Evoke plc (EVOK) Earnings Call Transcript

Welcome to the 888 Holdings Full Year Results Presentation. I will hand you over to Brian Mattingley, Chairman of 888. Brian, please go ahead.

Thank you, Bertie. Good morning, everybody, and thanks for joining us for the 888's 2020 Annual Results Call. I'm Brian Mattingley, the Chairman of 888, and I'm joined this morning by Jon Mendelsohn, our incoming Chair; Itai Pazner, our CEO; and Yariv Dafna, our CFO. It gives me enormous pleasure to join this call where Itai and Yariv will outline what a fantastic year for 888 2020 was and how well the company is positioned for the future. It is my 15th and final year with 888, and it has been great to see the company grow from strength to strength over those years, navigating the changes and challenges in this exciting industry and constantly positioning the business as the digital leader. All of this has only been made possible by the amazing talent in this business, and I'd like to thank each and every one of our people for their commitment and drive to build 888 into one of the leading online betting and gaming businesses. At the end of the month, I will hand over the Chair to Jon Mendelsohn. Having spent several months working together to ensure a smooth handover, I couldn't be more pleased with the transition. And I couldn't be more confident that with Jon, the company is in great hands to continue striving. And on that, I would now like to hand you over to Jon.

Thank you, Brian, and good morning, everyone. I'm Jon Mendelsohn. As Brian said, I'll be taking over as Chair at the end of the month. This is such an exciting time for the industry, with huge new market opportunities emerging and online gambling becoming a mainstream leisure activity across the world. Brian and his team have built 888 into a leading operator with our proprietary and scalable platform. I'm excited about the potential for the business to continue to expand. As Chair, I will continue to reinforce 888's ESG commitments, supporting the long-term sustainability and growth of the business as we continue to build 888 into a leading online betting and gaming operator globally. Before handing over to Itai to run through the highlights of 2020, I'd like to extend my personal thanks to Brian for both his great achievements as Chair and for the time that we have spent together to ensure a smooth transition of responsibilities. I wish him well for the future. Over to you, Itai.

Thanks, Jon, and I'd also like to extend my personal thanks to Brian. We've been working together for 15 years now, and it's been fantastic to have your support and guidance as we've navigated many challenges and enjoyed many moments over the years together. On Slide 3 -- turning to Slide 3. I'll provide some highlights for the year and then hand over to Yariv to discuss the financials. I will then provide an outline of our progress against our strategic priorities in 2020, and our growth plans for the coming years. We will then open up for some questions. Before that -- before we start, we have a short video in 88 seconds to showcase what an amazing year it was for 888. [Presentation]

That video gives a really great sense of the progress we made during 2020, and turning to Slide 4, we have some highlights for the year. I joined 888 over 20 years ago, and last year was definitely one of the most amazing years for the company since I joined. Not only did we reach record revenues of $850 million, but we saw records across nearly all of our products in various KPIs, which leads me to strongly feel that we're in a really good shape to see continuous growth. Over the next 45 minutes, we'll expand on the factors that led to this record performance, and we will start with the Yariv running through our financial highlights.

Thanks, Itai, and good morning, everyone. Thank you for joining us today. This is my first time for presenting annual results as the CFO of this company, and as Itai said, this was a record year across most metrics. While I can't take too much credit on this, I'm excited to start with such a strong performance. Turning to Slide 6. You can see the financial highlights for 2020. Revenue were up 52% to $850 million, with strong growth in both our B2C and B2B businesses. Adjusted EBITDA increased by 69% to $156 million, with a margin increasing to 18.3%, supported by operating efficiency, more than offsetting higher gaming duty in the year as we continue to expand in regulated markets. Cash generation was very strong, with the free cash flow significantly up to $146 million. This leave us with a year-end net cash position of $116 million after the player balances. The dividend for the year is $0.18 with a final dividend of $0.12, represent the 2/3 of our yearly dividend. I will expand on the driver behind the strong performance over the next slides. Slide 7, you can see that our growth in 2020 was broad-based across our product. Casino revenue were up 63% to $587 million, representing 69% of group revenues. It is important to note that this is Casino as a product and therefore, includes also revenue from Casino game within our Sport and Poker brands. Moving to Sport. Sport is our second revenue contributor product, representing 14% of revenues. 2020 was transformational year for sports, in which we brought the Sport platform in-house. Revenue were flat in the first half, but with the return of major sporting event in the second half, we saw significant growth at healthy margin, resulting in growth of 36% for the full year. Now Poker. Poker is a great product for us. While it represents only 7% of our revenue, it has much bigger contribution when we consider also the cross-sell to Casino and Sports. Poker revenue were up 48% to $63 million. We saw a temporary jump during April and May, which was stabilized in June before seeing structural improvement in the second half in which we benefited from the Poker8 launch and the associated marketing campaigns. Bingo revenue, which is now about 5% of revenue, were 10% higher or 5% on a like-for-like basis, if we consider the acquisition of Jet Bingo in March '19. Having said that, given our increased focus on other products and the lower growth outlook for Bingo, we have reassessed the carrying value of our Bingo asset and took an impairment charge of approximately $80 million within the financial of 2020. Moving to B2B. B2B revenue were up 19% to $35 million. This growth came from both our B2B Bingo and U.S. B2B revenues. We are excited about the prospects of our U.S. B2B business, having signed a multiyear extension to the flagship world series of poker agreement that will be rolled out to further states in 2021. So to summarize, overall, revenue were up 52%, 19% growth in the B2B and 53% in the B2C, with all our businesses performing well. Slide 8. You can see on the right, a clear long-term track record of double-digit growth. The company is positioned well to become a leader in an attractive, large and growing market and has demonstrated the ability to continuously grow through the rapid evolution that we have seen in the industry. On the left-hand side, you can see a strong growth in new customers across the product range. This growth is a key indicator of our future growth. Slide 9. You can see the diversification of the business from a geographic perspective. One of our key goal is to build the business to be one of the leading regulated online betting and gaming businesses. We made a good progress in 2020 with 58% growth in our regulated revenue. This was mainly driven by our strong customer acquisition and the success of our product leadership strategy that Itai will expand on later on. On the left-hand side, you can see that the mix of regulated and tax revenue has been increasing steadily over the years. We have grown our business in this market, and more countries have implemented regulatory and taxation regime. On the right-hand side, you can see the revenue from geographic perspective. The U.K. remained the most important market, with 39% of revenue, following growth of 63% in 2020. Italy revenue were up 69% to $87 million, representing more than 10% of group revenue for the first time. There are no other countries that contribute more than 10% of revenue, but we enjoy strong diversified growth across a wide range of regulated markets, including Romania, Sweden and Portugal, as we continue to drive market share gains with our product leadership strategy. Moving to Slide 10. I will walk you through how we convert our revenue into adjusted EBITDA. Our gross profits represent the revenue less variable cost as gaming duty and taxes, royalty and rev share to a third party, which would be mainly game providers and payment cost. You can see that our gross margin dropped by 1% to 66.2%, reflecting an increase in the gaming tax ratio. Marketing. Marketing is the biggest investment we make as a company. We invested in 2020, $237 million in marketing using our big data and marketing expertise to drive efficient and effective customer acquisition across brand and countries. As you can see, our marketing ratio remained roughly stable at 27.9% despite an increase of 42% in customer acquisition. Contribution. We measure the contribution as gross profit less marketing costs. We are presenting this KPI in order to enable further analysis of our result. The contribution margin went down slightly to 38.3%, affected by the small decline in gross margin, bundled with the small increase in the marketing ratio. Below contribution, we have all our operating costs, which are more fixed in nature and reflect mainly our people, professional services and technology costs that enable us to operate our business. We saw a nice operational leverage in 2020, with operating expenses as a percentage of revenue declined by 3.5% to 20% despite an absolute increase of 29% in the operating expenses. Slide 11, you can see the output of the revenue and cost line and how we convert our revenue into EBITDA. So revenue were up 52%, with gross margin decreasing slightly. We saw 49% increase in gross profit. Marketing investment increased by 55%, a little bit ahead of revenue growth as we continue to invest in order to drive future growth. Our operating expenses were up 29%, but with the operational leverage I just mentioned, our adjusted EBITDA margin increased by 1.9 percentage point to 18.3%. As I highlighted earlier, cash generation was very strong with adjusted EBITDA of $156 million, converting after CapEx and tax into cash flow of $146 million. Next slide, dividend. The Board proposed a final dividend of $0.12, taking the total dividend for the year to $0.18. The follow -- this followed the $0.06 interim dividend, reflecting 1/3 and 2/3 split between interim and final. Given the strong year, high cash share conversion and strong balance sheet, we are pleased to be able to return significant cash to our shareholders, while still supporting our strong growth ambition, whether organically or inorganically, and we do see opportunities in the market. Next slide. In Slide 13, I would like to spend a few words about current trading and outlook for the year. I will start with the revenue. We entered 2021 with a strong momentum, and we are pleased with the reaction so far to our new product and marketing investment. While thinking on the year as a whole, we expect to see small revenue growth as we need to balance the current positive momentum against tough comparison, some regulatory headwinds and the uncertainty about player reaction to the expected reopening of retail businesses. Regarding the regulatory matter, there are a range of factor that could impact the year-on-year revenue growth, such as the new regime in Germany, further limitation on player as we enhance our game -- safer gambling strategy and some other changes in selected countries. On a combined basis, these changes represent revenue of between $70 million to $100 million. With the strong momentum that we currently see, we are confident that we can absorb this and still see small revenue growth in 2021 from the record level of 2020. With regard to the EBITDA, we expect the adjusted EBITDA margin before U.S. B2C losses to remain broadly similar in 2021. The negative impact of our increased investment in the U.S. is expected to be an additional $10 million in 2021, as we gradually scale up our business and platform into additional states. Moving to CapEx. CapEx is expected to remain similar to the level that we saw in 2020, as we continue to invest in our platform and product. For tax, we expect a similar to slightly higher tax rate in 2021. I will now hand over to Itai to tell you a bit more about our strategic priority and growth plan and the factor that support the strong growth profile that we are seeing.

Thanks, Yariv. And turning to Slide 15, our strategic priorities. This shows our strategic priorities, and I'll run through the progress we've made in 2020 and show how we are well-positioned for future growth in the coming years. Moving on to Slide 16. Our first priority on Slide 16 is safer gaming. We acknowledge that gambling can cause harm, and we acknowledge that we need to make more progress in this critical area. This is an ongoing agenda and that we are absolutely committed to continued progress and improvement on. During 2020, we launched our new comprehensive safer gaming strategy called Safer. Better. Together. To achieve this, we devised our 8 commitments to safer gaming that you can see on the screen. I'd like to share a few examples of the progress that we've made here. So commitment number five is to provide transparency. At the end of 2020, we rolled out our groundbreaking control center, which gives our players a really quick and simple interface to monitor exactly what they're spending in real time. And this is really important because knowing how much time and money you're spending is where control starts. Commitment number six, staying in control. The control center makes it really quick and simple for players to control their spend with the same focus we have on UX and design as we have on our other gaming products, we made it very easy and intuitive for players to set different types of limits such as time spent, money spent and more limits. But I think the most important commitment is commitment number eight, the commitment to continuous progress. This is not a one-off change. We're going together and better supporting safer gaming. Turning to Slide 17. Regulated markets, market share gains. The real driver of our business is our expansion into regulated markets. And on the left, you can see our strong progress that we've made in deposits from regulated markets over the last few years. On the right-hand side, you can see our market share in some of the key regulated markets. For example, in Italy, you can see that we grew our revenues by 69%, and we grew our market share by around 10% during the year. We entered 2020 with a strong growth momentum. Our data-driven marketing machine gives us a real competitive advantage, and we have just entered a new product cycle, which is supporting growth, both in Sports and Poker, which I will expand on now. Slide 18. One of the key factors supporting our market share gains in these regulated markets is our product leadership strategy. We recently hosted a product webinar, which I really recommend you to have a look on our website, if you haven't had a chance to see it yet. It runs through our product principles and how building the best products is supporting our growth plans. I'll expand on what that means in practice in the next few slides. Slide 19. So turning to Slide 19. Our Poker product and how the principles that you saw before actually work in practice. During 2020, we rolled out our latest Poker product, Poker8, in nearly all of our markets, taking a couple of highlights from this new product development. So in terms of the usability, the new app loads twice as fast as the previous one. It's a mobile-first app laid out in portrait mode, so that our users can play poker in the same way that they play and browse on other apps on their phones. We measure the UX and UI against the best consumer technology products and not just gaming companies. In terms of entertainment, most of the time in poker is actually spent on the poker table itself. So we made this focus and added fun and interactive items like cool avatars and throwables, which players can throw at each other while playing poker. Next, Slide 20. Some of our Poker product KPI since the launch. I'm pleased to share that some early indications of the impact of our new Poker8 product. This clearly demonstrates how effective our Poker leadership strategy is. Firstly, on the top left, you can see that since we rolled out our product in October, we have seen really strong trends with first-time depositors, which have increased by over 80%. Alongside our product launch, we rolled out a major new brand marketing campaign built around the slow bid made to play. This showcases the fresh and modern approach that we brought to the world of online poker. Then, on the bottom right, you can see important player revenue KPIs. The enhancements that we've made to the user experience and content mean that we're seeing better cross-sell levels, and at the same time, we're seeing an improvement in the Poker gross revenue per player, as players are reacting strongly to our new product. And I'm frequently asked, if I expect to see the Orbit effect -- the Orbit Casino effect on Poker8. Our Casino business has more than doubled since the launch of Orbit only 3 years ago. I can't promise that same level of impact, but we have a great new Poker product, and early indications are very positive, and we're aiming to continue growing our Poker vertical. Next, Slide 21, Sport product. 2020 was a landmark year for 888. And after 10 years of operating and growing the sports betting vertical, we've rolled out our in-house proprietary sportsbook platform that this completes our journey to a full product suite of the 4 main verticals developed in-house and owned by 888. Owning our platform gives us critical capabilities to take our Sports business to the next level, in-house pricing, risk and trading that we can easily connect to our local marketing initiative and create a differentiated and attractive proposition for our customers in the different territories. A couple of examples of how our sports book is taking a giant fleet forward. In terms of entertainment, we're using similar modern app engagement features like our customers are used to seeing on other leading apps such as our bet feed, which provides real-time recommendations with the top bets for you. Our top 10 bets in your country. These bring trending features like people are used to seeing in other leading social and consumer entertainment products to the world of sports betting. Our Bet Finder has a great enhanced search capability, supported by our proprietary AI platform. So even I can find a winning horse this week. And coming next to 888 Sports, it's rolling out to more remaining markets that we have, but we're also going into new markets with the new sports. And the most important one in this aspect is the U.S. market where we're planning to launch the platform during Q3 this year. Moving on to Slide 22 to see some of the KPIs that we've experienced since launch. While it's early days in the new sports product rollout, I'm delighted to share with you some early indications about our success and why we're optimistic about the future in sports betting. Firstly, you can see on the top left chart that during the second half, we gradually migrated more and more sports business, and we now have the majority of our sports bets and players and volumes over our new in-house platform. Secondly, on the bottom left, you can see key KPIs have all continued to see solid growth during the migration with more active deposits in FTDs with an entirely new product set and a change in our front end. We are particularly pleased to see that the migration went very, very smooth. On the top right, you can see that as well as seeing improving trends for Sport, we're also seeing strong trends in our multi-product play, with over 40% more customers playing multiple products, that means on Casino and on our Poker products. And finally, on the bottom right, one of the risks while bringing a sports book in-house is around trading and risk management. And here, you can see that our football margin has been very stable, and we're delighted to see how the team there are managing the risk. So the new 888sport, not only looks great, but we're seeing really positive indications of its performance. Moving on to the next slide, 23. Our data-driven marketing. We saw how product-led strategy is a significant growth driver for our products. I'll now expand on how our data-driven marketing machine helps us attract customers in an efficient manner and complement our product-led strategy. So on the left-hand side, you can see that the customer acquisition trends in the last 4 years with strong growth of first-time depositors in our different regulated markets. We have achieved this while being really efficient with our marketing spend and actually seen a reduction in our cost per acquisitions over the years. As a data-driven company in its DNA, we utilize the scale of our data, our in-house and third-party marketing technology systems to create marketing machines that continuously aim to optimize and grow our marketing investments. This acquisition strategy is accompanied by a brand-led strategy for each of our core brands, 888Casino, 888Sports and 888Poker and Bingo, and in order to create a highly efficient marketing spend while building leading global brands. In 2020, we invested well over $200 million in marketing. And on the right-hand side, you can see that we split this across 8 different marketing channels. We have really strong teams across the different marketing channels with no major reliance on one individual channel. This is very important for us in order to optimize our spend, but it becomes even more important these days when traditional forms of advertising and sponsorships are becoming limited in various markets in Europe. Moving on to Slide 24. I'll now expand on how we are doing in the U.S. on Slide 24. So everything I ran through up until now, our safer gaming, product leadership strategy, data-driven marketing, will all be shortly deployed in the U.S. We made a huge effort to upgrade our systems and capabilities in the last 3 years, and we're now moving all of this to the U.S. In the chart, you can see that our average active players in New Jersey, which is in a constant growth trend and grew by nearly 50% in the last couple of years. This is good, but we feel that we can do much better here. During 2021, we will more than double our investment. We will build cross organization dedicated team with over 200 staff focused solely on the execution in the U.S. market. We're continuing to pursue our B2C sport-led and our B2B gaming-led strategy in the market. By doing this, we're increasing our market reach to many regulated gaming and sports betting states in the U.S. We're planning to launch the WSOP Poker through our partnership -- our B2B partnership with Caesars in Pennsylvania and Michigan in the next few months. We're also planning to launch our new sports betting product under our B2C licenses, which we have obtained in Colorado and Indiana and in Iowa, and we are in the process of securing further licenses in the U.S. The U.S. is a very big part of our focus and plans, and I believe that with the unique leading products and technology, our data-driven marketing capabilities, our B2C, B2B strategy there, we can make a real impact there in the next 3 years. Slide 25. So just to wrap this up, 2020 was a record year for 888, which I was particularly pleased with given the disruption from COVID, and I'm delighted with how our team responded to this. Our product leadership strategy is working, and we are at the beginning of a new growth cycle in sports and poker. These capabilities are now ready to be deployed in the U.S. as we're posed to start rapid expansion there. Our strong cash flow and balance sheet leaves us well placed to supplement our growth through M&A. The business momentum is strong as we enter this year, and we remain positive about the outlook. With that, Yariv and myself will be happy to now take some questions.

[Operator Instructions] We've got a question from David Brohan.

Just 2 questions for me. Firstly, on Italy. 69% growth is a hugely impressive number given the kind of advertising restrictions there. Could you just give us some color and kind of terms of what is driving that? And then just also on the kind of headwinds you called out year-on-year? On the U.K. side, could you give us some color on the enhanced measures you're taking in the U.K.? And how we should be thinking about that?

Thanks, David. So I'll take Italy and we'll split it, and Yariv will take the U.K. So in Italy, we did indeed see a very strong trend of growth during 2020, which is also continuing in 2021. And indeed, there are marketing restrictions in that market for the last few years. Italy has been growing for us before 2020. Actually, since restrictions have been placed there, we haven't stopped growing. I think one good explanation for that is what we spoke about kind of more of our online direct response mechanisms of marketing. So we have very good positions on Google in Italy, which help us grow our business through demand coming from customers. Our SEO is doing very well there. We have managed to build the brand before the company -- the country basically limited the marketing and the focus of the product. And I think when marketing is limited, then players choose by product and the Italians are definitely making a very clear choice in choosing specifically our casino product, but not only poker and sports have also been doing well in Italy. The second question, maybe, Yariv, if you want to take?

Yes, David, with regard to the U.K., so U.K. performance was very strong also in 2020. Actually, it's linked to what Itai just mentioned about Italy. I think there is a significant proof also from what's happened in Italy, that there is a strong impact on our product and platform and enhancement to the different products. So remind me, did you ask something about U.K. in 2021 or 2022?

Just in 2021, in terms of the kind of the year-on-year headwinds from enhanced [ payout ] protection measures. Just any color you can give around that?

Sure. So as we mentioned here today, we have a strong commitment to enhance our safer gambling framework and therefore, we are actually expanding our framework and imposing some new limits on our -- as part of our strategy. And this is -- obviously, will have also some impact on our ability to grow in the U.K. during 2021. This is part of the $70 million to $100 million that we mentioned as a regulation issue that's affecting the focus for 2021.

We have another question from Ivor Jones.

You talked about the -- an expectation of a slowdown as we got into the summer and as we get hopefully through COVID. Could you talk about your experience during the last summer maybe, specifically, in the U.K., when there was definite ending of restrictions. Did you see a sharp slowdown then? What was the seasonality like? That was my first question. Second question, in the presentation, you haven't talked about special dividend than normal dividend. So is $0.18 the new base for the year that you expect to grow from? Or is there still a special component with that in your mind? Third one was, the cost benefits of moving to your own sports platform, does that come through mainly in 2021? Or is it something still to benefit the income statement in 2022? And coming back to Sport. You've talked about sport as not exactly a new business, but obviously, a business that's growing strongly, and now you've got the new platform. Could you talk about Sport geographically? Is it mostly the U.K.? And you've yet to add it to Spain, and you've yet to add it to Italy, and you've yet to add it to other territories? Or is it evenly distributed across the territories? And then the last thing was, when you talked about Pennsylvania and Michigan, you only talked about WSOP. Will there be 888Poker in those states? Or is there a reason in the agreement that you won't do that? Or is it a strategic reason?

Okay. So Ivor, as usual, I think this time, you've actually exceeded and you have about 6 questions. Usually, your average is around 4. But I'll take the 3 of them, and I'll leave Yariv with the special dividend and cost benefit of sports, if that's okay?

Yes, not the only one that's outperforming.

Sorry?

Well, not the only one that's outperforming.

Okay. So first of all, summer slowdown. So what we saw last summer, and I'm not sure we can relate this summer to last summer because, hopefully, this summer will be the beginning of the end of the COVID. And from that, COVID will only disappear more and more. And last summer was kind of a break and then it came back very, very strongly. So difficult to predict. But the trend that we saw last summer was actually, some of our products exceeded -- Casino and sports exceeded the performance during the summer. Poker slowed down during the summer after a huge peak in Q2. But what happened, Casino just continued a very strong momentum. Sports, we had a lot of events that were pushed over to the summer and people were probably waiting and eager for Sports to come back. So we saw a really strong summer. And Q4, for that matter, in Sports. This summer, we do think -- and as you can see, we're sitting in a room, this is not a virtual room. I'm sitting here with Yariv, and we're already starting in this part of the world, in Isreal to experience what coming out of the COVID looks like. It's pretty fast, actually, to tell you the truth. And I expect people this summer, to spend more time outdoors. We expect people more time traveling, as restrictions will allow because of this very long hibernation period. I think this will slow down our business moderately during the summer. But I think that going back into kind of Q3 and Q4, we'll go back to this new level of what we call new level of normality. So that's my personal prediction, but it also very much depends on the different pace of countries coming out of lockdown. I'll answer the sports, if it's mainly U.K. or outside the U.K. So first of all, we've -- our sports product, however, can't be the previous one and the new one has been rolled out into all of the regulated markets that we operate in. So we have Sports in Italy and in Spain and in Romania and in Sweden. And so we have Sports everywhere. It is -- in the U.K., it was at a big focus -- growth focus for us, and it's big in the U.K. It's also -- actually, in terms of market share, I think the biggest market share we have is actually in Spain in terms of market share. And we definitely see this as a very significant growth potential for us. First of all, because we see the product is performing very well. We know that we're starting from a relatively low market share, which is somewhat easier to grow from that basis. And we have a lot of enhancements that we're planning to put on the new platform that I think can help us grow further. So from us, growth is a really, really great growth opportunity overall. The last question about Pennsylvania and Michigan and WSOP. So indeed, we have prioritized the WSOP launch in both those states. That doesn't mean that we will not launch 888poker in those states. It's just not in the plan for the first launch of this year. We want to get the WSOP, which is a leading brand in the market today. It's the leading brand in the U.S. We want to get it off the ground as soon as possible in those markets and therefore, we prioritize it first. But we're also planning to launch during the summer, our first Sports betting market over the new spectate platform in the U.S. and from thereon, we will start launching more and more Sports betting markets in the U.K. based on the licenses that we've acquired.

Okay. So I will start with the dividend. So the dividend for the full year is $0.18, and it's split between entering to a final $0.06 and $0.12. But if we take the split on regular and special, so it was $0.136 regular dividend and $0.044 as a special dividend. There -- just as a reminder, the regular dividend is based on our policy to distribute 50% of our adjusted profit after tax. Of course, looking forward, it's -- you can easily focus the regular. The special, of course, depends on the decision to be made from time-to-time by the Board. In terms of the benefit from having the sport book in-house. So I would say that for the short term, you need to look at that as neutral. You need to look at that only from the ability to take some of the costs that today are part of the cost of sale, which are now moving to be operating costs because we will pay less royalty. However, we are increasing our Dublin site and the R&D falls there in order to continue, develop and enhance the platform. Looking forward, obviously, we will get the benefits from the scale, and we will start to see a great benefit coming -- financial benefit coming from having the sport book in-house. Just maybe to add just -- Itai mentioned about where we operate Sports. So we do have also Sports in New Jersey, in fact.

Can I just follow-up on the sports, Itai? Will you tell us the percentage of Sports that's coming from U.K. and Spain? If I want to get a sense of the opportunity for Sport to grow in Italy, Romania, Ireland or the other markets, it will be helpful to know how concentrated it is now.

So we don't split out verticals per market, as you know. But diversification is continuing. U.K. is the largest market -- second largest market is Spain, as I mentioned. And then Italy is doing well. Romania is doing well. Sweden is starting to grow. So we're diversifying. It's not very, very different from the spread that we have in other products, I would say, maybe slightly more skewed towards the U.K. but not dramatically.

We have another question from Simon Davies.

Three from me, please. Firstly, you talked about the $70 million to $100 million of headwinds from a regulatory standpoint. Can you break that down in terms of how much of that is down to your tighter responsible gaming measures? And where do you think that will leave you positioned relative to your peer group. Does that bring you in line with them? Or do you think you'll be broadly best-in-class? Secondly, exceptional customer recruitment numbers for the year, 1.5 million FTDs. Can you provide some context in terms of growth in average active player numbers for the year? And what do you see happening to your lifetime value per customer, given the shift towards a more recreational customer base? And lastly, in terms of regulated market mix. Obviously, a number of your unregulated markets are going to regulate over the next couple of years. How long do you think it's going to take you to get to, say, 90-percent plus regulated market revenue split?