Rush Street Interactive looks south for new growth

March 6, 2024 8:28 PM
Photo: Rush Street Interactive
  • David McKee, CDC Gaming Reports
March 6, 2024 8:28 PM
  • David McKee, CDC Gaming Reports
  • United States
  • Brazil
  • Colombia
  • Delaware
  • Illinois
  • Mexico
  • Michigan
  • New Jersey
  • Ontario
  • Peru
  • West Virginia

Rush Street Interactive shares jumped 19 percent in after-hours trading, following the release of the company’s year-end and fourth-quarter numbers late Wednesday. The company reported fourth-quarter revenue of $194 million, a 17 percent improvement over 2022, and positive cash flow of $11.5 million.

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“We exceeded the high end of our revenue guidance,” CEO Richard Schwartz reported, adding that positive return on investment also ran well ahead of expectations. Against this were losses of $5.5 million for the quarter and $60 million for the year.

Issuing cash-flow guidance for the first time in company history, CFO Kyle Sauers told Wall Street analysts to expect between $35 million and $45 million. Revenue, not including new jurisdictions, was anticipated to fall into a $770 million to $830 million range.

“We want to look for a fast recovery on our investment,” said Schwartz at the end of the call, by way of explaining corporate priorities. To that end, Rush Street will be eyeing existing and new business opportunities in Central and South America where, rather than in North America, there is “no shortage of opportunities. We’ve come a long way [there] and expect a lot of growth ahead,” Schwartz said.

One of the stated reasons was that countries in the Southern Hemisphere are more tractable toward legalizing igaming, unlike the United States. The U.S. was described as a market characterized by high taxes and “higher competitive intensity.” Also, the combination of new-market Mexico and emergent Brazil and Peru represents 425 million people and a $6 billion opportunity.

Schwartz looked back on Rush Street’s beginnings in Colombia five years ago, an operation built from scratch with no Spanish-speaking personnel. Now the company is the second-largest operator in the country. “Bottom line, Colombia was and remains an exciting market for us,” he said, one that is growing rapidly.

Rush Street execs opined that it also augured well for Peru, which shares major media markets and sports coverage (especially soccer) with Colombia. Peru will be launching icasinos and online sports betting later this year.

The CEO said that in Brazil, where legalization of igaming was a late surprise, “many regulation complexities [are] still to work through,” but that Rush Street fully expected to participate. It also has personnel on the ground in Brazil, evaluating the market and meeting with local sports teams, stadium owners, and gaming companies.

Colombia, he added, has been “profitable for quite some time. Mexico’s getting real close.”

Schwartz and Sauers stressed that they were not pulling back from North America, despite having ditched the Connecticut sports-betting market and its $20 million a year. Schwartz observed “a growing enthusiasm from our peers” for U.S. igaming, along with more icasino legislative bills than had been seen in quite some time.

“We have so much growth available for us in Latin America,” Schwartz continued, adding that Rush Street will continue to push in the U.S., too.

One state in particular to which Rush Street was looking for icasino approval was Illinois, where Gov. J.B. Pritzker is stumping for an exponential increase in the tax rate for sports-betting revenue. Igaming has been pitched as an equal or greater source of revenue, but its legislative fate remains uncertain.

As for existing U.S. markets, Michigan was reported as a particular bastion of strength, along with New Jersey. There has been 80 percent revenue growth year over year in West Virginia and, to the north, Ontario has seen 50 percent revenue growth for Rush Street.

A source of satisfaction for the Rush Street brain trust was its exclusive relationship with Delaware, where Rush Street took over as the sole igaming and sports betting provider for the state at the beginning of the year. The current run rate, Sauers said, implies annual gambling revenue of $60 million, leading him to conclude it will be “profitable for us pretty quickly. We came out of the gate pretty strong.”

Rush Street’s improved results were helped in part by reduced marketing expenditures. According to Sauers, the company spent $158.4 million on promotion in 2023, $34.6 million of it in the fourth quarter, both numbers lower than the year before.

Probed by analysts about a possible stock dividend or buyback, given $168 million cash on hand and no debt, Schwartz and Sauers pushed back. “We’re going to invest the cash for the highest return,” responded the CEO. “There will be plenty of places to make smart investments,” Sauers seconded. “That’s the first priority for us.”

Concluded Schwartz, “I’m more excited than I’ve ever been.”