Q&A: Making haste: How RSI is capitalizing on the growth of US and Canadian sports betting

In a sports betting world where the likes of FanDuel and DraftKings are making billions of dollars in revenue but racking up substantial losses, Rush Street Interactive (RSI) has made steady progress to occupy a position of prominence in its native US market as well as inroads into Latin America and, latterly, Ontario. Central to this push have been two elements: a focus on technology and a focus on customer relationships, philosophies which have led the firm to win three gongs at the EGR North America Awards 2022. EGR North America sat down with RSI CEO Richard Schwartz to talk through key points in the firm’s journey to success.

EGR North America (EGR NA): It’s been more than four years since PASPA was repealed, so how would you sum up RSI’s performance since then and its approach to grabbing market share in the US?

Richard Schwartz (RS): We’re proud of what we’ve accomplished despite investing substantially less than our peers. While we can always improve the speed of innovation, we’re glad we invested early in innovation with a focus on user experience and differentiation. We’ve now invested over 10 years into the approach and focusing on the player experience as a way to drive retention.

CEO Richard Schwartz, Rush Street Interactive

EGR NA: What about in sportsbook, is there anything you would have done differently there?

RS: We decided to launch an online sportsbook in Colombia in advance of PASPA being overturned, hoping to gain some experience and really improve the product before the US market opened.

We were surprised by the timing when the Supreme Court overruled PASPA, which happened to be right in the middle of us launching in Colombia, so we didn’t have as much time as we would have liked to prepare our sportsbook offering and marketing when the US market first opened. It meant we were further behind and had to play catch-up.

In particular, we were behind daily fantasy operators who had spent many years developing products and understanding not only the psychology of US sports bettors but also developing relationships with sports media entities, leagues, and teams. If anything, we should have started our sportsbook approach a year earlier as we’ve been having to play catch-up in getting similar relationships off the ground since then. With regard to innovation, we’re several years behind where we are in terms of the roadmap for igaming which we started almost three years earlier, but are fast catching up.

EGR NA: You’ve previously said RSI is focusing on high-quality players in the US due to increases in CPAs. Can you explain more about the deliberate pivot to this approach?

RS: RSI’s focus has always been about high-quality players, this is just the first time we’ve started to discuss it more openly. Players demand a high level of service and differentiation in the products and this is who we target. We want people who aren’t shopping around from day-to-day and looking for better and bigger bonuses, but players that are looking for a premium experience.

EGR NA: You highlighted RSI’s EGR North America customer service operator of the year award as a key accolade for the firm. How important is customer service to RSI’s longer-term aims?

RS: Customer service is critical, and I think the recognition we’ve received from EGR in this category is the most meaningful one our company has ever received. It validates the focus we give to customer experience.

It’s vital that when things go awry, customers have someone available in real time, who is knowledgeable, friendly, and thoughtful. It’s about reducing friction from the user journey, investing in tools to automate aspects of the journey, and providing our players with the type of premium support we feel many are looking for. It’s always been and continues to be a top priority for us.

EGR NA: RSI has reported three consecutive quarters of EBITDA losses and has previously committed to a “disciplined” approach to generating profitability. Is there ever a temptation to abandon this to address these declines more quickly?

RS: We built this business with a goal towards profitability. That is core to our DNA as a company and management team and there is no temptation to
abandon our approach. You have to acquire customers at a sensible CPA and the better you can retain those players after they make a first deposit, the more likely you will be to build a profitable, sustainable business.

We have drastically reduced our losses over the past year while growing revenue and expect to continue on our path towards profitability. We haven’t changed our approach; in fact we’ve spent in a disciplined way relative to most of our peers. We welcome the fact that others are moderating theirs in a way we haven’t seen previously, which we view as healthy for the industry and certainly a good thing for us as it doesn’t force us to change our behavior. If anything, it allows us to be viewed more competitively by some of our customers who are now noticing less disparity in what we’re offering compared to what some of our peers have offered historically.

EGR NA: DraftKings and Penn Entertainment have discontinued sports betting platform services with Kambi in favor of an in-house-developed sportsbook. Does RSI have any plans to move its sportsbook in-house?

RS: We don’t have any plans to move in-house but rather continue to advance our strategy of building our own innovation layer on top of the existing sportsbook engine supplied to us by Kambi. Our goal is to have a world-class product, and by working with suppliers such as Kambi whose sole focus is ensuring their platform is world-class, it gives us the confidence that the user experience will remain world-class.

We have our own in-house development teams on the sportsbook side that develop enhancements and innovations unique to RSI and create a level of differentiation beyond what Kambi provides, motivating players who bet with us to stay with us. There’s a recent trend by some of our peers to want to own their own sportsbook tech, which certainly comes with a significant overhead cost and a high degree of risk in terms of further developing and sustaining a world-class product. Our philosophy is to leverage world-class products that exist but add our own twist and flair of innovation on top of it to create an experience that’s uniquely RSI.

EGR NA: Along with a number of other operators, RSI has experienced falls in its stock (down 80% in the past year). What do you think about this downturn in confidence in online gambling operators?

RS: What’s unique about our company is that we’re strong in both casino and sports, with a vast majority of our revenue coming from igaming. This is a product vertical or category that I think has become widely recognized as being one of those profitable drivers of our industry. We believe investor confidence will grow, and companies like us who have been focusing and continue to outperform in the online casino market will be able to grow and become profitable, especially as we execute in additional markets where igaming is permitted.

We’ve launched in Ontario and Mexico recently, two markets where it is legal to operate both igaming and sportsbook. It broadens the reach of our igaming product and plays to our strengths. As investors increasingly appreciate and value the profitability igaming drives, then companies like us who have had igaming as a primary focus for years will be recognized as creating a consistency that’s valued alongside a growth of profits. Ultimately that’s what investors want when looking at companies in our space.

EGR NA: How would you describe Rush Street’s approach to M&A?

RS: Our approach is to evaluate many options but to remain very disciplined and selective. Since going public [in December 2020] we’ve been able to execute on a couple of tuck-in acquisitions which focus on new product extensions and/or content. When it came to Run It Once Poker for example, we purchased a poker platform and a team that’s really talented in user experience and product design, so our goal since then has been to develop that platform into a world-class product.

There aren’t very many B2B poker supplier options that exist that we felt were sufficiently strong to meet our needs but, ultimately, we know from industry experience and marketing data that there’s a very significant crossover between online poker players and igaming players as well as crossover into online sportsbook. So, in terms of new customer acquisition, having a strong poker platform enables us to do that effectively and then cross-sell them into other verticals such as casino and sportsbook.

EGR NA: RSI itself has been the subject of a lot of M&A speculation as a potential target. Is there anything in that?

RS: As a public company, we always evaluate opportunities that are in the best interests of our shareholders. Having said that, the reason why we’re often included in that sort of speculation is because we have acquired for ourselves many of the things others find value in as well, whether it be a world-class technology platform, in-house-developed proprietary technology, market access in all major markets, a strong casino product, or diversification into Latin America where we’re one of three market leaders in Colombia. We’re increasingly close to profitability as we lost less than $20m in our most recent quarter, and if someone wants to grow market share or scale up, we certainly have a substantial amount of revenue and operational experience that helps create that kind of scale. For all these reasons, we catch the attention of the media when reporting about consolidation in the sector, but our firm plan is to continue on our march towards profitability and achieve all the goals we’ve laid out by the second half of next year.

EGR NA: What is RSI’s philosophy when it comes to media partnerships with teams and sports betting personalities?

RS: We believe the best players are those that come to you organically because you’re bringing value to their day-to-day experience, not because you’re hitting them over the head with a very aggressive offer. Partnering with someone who is a well-respected and trusted voice in sports media such as Mike Francesa in New York or Dan O’Toole in the Canadian market, we thought was a terrific opportunity to create a platform for them to do what they love to do while allowing us to grow our brand in markets such as New York or Canada where our brand wasn’t as well-known as some of our peers. It’s all about local trust, reputation, and bringing true value to our viewers.

EGR NA: It’s been almost two years since RSI went public via a SPAC. How would you reflect on this decision?

RS: Going through the SPAC process was very timely for us. We were one of the first group of operators to go through it, which was very important at the time because we weren’t sure how long that SPAC approach would stay viable. It gave us access to capital, which we’ve been able to put to work efficiently to bring new customers into our platform and launch in all the important markets, as well as expand internationally. Going public with a SPAC was an excellent avenue to raise capital quickly and we’re glad we went through that process.

EGR NA: How would you sum up your approach to the Ontario market?

RS: We recognized that Ontario would be an igaming market that plays to our strengths so it was important to us to establish a strong marketing strategy. This included a big campaign around the Winter Olympics in February to ensure we were communicating and reaching a wide audience of viewers in Canada who otherwise might never have heard of our brand before.

Once we had that brand awareness of where our target audience was, we were able to secure marketing assets that we’ve not only been using for the last quarter but some exciting assets that we’re deploying in the quarters ahead. It’s critical we build brand awareness, focus on securing marketing assets, and do things in a way that really shows customers we are differentiated from the competition. Primarily, this is because you can’t offer inducements in your ads.

However, our strategy of promoting the unique selling points of our products allows us to educate the viewers on why we’re fun and different to many other sites in the features and functionality we offer. With the marketing inducement prohibition, it’s going to be a product- driven strategy that wins in the market.

EGR NA: RSI has been live in the New York sports betting market since January. Has it been a good debut for RSI?

RS: We achieved our goals of entering the New York market on the first day the market went live and by building a beachhead of quality customers for the future. We’re excited for the current football season as it represents the first time any of our New York players will have a chance to bet at the start of the football season. Our strategy was not only to be there and operating but also ensuring we can move quickly should igaming be legalized in the future, and we know there will be efforts made again next year to legalize it following the launch of sports betting this year.

EGR NA: What have been the main plus points in your partnership with the Connecticut Lottery Corporation (CLC)?

RS: Having lottery experience was something of great importance to us because people working within that sector typically don’t want to take a risk on a company that hasn’t already had success working previously within the lottery framework. Not only have we had a terrific relationship and success launching with the Connecticut Lottery, which puts us in a position to have optionality and future opportunities in other markets with lotteries, but we also had an opportunity to be part of a market with very limited competition. There is no other market like it in the US where you have only three competitors, and we also knew that due to the ability to have up to 15 retail sportsbooks that it would give us a chance to leverage the retail locations to drive an online player base over time.

EGR NA: Ohio is shaping up to be a very competitive market for US sportsbook operators, so what lessons from your launch in New York will you transplant to this sportsbook-only market?

RS: For one thing, there will be a change in the mindset among the operators who are looking for profitability and you’ll see some being less aggressive than they were in New York. It’s important to note that New York had a $25m license fee and a high tax rate of 51%, both of which will be a lot lower in Ohio. In addition, while there will be more operators participating in Ohio than in New York, the top six operators in the US market, including ourselves, have about 88%-90% of the market share already. So even if the number of competitors increases, most of the revenues are already accounted for by a smaller subset of companies with a larger operating reach and market share.

In addition, I think what’s interesting about Ohio is that it is adjacent to four other states where we already operate the BetRivers brand, so there will be some overlap and leveraging of marketing between multiple states that will allow us to be efficient with our marketing spend when the market launches.