a focus on market share, but our focus is on net win growth. And as long as we keep producing the type of PCP growth that we've produced for the last two quarters, we're steaming along and we're doing so while reducing marketing, stabilizing our cost base. So, we know that we're earning that share on the back of our product, on the back of our better execution. And we're very happy with that net win growth.
If the market is outpacing us for growth because the big guys are still spending a lot more than us on marketing, that's not the end of the world. They continue to grow the size of the market, educate the market, et cetera. We're very confident. We don't obviously have the starting brand recognition that they have. But with our targeted strategy, we're confident of continuing to deliver quarter-on-quarter very robust growth.
The other -- I'd just point around sort of average sort of market share is, obviously, states like -- state like New York, with the biggest amount of turnover, including most of the market, is going to be overweight. Obviously, if we do lesser in New York versus how we do here in Michigan as an example, that'll drag us down a little bit. And we are targeted on certain jurisdictions. We are not investing in every market equally. But I think the overall thing I would say is we're focused on the robust net win growth that we're clearly delivering. We're delivering that with less marketing spend on the back of our improving product and better execution. If the market is outgrowing us and growing more quickly, that's okay. That means there's a big market, and it's going to reach the potential that we all see for this huge U.S. opportunity.
Johnny?
Thanks Sam. And then sort of in, I guess, relation to margin and the comment there, Ben, just around our guidance towards the 4% or more net win margin for H2. The primary facilitator again of that guidance is the continued development and delivery of, again, sort of initiatives around the experience and excitement placing pilot bets with PointsBet there, particularly around sort of same game parlays, which we believe in turn will materially continue to increase parlays as a percentage of our overall handle. And we know, obviously, the parlays could be five to six times the margin at the time you strike on a singles bet. So, the favorable shift in sort of bet type mix will definitely help to grow our -- grow sort of margin. And then if we're able to maintain, if not decrease the sort of promotional reinvestment, it puts us in a really strong position to deliver those improved net win margins and have the confidence to be 4% or more for H2 of this year.
Got it. Thank you.
Thank you. Your next question comes from Larry Gandler from Credit Suisse. Please go ahead.
Hi, team. Thanks for taking the question. I had a question on the NBC arrangement, the modified arrangement. I don't really understand the last sentence in that paragraph, which says the balance to be covered by the remaining value of the shares previously issued to NBCUniversal. Is that the options that backs the 105 million when you refer to shares? Or is there some other set of shares?
Good, Larry. When we cut the original agreement with NBC, you might recall there were three components to the marketing value that we were to receive from NBC. There was a cash component, and then there was value for the options, but there was also some equity issued to NBC at the time, and that has some value. So that's what we're referring to.
Okay. So that -- but that equity has been issued already, right? It's -- NBC owns a 5% -- whatever it is they own. They have those shares already.
And so -- yeah. So, we have marketing value still to be recruited from that equity. So
All right. I see. So that -- okay, but...
$24 million. So, there's $24 million of equity still for us to spend on marketing as part of the remaining amount.
And that will deflect cash outflow as you referred to in this paragraph. So, reduce...
Let me just walk through, so it's clear for everyone. Sorry to interrupt, Larry. So, there's $294 million of marketing value remaining. That's now being split over five years instead of three, okay? So, there's $294 million. If the options aren't exercised, and we just think of the option value as cash, there's $270 million of cash to be paid over the next five years, less the $25 million we've already paid until the 31st of December. So, there's $245 million of cash remaining over the five years as part of the NBC agreement, assuming and this is -- it's assuming that they don'Thanks. exercise those options, which obviously are out of the money at the moment.
Yeah. Okay. Got it. That makes sense. Okay. And I know you're not specifically wanted to comment on the notice about the Australian business. But Sam, maybe you could just talk to how today are the Australian and U.S. businesses integrated. And maybe that's changed over the years. So, if you could talk to from a bookmaking and tech stack perspective, how the Australian and U.S. businesses are or are not integrated.
Yeah. Certainly. So, the main way we get the global scale for the business is through the technology team. So at a marketing level, at a product level, at a focus level, we have the local teams with their local CEOs, but we have a global tech function that supports the global platform. So, we're live in 16 jurisdictions. They have differences between each jurisdiction. Obviously, even the states of America have differences, but it's a common code base. And so that's being done, obviously, for maximum efficiency and synergy.
Having said that, there are local teams within that tech organization who focus on local initiatives. There's sort of global initiatives. And as an example, the odds factory work on NBA and NFL, as Andrew Catterall referenced, has had benefits for Australia and flows through to Australia, U.S. and Canada. But for example, if we're doing something related to the fixed odds racing in Australia, well, that's going to be worked on by a localized tech team. So, it's predominantly global, but there are some local elements to it. And trading, as you referenced, is probably the other one that has an element of global sort of follow the sun attached to it. We have trading teams in the U.S., Australia and Ireland. That's where Benik [ph] Technologies originally located in Ireland. So that offers where some of the Benik team are also includes some traders who work closely with our clubs team and our technology team. So, yeah, we do have like a follow the sun. But every -- the U.S. has a substantial trading team. Australia has a substantial trading team, and Ireland has a sort of a slightly -- slight smaller trading team.
And the tech stack, you mentioned it's sort of all using the same code. And what about sort of the software and the hardware, is that distributed? Is the software owned by a particular entity?
Yeah. So, we have five corporate entities inside under the PointsBet Holdings Group. We have the Australian trading business, the U.S. trading business, the Canadian trading business, the technology business and the corporate business. They are the P&L. So, it's own P&L, and it charges each of the trading groups for its services. So, within our cost of goods sold, there's a charge from the trading business to -- from -- sorry -- from the technology business to each of the trading businesses. So, it's owned by us. It's like -- every jurisdiction has to have its own instance of the platform. That's a regulatory requirement. So, there's an Australian instance, a Canadian instance and 14 instances in the U.S. And yeah, there's differences. Obviously, again, Australia has fixed odds racing. Most U.S. jurisdictions don't have online casino as an example. So, there's definitely differences between the end product and the end user experience that the client sees, but we try and gain efficiencies on a back-end perspective.
Yeah. Got it. Okay. That’s very clear. Thanks Sam. Appreciate it.
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.