Rushing ahead: How Rush Street Interactive became an igaming powerhouse

It’s no secret that Q3 2020 was a win for many operators in the US market as customer acquisition rates soared across the board. For one firm, Q3 represented its final full quarter as a private company. Similar to its peers, Rush Street Interactive (RSI) recorded a huge uptick in revenue during the three-month period, as group CEO Greg Carlin hailed 2020 as a “transformational year” for the group.

The key factor in RSI’s transformation is its public listing on the New York Stock Exchange under the ticker symbol ‘RSI’. As the third US operator to snap up the opportunity to list via a SPAC last year, RSI’s story differs slightly to that of DraftKings and Golden Nugget Online Gaming (GNOG), as it is looking to its SPAC partner to maintain some influence in the business now the tie-up is completed.

SPAC dMY Technology Group founder Niccolo De Masi’s career spans 10 years working at the helm of mobile gaming developer Glu Mobile, while dMY chairman Harry You brings experience in IT software development to the RSI team. “A couple of dMY execs have joined the RSI board and they will remain involved in helping us by leveraging their experience and relationships and knowledge, as they have experience in digital businesses,” RSI president Richard Schwartz tells EGR North America.

RSI president Richard Schwartz puts tdown high retention rates to its BetRivers and PlaySugarHouse brands appealing to female casino customers as well as typical sports bettors

After months of waiting on approval from the SEC and industry regulators, the tie-up closed on December 29 after dMY shareholders held a special meeting to vote on the business combination. As part of the deal, dMY have injected $230m in cash with an additional $160m in private investment from Fidelity Management at $10 per share in dMY common stock. The capital funded RSI’s IPO, and will contribute to its growth in the US and Latam, while supporting increased marketing for the brand.

But before RSI entered into the deal, it was already proving to be a top performer in the US sector and was deemed joint number one in igaming market share for Q3 2020 alongside DraftKings, by Eilers & Krejcik Gaming’s (EKG). According to EKG, RSI retains a 16% share of the overall igaming market across the States, despite not yet being live with online casino in West Virginia.

Schwartz puts this down to RSI’s BetRivers and PlaySugarHouse brands appealing to female casino customers as well as typical sports bettors. “Our brands and products really appeal to players who are casino players first, not necessarily just sportsbook players who then also play casino games,” Schwartz notes.

“What this means is that we’re not just another male dominant sports betting brand in the market, and we have a very healthy split between male and female casino players.” According to an RSI investor prospectus released in October 2020, its casino apps saw a 50/50 split between male and female players in Q1 2020.

RSI spent a respectful $17.5m on marketing in Q3, compared to DraftKings’ $203m and BetMGM’s expected 2020 budget of $150m. “We grew revenue 370% year over year, with an increase of only 81% in marketing spend during the same period. That data point validates that we’re being efficient and disciplined with our marketing,” says the RSI president.

He insists the operator has shied away from splashing its cash on major national media partnerships in order to focus its marketing spend on growing local audiences in specific states. “There are some operators that have focused more on the value of buying national media, maybe for better value, and while we do entertain those national deals as well, and have entered into a couple, we tend to prefer to focus on more localized assets in each state,” he adds.

“We’re investing in customer awareness, acquisition, and retention in a return-driven framework that is intended to drive long-term sustainable growth as the online casino and online sports wagering markets continue to grow. In general, our approach to marketing has been to be really flexible and nimble and spend marketing dollars where we see the highest returns.”

The company expects to make 2.7x its average customer acquisition cost in 2020, which it claims is 23% higher than GNOG’s expected returns for the year. Schwartz anticipates that marketing spend will grow in 2021 as revenue grows and RSI enters new markets, like Michigan in January.

Interestingly, Schwartz says the firm does not focus its efforts on cross-selling players from casino to sports, as it knows much of its casino audience has no interest in betting. While DraftKings, which shares the top spot in igaming market share with RSI, has successfully marketed its casino app to its vast database of sports bettors and DFS players, RSI has grown its casino player base separately from its betting product.

The operator is the highest-grossing online casino in Pennsylvania, a position it has maintained since the state’s launch of the vertical in July 2019. The operator reported that its online casino customers spent on average 1.7x more time active on the site each month than its sports bettors. In November, the Pennsylvania regulator approved the operation of live casino games in the state, a sure win for igaming operators considering how significantly the vertical contributes to revenue in Europe.

RSI was first to launch the vertical in the state. “Live casino players are certainly valuable as a key part of our approach as a company, which is to focus on building loyalty through building consumer trust,” Schwartz comments.

“If we’re going to leverage the live casino players to earn more player trust in our brands, it’s great for us in terms of retention, but also helps to acquire players who feel they can maybe trust a live dealer experience more than they would a random number generator table game.”

But live casino has not yet become a dominant vertical in the US, as slots continue to reign. “I think it’ll probably take some time in new markets for it to grow to the same position that it achieved in certain European markets. And as we’ve seen some success from some of the random number generator table games too in the US, perhaps it is a comfort for players that it is a vertical that’s regulated locally,” he adds.

The power of PAM

While early mover advantage is a key component in gaining market share at this nascent stage in the industry’s evolution, ultimately operators will win on product and differentiating their apps with proprietary technology. Schwartz is of the opinion that owning certain elements of one’s tech stack is crucial, and in RSI’s case it played a major role in securing PIPE investment in the early stages of securing its SPAC deal.

The industry has long argued whether it is necessary for operators to own their entire tech stack and opinions on both sides are compelling and valuable, particularly in the case of betting where sportsbooks are often called out for offering the same lines as their peers.

Schwartz, however, insists the value lies mainly in the Player Account Management platform (PAM), which sits in the centre of the operator’s platform. He says: “I feel that the quality differences between platforms is under-appreciated as many in the industry feel like all PAMs perform similar functions so will perform similarly. Just like not all sportsbooks are the same quality, not all PAMs are the same quality either, some convert and retain players materially better and have all kinds of functionality that makes them perform at premium levels.

But many operators want to pay as little as possible for a PAM, not recognizing nor appreciating the massive disparity in performance between the higher quality and average ones.” While RSI taps into Kambi to provide its sportsbook back-end, it operates its own igaming platform and the frontend across both verticals. It also built its business intelligence, marketing, and customer services functions entirely inhouse.

“I think the technology barrier between those who have in-house capabilities and those who do not is really important when it comes to differentiating the player experience,” Schwartz continues. “Operators who have their own high-quality engineering teams have the ability to build extensions to the player experience that players will notice and appreciate if done well.”

When asked whether RSI would ever consider building out its own back-end tech, Schwartz admits it is not a priority at this time. In the early days of igaming in Pennsylvania, RSI was quick to solve the issue of iOS users not being able to confirm their location to place bets, by producing a downloadable geolocation validator.

Schwartz values good internal product development as much as a proprietary PAM, although he says the operator has taken “a long-term approach to development” choosing to iterate its apps less frequently but with more updates. “We take a long-term approach to development, even if there are some short-term consequences of not having something the way we want it to be.

And so, we have recently launched a couple of beta apps that are being improved at a fast rate, and we’re constantly adding new features and functions, and improving the speed,” says Schwartz. He acknowledges the frustrations of working in a digital-first sector where things often aren’t able to move as quickly as a firm would like.

The operator cut its teeth developing legacy casino products for its land-based parent Rush Street Gaming and has leveraged its experience in that facet of the gaming industry by providing its tech to other brick-and-mortar casinos. A move that Schwartz believes has been of benefit in seeking market-access deals in new states.

“Initially RSI was really just providing services to the restaurant properties,” former VP and general counsel at Rush Street’s Rivers Casino Philadelphia Evan Davis explains. “But then, during my tenure there, they really branched out significantly as a B2B supplier and have done a great job in growing the company through that channel.

They’re good at developing technology, and they’re good at developing business with other casino properties,” he says.

Lay of the land

RSI is providing Michigan’s Gun Lake Casino with its proprietary social gaming platform as a tool to engage and retain players and pave the way to developing an online offering. A possibility that could become a reality now that Michigan has launched igaming. “We are a company that understands the land-based business and we have our heritage in land-based, so we’re able to bring to them a perspective of how to converge online and retail in a smart way,” Schwartz interjects.

“We[also] provide design services for retail sportsbooks because we are involved in supporting the operation of some of the large states of New York, Illinois, and Pennsylvania.” Indeed, Illinois is pivotal in Rush Street’s geographical expansion as a market that is estimated to bring in up to $650m in gaming and betting revenue in its first year of operation, according to affiliate site MichiganSharp.

The proposed $250m in igaming revenue will be spread across a handful of operators, including RSI. Based on the continued rise of igaming earnings in Pennsylvania and New Jersey, Michigan is expected to be a key battleground for the vertical, particularly as it will also offer poker. Interestingly, the state will act as a testing ground for new products, as betting-first firm PointsBet finally dips its toe into the online casino pool.

In December, the Michigan Gaming Control Board approved 15 betting and gaming operator and supplier licenses for the likes of DraftKings, FanDuel, BetMGM, and RSI. Companies were allowed to pre-launch their apps in the state weeks ahead of its launch to enable consumers to become accustomed to the competition, although bets were not taken until legislation was finalized in early January.

RSI’s most significant launch in 2019 was unquestionably Illinois, where the company is leading in sportsbook revenue thanks to its head start in the state. Regulators in the Prairie State favoured land-based operators in their initial legislation after an in-person registration requirement was instated, and online- only firms would be required to wait 18 months from receiving a license to launch in the state.

RSI was able to roll out betting swiftly at its Rivers Casino in Des Plaines in March, and then online in July as the only mobile betting option in Illinois. Four months later and RSI is still the leading brand, despite DraftKings also being live, and the governor having scrapped the in-person requirement due to Covid-19.

In fact, BetRivers topped the state for sports betting revenue in October with $12.9m, ahead of DraftKings and FanDuel with $11.5m and $11.1m respectively. “We’ve been able to secure a large share in this market and now we have others that are entering the market so the question will become, how well do we sustain our existing business in Illinois as the competition increases?” asks Schwartz.

A promotion for BetRivers’ app in Colorado

“We’ve been encouraged by our performance since others have entered the market, and believe we are in a strong position going forward in Illinois. We’ve already seen a positive impact from Illinois and we expect positive effects from Illinois to continue in Q4 and 2021,” he adds.

With the launch of new states comes the pressure to market a brand extensively, and with the likes of DraftKings and FanDuel dominating most media channels, will RSI be able to increase its brand recognition while keeping advertising costs low?

“When new states legalize, our investment expands accordingly. As a rule, we think it’s fair to say we spend more on marketing relative to the opportunity in new markets than we do in existing markets. We expect to spend more in 2021 as revenue in markets continues to grow for us,” Schwartz relays. “It’s not just the brand that appeals to [everyone] but also the product and betting experience itself.”

RSI operates both its BetRivers and legacy PlaySugarHouse brands in Pennsylvania but is intending to phase out the PlaySugarHouse title and pivot entirely onto BetRivers in the long term. Its first step in this switch was renaming and rebranding its Sugar House Casino in Philadelphia to Rivers Casino in 2019. The move included an investment of $15m and a redesigned online casino product.

At the time, CEO Carlin said the investment would pave the way for a unified brand platform. Having waved goodbye to 2020 and transitioned into its next chapter as a publicly listed company, RSI expects to transform its balance sheet and grow gross gaming revenue by 42% between 2020 and 2021.

And with its IPO capital under its belt, the business has set its sights on increasing product development, scaling its operations and marketing budget, and seeking bolt-on acquisitions. Schwartz remains coy on the topic of what could be next for RSI as it has yet to complete its business merger with dMY, but the president remains extremely bullish on battling it out with the other top-tier operators.