Rush Street Interactive posted a pre-tax loss of $20.8 million on $148 million in revenue in the third quarter, but “made tremendous progress” toward its goal of a positive return on investment, which it expects to achieve next year, according to CEO Richard Schwartz.
Low icasino hold subtracted $4 million from the bottom line, but revenues were up 20 percent and negative cash flow was contained to $12.5 million. Queried about the low hold, CFO Kyle Powers responded, “There is still luck involved and in this case, the luck was with the players instead of us.”
The company is already profitable in five U.S. states and overseas in Colombia. Schwartz and Powers stressed that Rush Street performs best and most profitably in those jurisdictions where online sports betting (OSB) is twinned with igaming, although revenue is growing in OSB-only states. Ontario was described as “progressing very quickly,” with Rush Street capturing seven percent of igaming market share and two percent of OSB in its first full quarter in Canada.
Guidance for EBITDA (earnings before interest, taxes, depreciation, and amortization) was lowered for the fourth quarter, down to $580 million from $600 million. Even so, management had cause for optimism, such as the opening of its first Maryland retail sports betting outlet at Bingo World in Baltimore. Ohio doesn’t launch OSB until January 1, but Rush Street executives anticipate improved marketing efficiencies due to their BetRivers product being live in several states adjacent to the Buckeye State.
Management was “pleased” by its performance in Mexico, but is “taking a very measured and deliberate approach,” expecting a more significant contribution from that market in a year’s time. “It’s not as if we’re launching with a bunch of competitors at the same time and there’s a land rush for market share,” Schwartz said, in an effort to put Mexico in historical context.
Even so, the company is off to a quicker start than in Colombia, where it had to build brand awareness from scratch.
Much of the focus of the Wednesday investor call was on marketing spend and Rush Street execs said the cost per player was down three percent and that they were prioritizing icasino customers (who are more profitable) over online sports bettors. “When it comes to product and innovation, we’ve made significant advances,” Power continued, enlarging the menu of OSB options, including parlays and patenting a squares pool game targeted at football fans.
Powers sees positive signs in terms of customer signings and retention that while new-market launches have required significant investment, it is starting to bear fruit.
“Everybody across the industry has dug in deeper” on promotional retrenchment, he said. “Our behavior hasn’t changed all that much,” Schwartz added, contrasting the spree of OSB openings (including Arizona and Louisiana) in 2021 and their implied cost with the statelier pace of 2022. But “You still have some of the major operators that have their foot on the pedal pretty aggressively during football season.”
To build brand awareness, Rush Street has turned to YouTube, producing more than 126,000 video pieces that have received an aggregate of 2.7 million views.
Schwartz and Powers also emphasized the company’s $195 million cash on hand, which Powers said gave Rush Street tremendous flexibility in responding to the marketing needs of the moment. However, the cost of acquiring players has dropped 50 percent and advertising costs are notably down as well.
As far as expanding Rush Street’s market, Schwartz said there is “a lot of momentum in … the three I’s”: Indiana, Illinois, and Iowa, all of which are considering legalizing igaming and already have OSB. He also sees opportunity in New York State. “All of our peers are all aligned around lobbying for igaming legislation, for the first time, really.”
Inevitably, Schwartz and Powers were asked about the prospect of a recession.
“We’ve looked at all of our data and we haven’t seen any impact to the player base,” the former remarked. Added Powers, “The really nice thing about our model is we haven’t built out a big cost structure to manage the business. Outside of something much bigger [economically] we’d still feel much better about that profitability in the back half” of next year.