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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 2022 Appendix 4C Investor Presentation Conference Call. [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 the PointsBet Holdings Limited Q3 FY '22 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; U.S. CEO, Johnny Aitken; and our Canadian CEO, Scott Vanderwel. Before we begin, please note all numbers referred to are unaudited and in Australian dollars, unless otherwise stated.
Turning to Slide 3. The March quarter has been another period of progress for the company, and pleasingly, this momentum has continued into April, with both the Australian and U.S. businesses trading above expectations. As noted at the HY '22 results announcement, PointsBet had a successful 2022 Super Bowl, becoming the first ever sports betting operator to integrate into Super Bowl programming via our partnership with NBC including pregame segments and NBC ticket integration with viewership in the tens of millions. Underpinning our operational success was PointsBet's in-house technology, which again continued its impressive record as successfully managing peak days without incident.
Earlier this week, we were thrilled to be honored by the eGaming Review as the top sports betting operator at the EGR North American Awards for the second consecutive year. The recognition follows PointsBet's notable exhibition of scale and growth, ability to innovate and differentiate, commitment to responsible gambling, quality of marketing and, of course, quality of product. We were also pleased that our U.S. app was again ranked in the top 3 out of 34 in the latest Eilers & Krejcik by app testing with the testing group commending PointsBet for in-app speed and a diverse feature set. This recognition is a testament to the fact that PointsBet is now hitting its stride and building upon the investment we have made in our technology and products.
This investment, together with our continued refinements to our proprietary trading and quants models has been bearing fruit, and this can be evidenced by our performance during the NCAA March Madness tournament. We debut expanded pregame, in-play and same game parlay offerings for college basketball as part of our Odds Factory proprietary technology integration. The Odds Factory integration also introduced Lightning Bets for NCAA basketball markets. Lightning bets provide clients more options on real-time micro markets such as team to score next, several next minute, next 4-minute markets as well as our live same game parlay feature.
Compared to the 2021 Madness tournament, in-play handle increased by 116% and in-play represented 49% of total tournament handle, up from 35% last year. This validates our thesis that in-play betting will continue to increase in the U.S. market as a percentage of overall bets. And PointsBet superior, optimized client experience in this area will continue to differentiate us from our opposition.
During the quarter, we also delivered continued enhancement of our broader in-play products, delivering on our stated strategy to lean into improving the bettor experience with more markets, higher uptime, a reduction in bet delays, quicker cash outs and settlements.
In January, we were the first Sportsbook to offer live in-game same-game parlay options for NFL and NBA contests. Clients now have the ability to instantly build their customized PointsBet live same game parlay while tracking all its play performance and team stats. I'm very proud of what the tech and product teams have delivered over the last 12 months. It's a testament to their skill, commitment and desire to deliver a market-leading product.
From a market launch perspective, during the quarter, we had successful launches in both New York and Pennsylvania, and we are now amongst those of an exclusive group of operators that are live in New Jersey, Pennsylvania and New York. This is important as there's a significant movement of people between these states on a daily basis, and these customers want a seamless one-app betting experience. Operators live in New Jersey, Pennsylvania and New York are well positioned to gain a greater share of our clients' wallet.
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. Similarly, in Philadelphia, we have access to Philadelphia regional sports network, delivering integrations exclusivity for all 76ers, Phillies and Flyers games, an extremely powerful asset.
For our launch in New York, we deliberately took a more disciplined approach than some of our competitors. However, despite this, we are seeing some promising results when compared to our previous state launches. New York had the highest volume of first-time bettors in the quarter compared to our other live states. Deposits from first-time depositors in New York are also on average, almost 3x higher than in our other states. Despite being only live for approximately half of Q3, early indications of first time better customer value is also looking very promising in Pennsylvania.
We will now drill down into particular focus areas for the quarter. Turning to Slide 4. Compared to the group result for Q3 FY '21, to be referred to as the PCP in Q3 FY '22, sports betting turnover was up 54% to a new quarterly company record of $1.4 billion. And total group net win was up 18% at $76.9 million. We will speak later to positive short-term variance experienced in the U.S. in the PCP.
Now turning to Slide 5. The Australian Trading business continued its strong performance, ending the quarter with turnover of $579 million, up 37% compared to the PCP; gross win of $78.8 million, up 44% from the PCP; net win also saw strong growth at $52.3 million, up 37% from the PCP. Gross win margin was 13.6% and net win margin was 9%, a material improvement on H1 as promotions as a percentage of gross win reduced. PointsBet app download volume grew by 11% compared to the PCP, a pleasing result considering marketing spend fell considerably and that is a result of prior investment continuing to support the adoption of the PointsBet app by the market.
The quarter saw a 34% increase in multi turnover per active compared to the PCP, and a 25% increase in same game multi turnover per active as a result of improvements in our breadth and depth of product offering across the multi segment. With a successful spring carnival campaign at the tail end of 2021, the focus has turned to profitability for the remainder of the financial year, and we continue to track towards and expect positive EBITDA for the Australian trading business for FY '22.
Now turning to Slide 6, a few results. H2 marketing expense will be significantly lower than H1 as a result of this strategy. The Australian Trading businesses Q3 marketing expense was $7.1 million. which assisted in delivering 12 months rolling cash active clients to 31 March, 2022 of 232,763, an increase of 47% compared to the PCP. While quarter-on-quarter actives were flat from the December quarter, we note that cost per acquisition was better versus the PCP. We also note we ran more aggressive sports promos in the PCP and had a greater focus on genuine clients this quarter. This led to net win per active client in the quarter being a significant improvement on last year, to run through highlights for North America.
Thank you, Sam. Turning to Slide 7. The U.S. trading business ended the quarter with turnover of $819 million, up 70% compared to the PCP and gross win of $46.1 million, flat in the PCP. Total net win was $24.6 million, down 8% from the PCP. However, it should be noted that Q3 FY '21 benefited from above-trend trading margins, as New Jersey clients lost back their winnings from the prior quarter. As a result, Q3 FY '21 gross win and net win outperformed from what we would have expected in a normalized trading environment.
As can be seen on Slide 7, to remove this volatility of prior periods, we have provided a year-to-date to Q3 comparison. This shows handle up 36%, gross win up 84% and net win up an impressive 157% compared to the PCP. For Q3 FY '22, sports betting gross win margin and net win margin were 5.6% and 2.3%, respectively, and the PCP, which we understand is consistent across the sector. Please refer to Appendix 1 of the presentation of Handle, gross win and net win. PointsBet's blended U.S. online market share in the states we were operational for the full quarter was 3.6% compared to 4.2% in Q2 FY '22. A further breakdown of market share per state can be found on the bottom right-hand side of this slide. Our New Jersey Sportsbook handle experienced cannibalization from the successful launch of our New York operation, as well as from our New Jersey Casino vertical. Noting, New York generated $6.3 million of net win in the quarter and our New Jersey iGaming net win increased quarter-on-quarter.
On March 5, we saw Illinois return to a remote registration environment. In Illinois, we have enjoyed steady and healthy market share during the in-person registration. In February, PointsBet achieved online handle share of 8.8% and online GGR share of 9%. Based on internal modeling, we expect to maintain a similar market share when the March results are released. Our ongoing strategy in Illinois with remote registration centers around acquisition and retention efforts, targeted those high-value cohorts and ensuring they continue to feel rewarded to betting with PointsBet.
Turning to Slides 8 and 9, USD [ 33.2 ] million, with working media cost per FTB of well under 5 [indiscernible] from Q2 FY '22. As we commented on our last results call, in Q3, we funded client segments, moving away from tactics that bring in volume FTBs with low lifetime value increasing player days, bet counts and share of wallet. This investment in rolling cash actives to $249,000, up 96% compared to the PCP and up 18% quarter-on-quarter. It should be noted that this metric also reflects our retention efforts not just acquisition efforts. Further, a reminder that a sizable portion of this quarter's marketing investment was into audiences outside of our 10 live states. This investment acts to build brand awareness and the database nationally to assist in future state launches.
As set out on Slide 11, I will now speak in more detail to in-play betting, customer economics, our iGaming products, and increasing TAM.
Turning to Slide 12. Q3 FY '22 has seen continued momentum in the rollout of our in-house betting product through Odds Factory. Our in-play betting strategy leans into providing a superior betting experience for our customers through increased product offerings and more reliability and market uptime and speed of bet placement. During the quarter, we replicated the success of our NFL with basketball. This demonstrates progress towards a market-leading in-play betting experience among the core U.S. sports, which helped in-play handle increased to 59% on of overall handle for the quarter, up 22% versus the PCP. Having control of the product has allowed us to make many customer-facing improvements with more markets, higher uptime, less rejected bets, a reduction in bet delays, quicker cash-out and quicker bet settlement.
Furthermore, the betting experiences continue to improve following the release of our in-house odd factory offering as MBA product uptime is now close to 99% and college basketball uptime during the March Madness tournament improved to 93%. Clients are now presented with more markets to bet on, including an industry-first live same game parlay offering and Lightning bet markets. This speaks of the progress we are making to position PointsBet as the home of in-play betting and in driving tangible improvements in KPIs.
Turning to Slide 13. To ensure timely marketing payback and strong return on investment, we maintain an acute focus on the cost per acquisition to lifetime value ratio. It is imperative in this industry as any other that the lifetime value of clients acquired is expected to handsomely exceed the cost of acquisition. We continue to make progress on this front. This quarter relative to the PCP, I'm pleased to say that we got more from less. That is we delivered more FTBs from a slightly less marketing spend. On one hand, we were more efficient as -- as mentioned previously, working media CPA was again well below USD 500 and trending in the right direction. At the same time, we have indications that the clients we've acquired in this quarter are more valuable on average. The average first Sportsbook cash stake of new clients was up 91% versus the PCP, assisted by high-quality launches in the states of New York and Pennsylvania.
Our internal models predicted clients acquired this quarter under our [ more ] targeted strategy are on track to deliver a net win payback in around 12 months, an improvement on recent quarters. Creating a sustainable business model that delivers a path to profitability continues to be our priority [indiscernible] ongoing focus.
Now turning to Slide 14. Our work with NBC continues to deliver results. We have found a strong go-to-market solution for each state via NBC that drives lead generation, brand awareness, conversion, and retargeting to our in-play product once they have signed up. PointsBet and NBC Sports Chicago partnered in producing a series of live sports bidding broadcast known as BetCasts during 4 Chicago Bulls games in March and April. The live in-game coverage was enhanced by graphic overlays of real-time betting odds from core markets to player props to future markets. Compared to the previous 15 Bulls games without a BetCast, on average these games saw 41% more unique bettors, 39% more total bets, 17% more handle, 107% more in-play unique bettors and 81% more in-play bets. Throughout Q3, an additional 46,000 leads were generated by NBC's free-to-play Predictor app. This raises our total leads based by Predictor to over 653,000 and currently, more than 25% reside within our 10 live states, allowing Pointsbet to target [indiscernible] sign up messaging.
Looking forward, we will also leverage these leads to future state launches. For example, we have approximately 45,000 leads across Ohio and Maryland, where we expect to go live on the starting line during FY '23.
Turning to Slide 15, the iGaming net win result for the quarter was $5.5 million. We were particularly excited to have launched in West Virginia in January, Pennsylvania and Ontario in April, while also introducing our branded table live dealer solution in New Jersey and Pennsylvania through our partnership with Evolution. West Virginia and Pennsylvania mark the third and fourth U.S. states we are introducing our iGaming platform, following the successful launches in Michigan and New Jersey, while Ontario is the first jurisdiction to go live in Canada.
Online casino products have seen a rapid growth in the U.S. and we're quickly scaling our online casino business and look forward to expanding and refining our suite of products throughout the year to deliver more options for our users. We have significant increase in game titles scheduled for rollout in the June quarter. The main product releases from Light & Wonder, formerly Scientific Games will see Michigan titles increase by 70%. We also expect to see titles double in Ontario compared to the current quarter.
Finally, before I hand it over to Scott Vanderwel, CEO of PointsBet Canada, I would like to comment on Slide 16. PointsBet's total addressable market continues to grow. Since the last quarterly update, we have launched Sportsbook operations in New York, Pennsylvania and Ontario, together with our gaming launches in West Virginia, Pennsylvania and Ontario.
As of today, we have live online Sportsbook operations in 10 U.S. states plus Ontario, Canada, and are live with our gaming in 4 states plus Ontario, Canada. We have previously anticipated to be live in 17 states plus Ontario during this calendar year. However, we have now proactively decided to focus on a further 4 priority states only in the remainder of the calendar year. We expect 3 of these states to be new state launches where we will be on the hard launching on the starting line and one priority catch-up state. This would mean finish -- this would mean we would finish the calendar year 2022 being live in 14 states plus Ontario. This adjustment in plan will allow PointsBet to focus more strongly on the priority launch states and to continue the positive momentum we have built over the last quarter in particular. Any outstanding catch-up states remain part of our future launch plans beyond calendar year 2022.
I will now hand it over to Scott Vanderwel.
Thank you, Johnny. Now turning to Slide 17. We are proud to be one of the first operators regulated by the Alcohol and Gaming Commission of Ontario as it showed the confidence that the regulators have in our ability to deliver an innovative, safe and responsible experience to the Canadian consumer. As we have previously communicated, we are focused on delivering an authentically Canadian gaming experience and product to the Ontario sports fan.
Ontario is Canada's most populous province with over 14.8 million people and a host of professional sports teams in the mainstream markets. Over the last few months, our team has been scaling and focusing on building partnerships with athletes, teams and organizations that matter to Canadians.
As announced earlier this month, PointsBet was appointed an official sports betting partner of Maple Leaf Sports and Entertainment, which own and operate the Toronto Maple Leaves of the NHL, the Toronto Raptors of the NBA. As you rarely get the opportunity to unite with an organization that stands across all 4 professional leagues and carries this level of fan engagement, this deal complements previously announced deals in Canada. Since opening day, April 4, we are seeing positive signs that our client base consists of a high-quality bettor as both bet count and average bet size are tracking well ahead of our forecast. While the regulator has not yet released market share data, an early report from Morgan Stanley that was circulated on the 25th of April suggests that PointsBet is currently making up about 4.3% of total sports betting app downloads in Ontario. We are happy with the performance month to date, especially because PointsBet is a new brand to Ontario, where we are acquiring net new customers and not simply marketing to an established database but migrating users from one platform to another.
In launching PointsBet Canada into Ontario, we have built up a team of 40 full-time staff in Ontario, supporting all aspects of the business. 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.
I'd like to now hand it over to Andy Mellor to run through the quarterly cash flow summary. Andy?
Thank you, Scott. Turning to Slide 18, for the quarterly 4C cash flow summary. In the quarter ending 31 March 2022, net cash used in operating activities excluding movement in player cash accounts, was $63.5 million. Net cash used in investing activities was $26.3 million. It should also be noted that there was a negative impact from the movement in exchange rates on the USD cash held of $8.6 million, mainly due to the move in the USD-AUD FX spot price during the quarter. Much of the Q3 FX spot price move has reversed in April.
I'll now move through each of the main line items. Net cash used in operating activities, excluding the movement in player cash accounts, was $63.5 million in the quarter, up from $56 million in the prior quarter. Noting that in Q2, we received the one-off New York license fee reimbursement from Resorts World Bet as previously disclosed. Receipts from customers for the quarter totaled $78 million. This includes net win from Sportsbook and iGaming verticals of $76.9 million and the balance of $1.1 million includes cash receipts from our European and New York B2B operations as well as cash receipts from our U.S. racing ADW business.
Cash outflows during the quarter included cost of sales of $51.3 million, which grew in the previous quarter, in line with increased trading and handle activity in the U.S. noncapitalized staff costs of $23.4 million with global employees growing to 630 at the end of Q3 as we continue to build scale. And in addition, we have support staff, which are engaged by third-party service companies. As we now approach operating scale, the velocity of hiring in Q4 has been reduced significantly and will continue to reduce into FY '23.
Marketing cash outflow for the quarter was $53.7 million, down from $65.6 million in the prior quarter. This quarter-on-quarter decrease was mainly driven by a fall in the Australian marketing expense. As previously spoken too, the Australian marketing expense was $7.1 million for the quarter, and the U.S. marketing expense was $33.2 million for the quarter. As previously disclosed, the Australian marketing expense will fall significantly in H2 versus H1. The U.S. marketing expense in Q3 was slightly higher than Q2 as we launched new U.S. states, including the recent launches of New York and Pennsylvania, our tenth U.S. state of operation. Administration, corporate costs and GST paid on Australian net win was $13.6 million for the quarter.
Turning to investing activities. Net cash used in investing activities during the quarter was $26.3 million, down from $43.6 million in the prior quarter. The main driver of this Q3 investing outflow was the market access payment made to the Pennsylvania Gaming Control Board of USD 11 million to receive our sports betting and gaming licenses. In Q4, we expect market access payments to be significantly lower than Q3. Over the quarter, the company capitalized $8 million of technology and product staff wages as part of the continued development of our sports wagering and iGaming platform. There was minimal cash flows from financing activities for the period. We can continue to take a disciplined approach to setting up the company for long-term success. At the end of March, we had $424.9 million in corporate cash and no corporate debt.
I'll now hand back to Sam.
Thank you, Andy. Turning to Slide 19. Before I open for questions, I would like to comment on the group's commitment to responsible gambling. Responsible gambling is seen as a core function of sustainability as it emphasizes developing long-term relationships with loyal players and we're committed to delivering a premium experience through products meant to be enjoyed as a form of entertainment.
Effective responsible gambling begins with a genuine commitment across departments. This includes regular collaboration on all projects, such as ensuring RSG safeguards are included as part of strategic partnerships, enhanced staff training and dedicated RSG teams conducting routine surveillance of the customer database to indications of gambling harm.
We also engage with researchers, problem gambling advocacy organizations and responsible gambling experts to ensure best practices are being met. In FY '23, we will lead a research project in collaboration with the National Council on Problem Gambling and will also be launching a dedicated responsible gambling awareness campaign. There are various touch points, which are included throughout the customer journey aimed at normalizing healthy play and minimizing gambling-related harms, and we provide customers with the tools necessary to manage their gambling, including temporary take a break, permanent self-exclusion options and deposit precommitment functions.
Thanks for your time. I'll now take questions.
[Operator Instructions] Your first question comes from Rohan Sundram from MST Financial.
Just a couple for me. Firstly, can you please just build on some of your comments in the call around your recent new market entries and some of the early learnings and what maybe has encouraged you or surprised you in markets like New York, Ontario and Pennsylvania, please?
Yes. Yes, I think I'll split the 2 out. I mean I think New York, obviously, we were not too far behind the starting line. So I classify New York, we went in with the measured strategy that we've spoken about. I think our product has resonated in that state. We gave some KPIs that the quality of clients that we're acquiring there are very strong. In Pennsylvania, obviously, we were very late to the market, but we've now pushed out sports betting and iGaming. So we're able to compete fairly there. And in the short time that we've been live there, again, those customer per customer KPIs are strong side.
In broad terms, I'd say we're seeing stronger customer metrics from those later states in New York and Pennsylvania than we've necessarily seen from earlier states. From an Ontario perspective, really happy that we have launched on the starting line, but with both sports betting and iGaming simultaneously obviously, we haven't done that before; simultaneously we will be on the starting line. I think when we talk about the starting line in Ontario, we need to be a little bit measured. I mean there has been a flourishing gray market. And then on top of that, there has been a sort of operators from the sort of semi-government agencies running books for some time. So it's not a new market, but again, strong metrics. I think -- now that we've got the product that we've had the vision of delivering, it's doing what we want it to do, which is attract bettors. We want to appeal to bettors, and we want to lean into those better quality clients and both -- all of Ontario, Pennsylvania and New York, I think, are bearing some of that fruit.
And last one for me is on the competitive environment, how would you describe it now versus, say, 6 months ago?
Well, September, obviously, September, October, November, we spoke about that period on previous call. That was when it was really, really off the charts. But then you've got to talk about -- it was still pretty strong when New York launched because everyone [ on there ] still going very hard at that stage. I mean, obviously, WinBet have come out and -- they were the first sort of one to sort of say, "I will get to pull back very strongly." And then Caesars came out on their last call and said that they were going to pull back strongly, but I think they noted that it would take some time for them to be able to implement that, to pull back on some of the marketing.
So I think it certainly was a little bit eased off. But I think now that March Madness is completed and perhaps most of the media bookings and plans that operators had sort of prebooked in late last year, probably flushed through and run through. I expect -- and we are seeing it, that easing off. So perhaps not as quickly as we would have expected. And I think most of the operators have some form of reporting next week, Caesars, BetMGM, DraftKings, et cetera. So we'll get some color there. But it's certainly -- just to reiterate, it was very, very hot for a long time there. But if [ I wanted ] results, anything to go by, and the fact that we feel we've made progress, then perhaps that's been helped a little bit by some easing off just lately.
Your next question comes from Don Carducci from JPMorgan.
So I think it might be worthwhile revisiting the NBC obligations. I think in 2020, you committed to almost USD 400 million progressively increasing amounts over the 5-year media partnership. And now here we are a couple of years later. And if we convert that into AUD, it's about AUD $550 million that you owe NBC. And so I know that you've got, what, AUD 425 million in cash remaining if we account for player cash. So how far into these increasing payments to NBC are you? Because I think it's important to note, do we have 90% of the 550 to go, 10%? Because it feels like a big delta at this point in time.
Yes, so it was obviously a $393 million partnership in terms of value to be delivered paid for partially in cash and partially in equity. So obviously, at the time we issued some shares and we issued some options. So the cash amount was 200 and I think roughly USD 273 million. So that's the number to be paid for over 5 years in cash back-ended, obviously, so it starts off smaller and that grows over the 5 years as we plan to be in a greater number of states.
Okay. So if we take that $273 million in cash, that's U.S. dollars, that's Again, it's up AUD 380 million. So I mean, have you already paid 9% of that -- 90% or you've only paid 10%? Because it is increasing, so I mean, presumably, you would have more than half that amount left to go, given it's a 5-year deal, we're 2 years into it. So do we have 70% of that remaining to pay to NBC?
Yes, I don't think we disclose that. But yes, it's back ended. So we're 2 years into a 5-year deal. So we're not even half-way and it's back ended. So it's definitely more than 50%. That's for sure.
Okay. All right. So it's fair to say you probably still owe them almost $200 million. Is that fair?
I'm not going to comment on the number because I don't know exactly what the number is, Don. But yes, you can work it out roughly the math pretty simply, yes.
Okay. All right. So maybe if we chat through the change in strategy for the state rollout, and you're losing share in the states you've been live in. I'm glad your [indiscernible] starting to slow the rollout as Johnny said, but the land grab strategy that was apparent at the onset of legalized U.S. sports betting fields is much less sensible and maybe going into preservation mode. So if that's not specific enough of a question, maybe you can explain what are these other 3 to 4 states that you're going to go live into by the end of this year? What is that going to add to PointsBet that you don't already get with the recent launches in New York, Pennsylvania, et cetera?
Yes. I think obviously, we've acknowledged that we've taken a loss in market share over the last 6 or 7 months under the heat of that marketing. I think I'm focused on the fact that for the 3 quarters to date, we're up 157% net win. So for the 9 months to the end of March, the PCP were up 157% versus last year. So we're definitely making progress. We've lost market share under that heat, but we're definitely making progress. I suppose to your point about, we're not immune to looking at what's going on in the marketplace, and we understand the focus on disciplined behavior. And I think we've made the point that this going live on the starting line of states is a priority. That's something that we haven't been able to do. We've got a taste of that in Ontario. That's our priority.
So states like Maryland, Ohio, assuming regulatory process gets through, et cetera, they would certainly be part of the 4 states that we plan to launch in the remainder of the year. We're hopeful there's a process going on in Kansas at the moment. So we're hopeful that Kansas can get over the line and a state like Kansas would be part of our plans this year because we understand that they want to get [ back ] live ASAP. And then in terms of catch-up states, we're still deciding which of the ones that we haven't prioritized yet, will take priority.
Yes, okay. And so I guess in talking about that growth that you're talking about, when I think about the active customers, and then just 2 more quick questions from me, that 2Q '21 to 3Q '21 period, you grew actives 90%. And that was well before you added a handful of very populated states that NBC has a massive footprint in. So your New York or Pennsylvania, West Virginia, Virginia, Connecticut. And this period has the Super Bowl, you've got March Madness, and you launched prior to those events. So why haven't you achieved commensurate growth in active customers from 2Q '22 into 3Q '22 relative to what you would have done last year? Just seems like a big miss in terms of the U.S. active customer growth?
I can't check if we were on miss there, Don. But I mean I think that once you're building up a larger client base, obviously, the exponential increases gets a little bit harder. But I think we've been pretty clear and we've called out in the marketplace that there's a lot of frothiness in some of the numbers that are out there. There's a lot of clients that are basically not worth your effort. And so we've made it pretty clear on this call and the previous one that we're going to focus on quality over quantity. If I think you're going to see some other competitors report over the next couple of weeks and perhaps see that they haven't necessarily followed the same path and the low value that is in some of those client segments. So while we may give up some sheer volume of clients in terms of delivering net win and quality of clients, that's -- we think we're making good progress.
And then final one for me. You mentioned the competitive environment. As we think about the Australian industry, [indiscernible] is going to launch a greenfield. So what do you expect happens to the profitability picking up players at your scale? Kind of right now, there's probably only 4, Tabcorp, Ladbrokes, yourselves and Sportsbet. Maybe in other words, if you start burning the candle at both ends because [indiscernible] is entering the greenfield, can you afford to lose money in the U.S. and Australia? And what does that do maybe for the outlook of your focus on the Australian business?
Yes. I mean, look, I got great respect for Matt and Andrew and the team there. And they'll get off and give it a go. But I wouldn't say that we're taking too much focus on that solely at this point in time. I think our approach with the Australian business, as we've spoken about last quarter was we've got to this point without really giving the Australian business any focus or love. The fact that we're on track to deliver a third positive year of EBITDA with lifted marketing from like 20 million to 50 million to 60 million and done that by remaining self-funded. And we haven't necessarily had the scale inside the business to service both the U.S. and Australian product needs equally. So the U.S. has been focused on launching states and building up the in-play product and casino, et cetera.
So Australia really hasn't had a lot of love from our core area, which is product excellence. We've got a good product in Australia, but we see so much room for improvement there. So we're in the process of hiring an Australian CEO, very confident that we'll have that filled this quarter. And with the scale that we now have at a global level and we can allocate the required level of product and tech resources on an Australian sort of product roadmap as well, we think the Australian business has terrific upside. So yes, while that business will add extra pressure to the competitive landscape. I think we can still be confident that our upside is more than enough to offset that.
Your next question comes from Joe Stauff from Susquehanna.
I wanted to ask again on -- certainly, look, using Illinois as a case study and thinking about your recent launches in New York, Pennsylvania, Virginia, where you do have NBC RSNs and just kind of like the potential that you have to maybe replicate or come close to what you've done in Illinois where you also have an NBC RSN. Can you talk about that? I mean, certainly, those states really account for the bulk of the increase handle just on a sequential basis. If you could talk about that strategy.
Yes. Yes. I mean I think we've spoken for -- since the start of the NBC deal now about the value of the Chicago RSN and how we believe that's played a role in helping us fast forward, let's call it, our trust and credibility as a brand. And it's one of the reasons we have circa 9% in the state of Illinois. And as Johnny mentioned, I think even post the opening of remote registration, we think we've -- based on internal modeling, we're holding our share well. So yes, we do put a decent degree of our success in Illinois down to that asset and what it's been able to do for us. And yes, I mean, we've called it out, whether it's the Washington, D.C., RSN that will service Virginia and Maryland. So remember, when we launched Maryland, we'll get the benefit of that. Obviously, the Philly RSN that's servicing Pennsylvania and New Jersey and then SNY that's servicing New York and New Jersey.
So we go from having one RSN to support our efforts to having 4. And that was, again, part of the increasing back-ended nature of the deal with NBC taking that into account. So yes, it's certainly -- you can't get a more targeted audience, obviously. Johnny spoke about the fact that we've been doing these bet carts and some of the statistics that we've seen when we've done them. So yes, it's a big part of our plans for those states and part of the optimism for why we can grow from our current market shares.
Makes sense. And just one follow-up, if I could, whether it be Scott or Sam or Johnny, I am just wondering what your first observations are at the Ontario market. It's obviously been open for just under a month. Anything you could share with us above and beyond, obviously, everyone can access that download activity, but -- is there any, I guess, early observations with respect to just GGR or kind of handle trends that you could share with us?
Yes, I'll start and then Scotty can jump in with any [ still ]. So I mean, look, it is very early on. And as I noted, I mean, it's not a new market. Bet365 is converting clients from their gray app to their new app and others are doing likewise. So all early behavior. But again, this is Pointsbet, as I said, we've seen good average bet size, high deposit size, just all the things that you would associate with a good quality client base. But again, that's what we're trying to do. That's what we're leaning into. Scotty, do you want to make any observations about the market as a whole?
Yes. No, just Sam, to emphasize your point, this is not a -- a gun goes off and everybody starts and the market is fresh. There is a 10-year mature market in place. And the Ontario regulatory framework allows for gray market operators to migrate their basis into the legal framework. But having said that, there is, I would say, all the attributes of enthusiasm around the market. And what's been the positive, the positive attribute, particularly of our experience so far, has been the quality of the customer. And a part of that may come from just the maturity of the customer in the market, but we believe that there's a product storyline there as it relates to [indiscernible] as well.
Your next question comes from Phil Chippindale from Ord Minnett.
Firstly, Sam, can we just talk a little bit about New York? Can you give us a sense of potentially how much your market share is there? I can't see any of the materials referencing that, but maybe a bit of a range would be useful. And then just comparing the New York performance to other states like Pennsylvania and clearly, New York turnover was very strong. When I look there, the margins were obviously very different from a net margin, so you're clearly getting away a little bit more in Pennsylvania. So perhaps you could just talk a little bit about that dynamic as to perhaps why New York was so strong relative to Penn. Clearly, Pennsylvania wasn't running for the full quarter on that.
Yes. Yes, I don't think we reported the market shares because we went live for the full quarter. So I don't think we included New York or PA in there. I think -- and I'm sort of speculating a little bit here. But I think New York, it is -- from our experience at least, there was some cannibalization. So there's a group of clients in New York that have been betting in New Jersey, for example, for some time. So New York itself can't be considered, for us anyway, it's not brand new. We've had some clients that have come across, and obviously given us a pretty strong start there as well as perhaps some clients that were, whereas with Pennsylvania, perhaps less of that dynamic than New York, so not as stronger start from a margin perspective as -- and the bottom line in Pennsylvania, it's only a short time. So remember, we only launched -- Johnny, when do we launch in Pennsylvania?
The week before the Super Bowl.
Yes. So obviously, the strategy is when you first interstate, you are being generous with your promotions and having launched the week before the Super Bowl, obviously, there was a degree of acquisition in that volume into March Madness, et cetera. So while it's only maybe a [ month's ] difference between that and New York, I think that's probably -- that's how best we can explain the differences.
Just moving to this balance of the year and the 4 states that you're looking to target, I guess, are there any that you can sort of lock in at this point against to reference a timeframe there for some of those as well would be useful.
Well, we can -- I mean we definitely will launch some states. But I suppose what we're saying is we want to prioritize first and foremost, the new states. So there's a process ongoing with the Maryland regulator and the Ontario regulator. Perhaps Ontario will be later in the year, perhaps Maryland before NFL. So we would expect to squeeze a state in prior to Maryland going live. So one of the catch-up states we'd expect to launch, probably Louisiana is probably the state -- but we just want to make sure that those new states being Maryland, Ohio and perhaps Kansas have priority that we will make sure we launch 4 states. That's I suppose that's the new -- that's the updated guidance there.
Okay. And just finally on iGaming, sort of a flat net win result sequentially. Can you just talk a little bit about the seasonality of that business, certainly, you're cross-selling that into your Sportsbook customers? But I guess I'm just trying to think about -- I was probably expecting a little bit more from that business this quarter, and it's obviously delivered more of a flat outcome there.
Yes, yes. I mean, look, I think we would have hoped for a little bit more ourselves, to be honest. Honestly, it came down to a bit of low margin, just a little bit of variance against us. and a little bit of player behavior. But really, yes, there's not much in it. I mean, obviously, we're still pretty early on in the cycle. We would have hoped for a little bit more, to be fair. But in terms of we don't report iGaming handle by margin for this quarter than the previous quarter, which didn't help our efforts.
Your next question comes from Larry Gandler from Credit Suisse.
Continuing along the question around case studies, I was actually interested in some states where you're there for a year, but there really seems to be no significant movement in net win or market share may be going backwards. So Michigan, Indiana, Colorado, there was sort of this notion that maybe points being not being first out of the gate in some of those markets impinged on market share momentum, but it looks like your Pennsylvania performance may sort of suggest that you guys can establish a good business when you're not first out of the gate. So what's the challenge in Michigan, Indiana? Those states are pretty chunky, but there really seems to be no movement.
Yes. I mean Indiana, we -- I mean, they're small numbers, but we did increase, I think it was from 300,000 to 700,000 that we quarter-on-quarter. Colorado, I think we went from 1.1 to 1.3. Michigan, yes, we definitely -- we went back a little bit, I think, from 3.2% to 2.8% slightly quarter-on-quarter, there can be some variance. There's no doubt that those earlier states, in particular, let's call it, in Indiana, hasn't been an easy state. I think we've called that out somewhat previously.
We're certainly -- it's not a matter of -- we're not giving up on any states. It's our intention to keep those states moving forward. But where we do see greater breakthrough or cut through with our efforts, we are prepared to sort of push our marketing dollars and our efforts towards those states where we're getting that. So at the moment, some states we're getting cut through a bit more easily than others. And as per an earlier question, perhaps some of that correlation is around those RSNs and how we use them [indiscernible].
Yes. I was seeing that. And does that suggest that as you look to preserve capital, those states, particularly those 3 and maybe a couple of others will attract less of your marketing budget?
Yes. I mean we want to be prudent, and we always try to be disciplined. If we can spend the marketing dollars and get the ROI, we're happy to spend them. But we sort of -- obviously, we've just taken the -- following the let's call it, the last 6 months where the heat in the kitchen just got too much and it pushed competition for clients into tough territory, we wanted to maintain that CPA below $500, and we've done that consistently through that. We spent $33 million this quarter with an easing of that piece, we can spread the wings a little bit more and build back up. But we want to -- we want to be focused on a payback period, and we'll chase those clients where we can most effectively deploy those marketing dollars.
And I had a question might be for you, Sam or Andrew. Similar to Don's question with regards to NBC. I was under the impression that there was some prepaid marketing for NBC. And I was looking for some periods where the cash flow would be less than the marketing expense. Just wondering if maybe that's the case in the near term. If you can comment there.
Yes, yes, I'll throw that to Andy.
Yes. No, I think the -- as Sam referenced earlier, we committed to $270 million in cash and the balance for the $393 million was $123 million. And so the $123 million is a [ prepayment ] on our balance sheet, and that steadily unwounds over the life of the deal as the marketing expense that NBC provides us through the commercial agreement is wound through. But there will never be a position where the marketing, because the 270 is greater than the 393 -- or more than 50% of the 393, there wouldn't be a position, Larry, where the cash payments are less than the marketing expense.
Your next question comes from Desmond Tsao so from Goldman Sachs.
I was just hoping if you could flesh out your comments to be more around the improved CPA efficiency and high FTBs, just also noting your comment around, I think, internal modeling, forecasting net win payback within 12 months. Just wondering if that was for a particular state of the group. And I guess whether or not that has changed over time. Can you sort of see what that same measure would have been, say, this time last year?
Yes. I mean I think in broad terms, there were periods where historically with the CPA to LTV -- I'm sorry, that figure is for U.S. blended. So we spent 30 to whatever it was on marketing, and for the quarter, and we are talking about the payback for the U.S. So there will be differences across states, but that was a blended rate for the U.S. So yes, I think there was periods, let's call it, over a year ago, where we were comfortable with where we were going with some of these figures. But certainly, we lost a bit of shape under the heat of the competition and the way perhaps we were investing in the marketing dollars or applying our promotional spends again through that -- mainly through that 6-month period, perhaps to the end of December.
But we certainly feel, yes, the March quarter, a slight adjustment strategy to sort of lean into our target client more strongly. And it's coincided, obviously, with us delivering a product, which allows us to firmly do that. Our product has improved a lot in the last 6 months, 9 months. The Banach acquisition, what we call Odds Factory, our internal capability, I think there's numerous signs of that hitting its stride. The fact that 59% of all handle for this quarter was in-play. So we talk about getting to 75% at some point in the future. And some people[indiscernible] at that, we're already at 59% for the March quarter, and that's on the back of us actually having a product that true bettors, people who value that experience can appreciate it.
So it's definitely partially some heat in the market sort of consequences. But I think us getting that relationship right sized is also on the back of our hard work and getting our product and probably the next stage of that is leaning more into the product from a marketing perspective. We've probably, like everyone in the market's, being dominated by promos and the like. But now that we have these products, we're going to lean more into that from a marketing messaging perspective. And thus the clients that do join will be more likely joining for the right reasons.
There are no questions in the queue at this time, and that does conclude our conference for today. Thank you for participating. You may now disconnect.