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Rush Street Interactive (RSI) CEO Richard Schwartz used an investor conference on Monday (June 6) as an opportunity to remind analysts that profitability in the online gaming business comes from player retention, rather than acquisition.
“If you keep your players playing for years instead of months, you are going to be profitable in the long term,” Schwartz told attendees of the Travel and Leisure Conference hosted by Goldman Sachs in New York.
Stephen Grambling, an analyst with Goldman Sachs, hosted a half-hour interview with Schwartz and CFO Kyle Sauers on Monday.
He noted that Wall Street has been “dinging companies” recently for investing in infrastructure and not profit.
Most publicly traded online gaming companies, including RSI, have seen their share price decline in recent months as investors and analysts grow impatient over ongoing quarterly losses, as operators offer bonuses to acquire new players and spend millions of dollars on advertising in new and existing markets.
The Chicago-based company reported adjusted advertising and promotions expense was $66.3m during the first quarter of 2022, compared with $40.5m during the same period last year. RSI also posted a net loss of $52.3m on revenue of $134.9m.
“We’ve always been very focused on [profitability],” Sauers said. “Certainly, getting access to the public markets was key to us … being able to put money to work in all these new markets that are opening and that takes capital.”
Sauers admitted that RSI had been ramping up its marketing expenses in existing and new markets, but that has always been done with a strong eye towards profitability.
“We expect to be profitable in the back half of next year,” he said. “And we expect to see an improving cadence of profitability on the way to getting there.”
Grambling asked Schwartz how RSI balances what the market is saying about profitability versus spending on new markets or to improve the consumer experience.
“We have to seek to balance the profits from our existing markets with the investments in new markets,” Schwartz said. “We know that when new markets open the players are very valuable … you definitely have to be there at the beginning, and you want to be invested in acquiring these players and developing a footprint in a new market.”
He said most players have joined three or four sports betting or iGaming websites over the last few years, but they are not loyal to those brands because they have “thousands of dollars in free money available to play and when they burn through that they are going to choose a site that treats them right.”
Schwartz said throughout the rest of the year it was all about distributing RSI's products in new markets.
“Naturally, not a lot of U.S. markets have legalized [this year] and gone live,” he said. “The next ones coming up are Ohio … [that] on January 1 will be launching. Maryland is another market that has legalized, and we are preparing to launch whenever the regulator allows us to.”
The company launched online sports betting in New York and Louisiana during the first quarter, while introducing the company’s online casino and sportsbook in Ontario, Canada, in early April.
“But on top of that,” Schwartz told analysts, “we really made the decision as a company several years ago that we were going to be a global business.”
Schwartz said RSI is focused on Latin America, with the company entering its first market, Colombia, in 2018.
“We came in without a brand, without a database, without any experience in that region and went from zero market share to number three in the market … about 20 percent of handle comes from us now,” Schwartz said. “So we’ve shown an ability to enter new markets globally, starting with zero and being able to be profitable.”
He said RSI has already launched in Ontario and expects to launch later this month in Mexico in partnership with Grupo Multimedios to offer online casino gaming and sports betting under a 25-year agreement.
“If you look at Mexico, it’s a population of 150m people,” he said. “Unlike Colombia, where we have to start from scratch, here we have a local company that is well respected, and we have technology that is already proven in that region.”
In terms of Ontario, Schwartz said he was confident RSI would do well in the long term. The company launched its BetRivers online casino and sportsbook in the province on April 4.
He noted that there had been grey-market operators doing business in the province for more than ten years, which “meant a large number of operators already had brands established in the market, and equally important they had databases of players already built.”
“It was relatively unclear close to launch exactly how a transition was going to occur from the grey market to the [regulated] market. Turned out it was pretty easy for grey-market sites to migrate their player bases over to a regulated market, which meant some of the operators started with a large advantage.”
In addition to the easy transition for grey-market operators, Schwartz noted the restriction on the ability of operators to offer inducements for players to sign up for an account, which “is standard in every other North American market.”
“We can’t say on TV here is a $200 offer or $2,000 offer to sign up. It all has to be about the quality of the experience. So for us, we like that because we don’t offer the large sign-up bonuses,” Schwartz said.
“I think that’s the unique angle of Ontario,” he added. “You are not allowed to do inducements, where in Mexico you’re able to do inducements immediately. So that won’t be an issue at all in terms of entering that market.”
Grambling also asked Schwartz if conversations with Grupo Multimedios had informed RSI about how the Mexican consumer may be different or similar to those in the U.S. and Ontario.
Schwartz said it depends on which part of Mexico the player is from.
“Like any other large countries, there are different scenarios,” he said. “So in the case of Monterrey … it is the wealthiest part of Mexico [and] they are big fans of American sports. So that market we will be launching very aggressively because our partner is strong in that area.
“In other parts of the country, we’ll have a different strategy,” he added.
