How Parx conquered igaming in Pennsylvania and plans to maintain profitability

The Pennsylvania (PA) igaming sector marks its first birthday next month following its three consecutively highest-earning months for igaming. Prior to launch, some industry cynics expected PA’s crippling 54% tax rate on online slots to hinder the state’s success, but its 12-month lifespan so far has instead presented a booming and highly competitive market and the country’s second- and third-highest earning state for igaming and betting.

According to data released by the Pennsylvania Gaming Control Board (PGCB), the state’s licensed operators reaped $30.3m in igaming revenue and $65m in betting revenue in the second half of 2019. Comparatively, New Jersey’s industry-wide betting revenue hit $90.7m in its first year of operation (the market went live in H2 2018).

Among the top five earners in the Keystone State’s burgeoning betting and gaming scene is privately owned casino group Parx Casino, which stormed the space in 2019 alongside some of its land-based peers in an effort to present its loyal and longstanding brick-and-mortar players with an online alternative to their favorite casino games and betting markets.

According to PGCB figures, the operator generated $6.8m in igaming revenue in 2019, after launching alongside Penn National Gaming (PNG) and Rush Street in July. PNG narrowly beat out Parx for second place with $8m in earnings, while Rush Street’s Rivers topped the list with $12m. But in a much more competitive sports betting landscape, the operator’s earnings came in at $12.6m in 2019, falling narrowly behind Rush Street’s Rivers casino in Philadelphia and the FanDuel sportsbook at Valley Forge Casino.

As further competition from major European players The Stars Group and Kindred Group, as well as racing giant Churchill Downs, flooded the online casino market, Parx remained a stalwart within the state as one of PA’s most well-known and long-standing casino brands. “[The brand] really helped us gain quick market share out of the gate,” Parx SVP for interactive gaming and sports Matt Cullen tells EGR North America when reflecting on the past year.

“We’ve had some profitable months already, which I’m not sure many can say, certainly in those top spots [and] we’re very happy about where we are right now,” he added.

Matt Cullen, Parx SVP for interactive gaming and sports

While Parx has remained largely in the background, leaving the publicly listed operators to make all the noise, it has maintained a very specific long-term vision; spend as little as possible on user acquisition to remain profitable. It’s certainly an interesting take on capturing the nascent betting and igaming audience in the US, particularly as others invest significant capital into marketing and acquisition deals.

DraftKings, which entered the online casino space in PA via PNG’s Hollywood casino in May, reported huge company losses of $142.7m in 2019, and a further $67m in Q1 2020 as it prepared for the acquisition of betting supplier SBTech. PNG’s online arm, Penn Interactive, also recorded $189m in EBITDA losses in Q1 2020. But for these firms, quick growth and market share are the main focus.

“For us it’s more about getting to profitability for the business sooner rather than later,” Cullen admits. “Rather than just looking at a massive land grab in terms of trying to acquire as many customers straight out of the gates as we possibly can. We try and do some of that but be thoughtful about it and try and get to build a sustainable business.”

Managing director for boutique research firm Eilers & Krejcik Gaming (EKG), Chris Krafcik estimates that Parx is spending 2% less than the state-wide market average of 17% on promotions as a percentage of GGR for online casino.

“Parx appears to be angling more for profitability than for market share. On the online sports betting side, for instance, Parx clearly is not dumping money into acquiring sports bettors that it can cross-sell to its online casino,” Krafcik comments.

Krafcik believes the firm may struggle to remain among the top five GGR generators in the next 12 to 24 months, but he expects Parx to continue as one of the highest net gaming revenue earners during the period, when considering its promotional spend against others.

“We’ve never tried to be the biggest spender in the marketplace, nor would we ever pretend to be in terms of going in super aggressively to acquire new customers,” Cullen continues. “We definitely try to compete in that regard, but we take a longer view of our place in the marketplace and where we fit in with
everything.”

So how is it that Parx has maintained a top spot in PA for its igaming GGR? The brand and its position as PA’s largest land-based casino in terms of revenue has certainly contributed but, according to Cullen, there is still a large chunk of the population to win over as casino-goers in the western parts of the state are not that familiar with the brand and the property near Philadelphia.

While most operators acknowledge and cater to the regional nature of the gaming industry in the US, Cullen believes it extends even to cities within states and their districts.
“In states like PA or California where you’ve got regional brands, [consumers might not be familiar with a brand]. Although we’re number one in the state, I think we must be honest with ourselves that people in the western part of the state probably haven’t been to our casino,” says Cullen.

With this is mind, Parx is extremely strategic in its local marketing efforts, having deliberately refrained from working with affiliates in favor of a more organic approach to tackling SEO via in-house content. Cullen says the affiliate approach was never the right strategy for Parx in building a sustainable long-term business.

“We still do a lot of marketing in [the western] part of the state on the digital side of things and we do a lot of radio around sports, but we’re just working from a different starting point than others that are domiciled out in that part of the state,” he explains.

Don’t feed the cannibals

Prior to igaming’s long-awaited launch in the Keystone State, Parx appeared to be going all-in with online. Its efforts began with the hiring of Cullen back in 2018 from tribal group San Manuel Band of Mission Indians’ social casino unit San Manuel Digital. From there, the Parx Interactive team has been built out to a sizeable 60 people, including some industry old hands like former Betway senior sports trader Thomas Rosenbaum and Cullen’s former San Manuel Digital colleague, interactive product director Tim Cogswell.

However, the firm hasn’t always been bullish on igaming, as former CEO of Greenwood Racing (Parx’s parent company) Anthony Ricci had previously cautioned the state on the potential for cannibalization of the land-based casino industry. But New Jersey’s pre-Covid-19 lockdown earnings across land-based casinos clearly showed the risk of cannibalization is minimal, if at all, and Cullen agrees, telling EGR North America the igaming business has been additive to Parx’s bottom line.

“I think everybody that digs into their own data and is able to track those players that come from the database to an online or mobile offering and convert to a funded account can attribute that to being additive to the bottom line. We haven’t seen cannibalization. I think we’ve just started to scratch the surface on converting those players in our database,” says Cullen.

With the inevitable shift to online that the coronavirus pandemic has facilitated, operators are making a concerted effort to bridge the gap between their brick-and-mortar and online offerings, at least until the casino world can go back to normal.

Although, given Parx’s previous hesitation over losing land-based players, EKG’s Krafcik doesn’t expect Parx to pound its land-based customer database with online casino marketing collateral once a post-Covid-19 casino sector is properly established.

Other side of the coin

Cullen was also an early mover on omni-channel sports betting in the US, as one of the first retail sportsbooks to open its doors in PA. Parx provided the first Betslip Builder app, enabling customers to fill out their betslip on their mobile and have it scanned by staff at one of the firm’s two sportsbooks in order to place the bet in-person or cash out.

But he admits the product’s progress has since been slower than the team would have hoped. “Ideally we’d all love to move a lot faster, but I think it’s part of the challenge for a lot of us who don’t own our own platform. We’ve got a supplier to work with and sometimes you’re just not able to move as quickly as one would like,” Cullen laments.

Nevertheless, he acknowledges the US industry’s desire to get ahead of itself as it traces the steps of more mature European markets. “When you compare [the US industry] to some of the offerings in Europe, I think we just have to remind ourselves that it is early days and, while we want to move faster, we will get there,” he says. “The consumer really isn’t conditioned to some of the features and functionality that we see because we’re close to the industry.”

As with igaming, sports wagering originally presented the operator with another opportunity to leverage its brand locally. The Parx sportsbook sits on Swedish supplier Kambi’s betting platform, although Cullen installed a five-person risk management and trading team when he joined in an effort to present users with a more unique offering than some of the off-the-shelf sportsbooks.
“You’ve got to be dedicated to it,” Cullen nods. “It comes at a cost, but if you look at the whole of PA, we’ve typically been twice as successful from a hold percentage as our competitors on lower handle. So again, we’re more profitable than other operators out there. And we definitely believe that having this functionality in-house has attributed to that.”

Kambi CCO Max Meltzer said in a recent EGR NA webinar that Parx’s decision to build its own front-end enabled it to maximize the value of its brand and do something different in the betting space. “Parx makes over $5m a year and is really locked into its audience,” Meltzer said. “[They wanted] to build [their] own front-end experience and be seen as premium and in line with an experience that [their players] were used to.”

Hey big spender

Parx’s current sportsbook model will be replicated in Indiana, Michigan and Colorado in Cullen’s next big move. Like his prudent marketing model, Cullen has avoided expanding into new states too quickly so as not to be caught in expensive revenue-share deals with casino license holders.

While he remains shtum on Parx’s licensing partners in CO and IN, Gun Lake Casino publicly announced its deal with Parx in March to produce a Gun Lake sportsbook and casino app in Michigan.

“We’re looking at all expansion opportunities and we always have – we’ve just, as a private company, solely focused on Pennsylvania to date. But I’ve definitely come close to pulling the trigger on some options in other states,” Cullen confesses. His vision is to replicate PA’s model through local marketing expertise and maximum ROI. These additional states also play into Cullen’s long-term view of continued profitability as he expects to see some operators drop out of the running with continually high outgoings.

He says: “If you look at some of the market access deals that have been made and forget about the marketing spend, which is exorbitant across a lot of these companies, the amount of money that companies have spent to get into the markets is pretty astonishing. We haven’t even seen that first wave of companies kind of fall over and go away, and I think it’s inevitable that we will. There are a lot of companies that aren’t making money in this space and aren’t profitable.”

Although its early entry into PA may have played in its favor, Cullen is not willing to pay through the nose for a similar opportunity in the second and third wave of betting states, and considering his long-term outlook, the strategy might well prove successful once the market is reasonably mature in five years’ time. “We’re not going to race to get live just to stand up a product, whether it be an app or a site, just for the sake of being able to say that we’re live in a particular state,” the executive adds.

Asked if he is intimidated by increasing competition both in and outside of PA, particularly with the introduction of DraftKings’ and FanDuel’s online casino products this year, Cullen appears unphased and even questions their longevity in the States.

“I think between them and some of the other brands that are coming into the US, the amount of money that they’re spending and the fact that they’re not yet profitable is not sustainable. We’ll see what the long-term holds. And that’s why we have that long-term view,” he says.

Since its launch in January, FanDuel has stolen Parx’s spot in the top three earners in PA for igaming GGR, alongside The Stars Group’s poker monopoly in the state, PokerStars. The two firms share a casino partner, with both operating on the GAN platform.

And like FanDuel, Parx has leveraged the platform to cross-sell casino to its vast land-based database, with the original announcement of the GAN deal in June 2019 pledging to enrol Parx casino patrons in the on-property loyalty program and instantly link their reward cards to their online account, permitting those guests to trade in their reward points earned from on-property gaming for cash online.

Cullen welcomes the competition and expects that, as the market matures, operators playing the long game will shine through and maintain market share.

Finally, he heaps praise on his team, insisting the foundation to any remotely successful operator is in its employee network. “While it’s been competitive, I think people have been drawn to the opportunity with us being a private company with substantial backing,” says Cullen. “I think we, as a team, have done a good job of selling that to prospective candidates that we want to join the team. We’ve been fortunate to not have to go out and hire a bunch of outside recruitment firms. We’ve been leveraging our own networks and empowering team members to recruit the right people to join the team.”

While Parx has proved it can replicate its land-based success online, at least in PA, time will tell if its tortoise-over-hare approach will capture further betting and igaming markets in the States. When considering the operator’s position in New Jersey, EKG estimates it had a market share of 0.01% in 2019, on par with European behemoth bet365, which also spent little on marketing the brand in the Garden State. Worth noting though is the weight of sports cross-sell in New Jersey, an opportunity Parx does not have without a license to offer sports wagering to its player base.

It is certainly worth highlighting that the Pennsylvania native broke into the EGR US Power Rankings for the first time this year at number 14, entirely on its progress in the Keystone State. “It’s been a very exciting past year,” Cullen concludes. “[But] like I said before, we view this as a long game. What we prepare for internally as an organization is where do we want to be not just today, but three, five, 10 years from now as the market matures.”