SMarkets Management dicussion for 2024

[Euler]

Thought this may be interesting for the forum

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SMARKETS LIMITED
STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2024

Business model

Smarkets generates revenue primarily through commission, a transaction fee charged to customers based on their net winnings in individual markets. Thanks to our advanced technology, we offer an industry-low flat commission rate of 2%. Additionally, customers introduced from some partners benefit from 0% commission.

In addition to our standard transaction fee, we have two other tiers. The Pro Tier applies a 1% commission on winnings or losses from each individual trade that settles. The Select Tier is designed for customers with accounts exceeding £25,000 in net profit over the previous 12 months, applying a 3% commission on winnings or losses per trade.

The Group, through its 100%-owned subsidiary Hanson Applied Sciences II Limited, also provides liquidity on the exchange - and therefore SBK - through algorithmic trades. These trades are risk managed and serve to enhance the user experience while also generating profits. As we continue to expand, our focus remains on offering industry-leading prices and further enhancing liquidity in existing and new markets.

Our products allow us to appeal to a very diverse audience, with Smarkets appealing to a number of different customer segments, namely high-value users, traders or one of our biggest cohorts - matched bettors. Meanwhile SBK allows us to offer industry-leading odds to a more recreational audience. Our acquisition mix has pivoted over the last 18 months away from being overly reliant on affiliates and looking more to organic traffic generated through partnerships alongside scaling up our performance Marketing efforts.

2023 was very much about operating our acquisition model with the utmost efficiency across both products. In 2024, following a huge amount of product work done on SBK, we scaled up our acquisition efforts while remaining as efficient as possible with regards to customer payback. This resulted in a phenomenal year for the product with swathes of new users enjoying our new features and a consistently high quality customer experience.

Market context

The UK online sports betting industry total Gross Gaming Yield (GGY) amounted to £2.4 billion in 2024, highlighting the potential for a betting-only company like Smarkets. The growth of our mainstream app SBK enabled us to expand our success by targeting the UK retail market and testing our competitive pricing in other territories.

Smarkets maintains a strategy of bringing disruption to mature, well-regulated markets, and in throughout 2024 we increased our focus on Sweden and Ireland. The Swedish market is mature and stable with online gambling generating £1.2 billion in revenue in 2023. The Irish market is awaiting government regulation but estimates place that market at €2 - 2.4 billion, with similar betting habits and customer-types to the UK.

In the United States, the total sports betting revenue in 2023 reached $13.7 billion. In Indiana, where Smarkets currently operates SBK, 2023 GGY reached $422 million. Smarkets currently holds licences to operate in the UK, Malta, Sweden, and Ireland, as well as in the US states of Colorado and Indiana. The majority of our betting volume in 2024 was generated in the UK, where we face competition from industry leader Betfair and other smaller exchange operators. In 2025, our focus will be on improving our product offering, and capturing market share in the UK market.

How we operate and who we are

Smarkets Limited (the “Company”) and its subsidiaries (together “Smarkets” or the “Group”) own and operate an online betting exchange platform.

The exchange platform (the “exchange”) enables users to set prices and bet against other traders, rather than against a bookmaker, on sporting and other events. Unlike traditional bookmakers, the exchange offers both buy and sell prices, and these both continually change during the events themselves up until their conclusion.

The sportsbook-style app (“SBK”) integrates the industry-leading exchange into a sleek and easy-to-use sportsbook format. SBK has been built on top of the exchange, so users of both products enjoy the same odds and variety of markets, but can choose whether they prefer the extra functionality provided by the exchange or the more focused display of SBK which only shows buy prices. With sportsbooks accounting for the vast majority of market share in the UK betting industry, SBK allows the company to target a wider audience and is proving to be a key tool for growth.

To remain competitive and in order to attract users, the Group has to offer a market-differentiable experience and provide a reliable and robust service. To meet these challenges, Smarkets has developed a website and mobile applications with an innovative underlying betting engine, which are each continually refined and evolving. In particular, the software engineering team at Smarkets works to find faster ways of handling the large volumes of customer, market and transaction data and making it accessible to the community, thus democratising event trading for all.

The Smarkets platform is state of the art - secure, transparent, highly responsive and efficient, and with rapid access to deep resources of market data - and allows for huge growth potential in existing and new markets.

Product and Technology

In 2024, Smarkets continued to accelerate its product development, delivering a series of impactful updates that further enhanced the user experience and strengthened our market position for SBK. Early in the year, we launched SBK Web, broadening accessibility and driving new user acquisition, while also introducing the first iteration of our personalisation engine across both products. Our focus on improving transactional efficiency was evident in the revamp of the SBK cash out engine and the rollout of streaming on SBK Web, providing users with more engaging betting options and increased control over their bets.

Throughout Q2, we doubled down on user experience, unveiling a new SBK app homepage, category, and event pages, each designed to streamline navigation and encourage engagement with long shot bets. The introduction of new bet types like Bet Builder X or Full Cover Bets, alongside the launch of “Best Price” underscored our commitment to delivering market-leading value and innovative bet creation tools.

In the second half of the year, we expanded our product reach with the launch of SBK app in Sweden and rolled out SBK Web v2, further increasing contribution from the new platform. The addition of Apple and Google Pay simplified deposits, while features like Fresh Legs insurance on SBK and matched betting hub on Smarkets Web catered to both recreational and high-value users.

Q4 saw the introduction of live sports notifications, driving increased app sessions and user retention. Performance improvements across the SBK app and the integration of written, video, and audio content enriched the overall customer experience, reinforcing our position as an industry innovator. These advancements, aligned with our strategic vision, ensured that SBK remained at the forefront of product excellence and customer satisfaction throughout 2024.

Customer activity

In 2024, we wanted to continue to remain financially prudent while also scaling our level of user acquisition, particularly on SBK.

In turn, user acquisition increased on SBK by 23% YoY with first time deposits (FTD) totalling just a little over 40k for the year. On Smarkets exchange, we lowered our acquisition sights as our core customer segment - Matched Bettors - continues to be a shrinking market. Despite this, we beat our target for the year, bringing in 28k new users. Looking ahead to 2025, a refresh of the Smarkets product will be aligned with a refreshed acquisition push on new customer segments in order to combat the decline of the matched betting market.

Alongside the increased acquisition levels on SBK, further work on the product resulted in improved customer retention levels as well as a 43% increase in user deposits for the year. Actives grew by 11% YoY and buyer stake finished +32%.

Moving into next year, we’ll be focusing on the aforementioned product changes on Smarkets alongside further building out the SBK user base on the road to the football World Cup in 2026. We will continue to optimise for efficiency but as the SBK product specifically continues to grow, we plan to increase Marketing awareness spend levels in line with pushing our Best Price message.

Revenues

In 2024, the Group generated revenue of £24.8m, representing an 18% increase compared to 2023. While exchange revenue declined by 9% year-on-year, this was more than offset by continued growth in SBK revenue, which nearly doubled relative to the prior year. This strong performance reflects the Group’s sustained investment in product development and customer retention initiatives.

Costs

During 2024, the Group maintained strong operational discipline, resulting in a year-on-year reduction in overall costs. A key factor in this improvement was the further reduction in cost of sales, which decreased to £4.8m from £5.9m. This area continues to be effectively managed as SBK scales. Looking forward, overall costs are expected to remain relatively stable, with the exception of increased marketing expenditure aimed at supporting further international growth.

Profitability

The Group reported a profit before taxation of £16.3m in 2024 of which £9.8m relate to one-off provision reversal. Excluding this one-off reversal, profit before tax was £6.5m which is a notable increase from £2.0m in 2023.

Balance sheet

As at 31 December 2024, the Group’s total assets stood at £41.0m, up from £37.3m at the previous year-end. These include segregated short-term bank accounts holding customer deposits for betting purposes, which increased to £27.6m from £26.8m.

Capital

The Group reported net assets of £17.6m as at 31 December 2024, a substantial improvement from £0.5m at the previous year-end. The majority of this was due to the reversal of the tax provision in 2024 which amounted to £9.8m.