Parx and regs: Can Parx replicate its land-based success online?

The relationship between Pennsylvania’s largest casino and online gambling has never been straightforward. As recently as March 2017, Parx CEO Anthony Ricci warned state legislators at a public hearing that up to 50% of online gambling revenue would come at the direct expense of brick-and-mortar revenue, thus hurting the state’s coffers.

However it’s fair to say that the opposition was simply business. At the time, the expectation was for an online market similar to New Jersey’s with a low tax rate and unlimited skins. As the largest brick-and-mortar operator in the state, Parx really had the most to lose from a dramatic shift in the status quo. As Ricci said at the time: “I find it impossible to assume that a brick-and-mortar casino paying 59% in taxes will not lose significant business to an online operator paying 15% in an open, unprotected market.”

The figures from New Jersey may suggest that cannibalization is not a genuine concern, but regardless, the state’s online regulations were ultimately created with higher tax rates online and some skins restrictions, specifically the use of sub-domains (think ParxCasino.com/ScoresCasino for example).

U-turn

And as a result, Parx has gone all in online. Last July, its owner, Greenwood Gaming and Entertainment (GGE) became the first Pennsylvania operator to apply for an online gambling license, taking up all three core verticals for the princely sum of $10m.

That same month, the operator hired industry veteran Matt Cullen to lead its online gaming efforts in Pennsylvania. Cullen, formerly the CEO of San Manuel Digital, holds the title of senior vice president of interactive gaming and sports, and moved his family across the country from San Francisco to take on the role.

“Parx is fully committed to being the online leader in the state,” says Cullen. “Do you think I would have sold my house in California and moved my family if I thought otherwise? Our owner, all the way down through our board and CEO and management; everyone is committed to it and we can’t wait for it to start.”

The casino certainly has the partners to back up its ambition. The overall platform comes from London-listed technology supplier GAN, which helped Betfair Casino and now FanDuel punch above its weight in New Jersey, while the sportsbook comes from Swedish supplier Kambi which has had early success with DraftKings and SugarHouse in nearby NJ.

In the six months he’s been on the job, Cullen has been flat out, building a team for online gambling, but with one slight hitch. There’s still no clear go-live date, and the PA Gaming Control Board (PGCB) has shown no real signs of setting one.

“My team has been marching towards being ready for the first week of February with hopes the regulator will come back in that time and say ‘PA is now open for online gaming’, but I’m hesitant to think that will be the timeframe,” say Cullen. “It’s probably more like March. We heard at one point about the spring but that’s as precise as it’s been.”

High-wire act

The picture has been further muddied by the Department of Justice’s (DOJ) recent intervention where it said the Wire Act did indeed apply to all forms of online gambling. The PGCB quickly took heed and warned local operators they would be expected to comply with the new opinion.

But just how much of an impact will it have on Parx and other operators? “We don’t see anything significant at this stage,” says Cullen. “Although, we are still accessing the DOJ’s changes and the PGCB’s request. In the end, it shouldn’t be an issue for us and our regulator.”

It could be a greater hindrance for some providers in the state, however, as content suppliers with remote game servers will now have to base those servers in Pennsylvania rather than being able to beam them across the border from existing servers in New Jersey.

The chances of Pennsylvania joining the existing interstate poker liquidity compact is now also effectively dead, although Cullen doesn’t foresee that being the same blow for Pennsylvania poker as it might be for states like Delaware or Nevada, thanks to the much bigger population.

He confirms Parx is still “looking into” online poker despite the absence of any major announcements or partnerships, adding: “It’s on our list. We have a thriving business on the land-based side of things with one of the biggest poker rooms in the US. We want to replicate everything we do on the land side with online. We have a sense of which direction we’re headed but we haven’t finalized anything yet.”

Omni-channel giant

Indeed, leveraging Greenwood’s unique land-based estate is a key part of Cullen’s plans for online, starting with the multiple sportsbooks.  GGE already has two sportsbooks live – at Parx and at the South Philadelphia Turf Club in the heart of the city’s sports district – and has plans to open a third location in the next month at Valley Forge Turf Club.

“It’s definitely a benefit from a risk-management perspective but more so it’s an opportunity to simply reach more people,” Cullen says. “Philly is the fifth or sixth largest city in the country. There are millions of people there and three locations is a very distinct advantage compared to some of our competitors. We’ve got four other licenses we could utilize for other Turf Club sportsbooks if we want but we’ll probably sit and see how online starts and how it affects the retail business. Certainly for the forseeable future we have a distinct advantage.”

Cross-sell to online will of course be a key part of the strategy, and in the interim, Parx is already familiarizing customers with the concept through its Betslip Builder feature– a mobile app which lets players fill out their bet slip on the move and create a QR code to be scanned by a teller. A Parx-branded online sportsbook will be launched when the PGCB allows.

The brick-and-mortar outlets also act as a free acquisition and marketing channel for the online product, but the lofty tax rates – more than 36% for sports betting and more than 54% for online slots – beg an obvious question. Does Parx actually expect to turn a profit on the online side of things?

“Of course,” says Cullen. ”We’re going to try and make as much money as we possibly can. Very simply put our strategy is to be the market leader, just like the land-based side. We want to replicate that market share which is 20% odd and I think we can go even bigger.

He adds: “The tax rate on land-based is a challenge and we do just fine so I think we can operate in the exact same way. It doesn’t mean our customers aren’t getting the best experience in terms of bonus and offers but you just have to be a lot more careful about what you do. And if you bring in the right people you can go out and execute on it.”

Set for success

The last point is a key one – bringing in the right people. Like many in the market Cullen says it has been a challenge to build the team he wants. “There aren’t a lot of us Americans who have relevant experience or who have done anything in the online regulated space,” he says. “I’ve been fortunate to go back and bring on folks I’ve worked with in the past and recruit some good people but it’s very challenging no doubt and it’s an issue for NJ as well as PA.”

The strategy decided on by that team is a mobile-first product with tangible Americanization – a lesson learned from some of the early New Jersey ventures. “We certainly don’t want a me-too product and we won’t,” say Cullen. “That will take some time however because there’s only so much you can do in a condensed time.”

Ultimately, Parx has just about every ingredient needed for success in what could be a very challenging market. As Chris Grove, MD of boutique analyst firm Eilers & Krejcik Gaming, put it recently: “In terms of early winners, you have to look to Parx. They have a leadership position in the land-based market, a good team, and are ready to go when the gun fires.” All Cullen needs now is for that gun to fire sooner rather than later.