TSG to launch PokerStars Sports brand and TV advertising for PokerStars Casino in 2020

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Ahead of its pending merger with Flutter expected by 2020 Q2 or Q3, revenue growth for 2019 4th quarter was mainly driven by the UK and Australia segments. Online sports betting was TSG's largest product vertical in the quarter with 39.1% versus 34.3% in 2018. The firm expects to increase investments in the US to support planned FOX Bet launches in further states including Colorado.

he Stars Group Inc. (TSG) reported Thursday its financial results for the fourth quarter and year ended December 31, 2019 and provided additional highlights and updates. 

Total revenue for the full year climbed by 24.6% to $2,528,448,000. Operating income was up by 1.6%, and Adjusted EBITDA grew by 17.9%.  Revenue for the quarter increased primarily as a result of revenue growth within the United Kingdom and Australia segments, which were largely driven by strong underlying trends in customer activity and revenues across those segments, as well as a year-over-year increase in Betting Net Win Margin. 

During the quarter, online sports betting was The Stars Group's largest product vertical (39.1% versus 34.3% in 2018), followed by online casino (30.8% versus 30.1% in 2018) and online poker (27.5% versus 32.8% in 2018), while 81% of consolidated revenues were derived from locally regulated or taxed markets 76% in 2018). Revenue for the year increased primarily as a result of the Sky Betting & Gaming and BetEasy acquisitions and also the same or similar factors that impacted the fourth quarter as mentioned above.

In October 2019, The Stars Group and Flutter announced that they entered into an arrangement agreement providing for an all-share combination at an exchange ratio of 0.2253 and whereby immediately following completion, shareholders of Flutter would own approximately 54.64% and shareholders of TSG would own approximately 45.36% of the share capital of the combined group. Completion of the combination is currently expected to occur during the second or third quarter of 2020, subject to, among other things, shareholder, court and applicable regulatory approvals.

As previously disclosed, in addition to Divyesh Gadhia, TSG's current Executive Chairman; and Rafi Ashkenazi, TSG's current Chief Executive Officer, The Stars Group is entitled under the arrangement agreement to nominate three additional non-executive directors to serve on the combined group's board of directors post-completion of the combination. Accordingly, The Stars Group has nominated Alfred F. Hurley Jr., David Lazzarato and Mary Turner to also serve as directors on the combined group's board of directors.

The Stars Group ended the quarter with approximately $321.0 million in operational cash and $4.9 billion of gross debt on its balance sheet, resulting in net debt of $4.6 billion, which was relatively stable compared to the third quarter and a reduction of approximately $443.9 million from the end of 2018. In February, TSG prepaid an additional $100 million, including accrued and unpaid interest, of its USD first lien term loan using cash on its balance sheet, which brings the total amount repaid since completion of the SBG acquisition in July 2018 to over $700 million.

Since its launch in September 2019, just four months after The Stars Group announced its U.S. media and sports wagering partnership with FOX Sports, the FOX Sports Super 6 app saw more than 1.3 million downloads in 2019, with an average of over 500,000 customers making at least one prediction each week during the fourth quarter. 

The Stars Group currently operates its FOX Bet real-money wagering products and PokerStars-branded real-money poker and casino products in New Jersey and Pennsylvania, and since the launch of FOX Bet in New Jersey and Pennsylvania in 2019, the performance has been in-line with TSG's expectations, with strong progress in both active customers and revenue on a month-to-month basis, with approximately 65,000 combined QAUs (quarterly active unique customers) in the fourth quarter. During 2019, FOX Bet's financial performance was in-line with its previously disclosed expected loss of approximately $40 million for the year. 

So far in 2020, The Stars Group announced a market access agreement with the Little Traverse Bay Bands of Odawa Indians Gaming Authority for first-skin online betting and gaming market access in the State of Michigan, and currently expects to increase investments in the United States to support planned FOX Bet launches in further states, including Colorado.

In December 2019, The Stars Group announced that it agreed with the minority shareholders of BetEasy, its Australian-based sports betting business, to acquire the remaining 20% interest in the company for AUD$151 million following the earlier of the release of TSG's full-year 2020 financial results or the completion of its combination with Flutter Entertainment Plc. As part of this agreement, The Stars Group also agreed to pay AUD$100 million to settle the previously disclosed performance, or earn-out, payment under the agreements for its 2018 acquisition of the initial 80% interest, which were subject to certain performance conditions primarily related to BetEasy's EBITDA and could have reached AUD$232 million, and to repay AUD$56.9 million of outstanding BetEasy minority shareholder loans.

As a result of the pending combination of The Stars Group and Flutter, TSG has not held an earnings conference call for the fourth quarter and full-year 2019 and has suspended its practice of providing forward-looking financial guidance.

"In 2019, we continued to execute on our strategy to deliver long-term sustainable growth and become the world's favorite iGaming destination. We not only began to see the full-year benefits of our transformative 2018 acquisitions, but executed on delivering a landmark media partnership in the U.S., with the launch of FOX Bet, strengthening our position in this emerging market," said TSG’s CEO Rafi Ashkenazi. "We also focused on creating shareholder value through efficient capital allocation, prepaying over $450 million of debt during the year."

"In-line with our expectations, we exited 2019 with a strong fourth quarter with Constant Currency Revenue growth of 7% year-over-year driven primarily by the continued impressive underlying performance of our primary sports betting brands," continued Ashkenazi. "With sports betting now our largest product vertical and 81% of our revenues coming from locally regulated or taxed markets, we are well positioned for diversified growth in 2020 and beyond."

"We entered 2020 with the full $100 million run-rate of expected cost synergies from our 2018 Sky Betting & Gaming acquisition and earlier this month prepaid an additional $100 million of debt, underpinning our ability to execute on complex integrations and the highly cash-generative nature of our business model. In addition to cost synergies, we have detailed plans in place to continue driving revenue synergies and to increase investments in product and marketing, giving us confidence in continued revenue growth in the years ahead. In 2020, we plan to further enhance the global appeal of the PokerStars brand, including by launching the PokerStars Sports brand, leveraging the operational capabilities of our Sky Betting & Gaming business, and launching television advertising for PokerStars Casino," he added.

"Lastly, ahead of closing our combination with Flutter, which will enhance and accelerate each company's growth strategy, we remain focused on our key strategic priorities of integration, execution, and debt reduction," concluded Ashkenazi.