Rush Street Interactive To Keep Marketing Costs Low, Target Profitability

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Rush Street Interactive

CEO Richard Schwartz said Wednesday that Rush Street Interactive plans to continue converting sports bettors into online casino players and keep marketing costs low, as the company eyes profitability in the second half of 2023.

The BetRivers and PlaySugarHouse parent company used its fourth-quarter earnings call to update investors after a busy 2022.

The company reiterated its plan to hit positive EBITDA by the second half of the fiscal year. It projects between $630 million and $700 million in revenue for the year, which would be a 6%-18% growth from 2022, when it launched in several North American markets.

Investors were not as bullish, however, as RSI stock fell 9% in the early hours of trading Thursday to $3.88 a share.

Marketing costs to stay low

RSI recorded $17 million in EBITDA losses during Q4 amid its Maryland launch, a $14 million improvement year over year. It did so while only cutting advertising expenses by $800,000, according to CFO Kyle Sauers.

The company remains bullish on concentrated marketing and committed less than $20 million to the area for 2023, giving the company flexibility with what it wants to do moving forward, Sauers said.

“We have tended not to make really large or long-term investments in the types of partnerships that I think are often talked about,” Sauers said. “I think we’ve been more strategic and localized with the endorsers, the investors that we’re bringing in and sponsorship deals we do with local teams, none of which are individually or even in aggregate a really big part of our marketing spend.”

More SGP for Rush Street Interactive

The company said it has made significant improvements to its online betting user interface, features, and functionalities.

Single-game parlays as a percentage of bets on the NFL this season increased by 30%, thanks to “dramatically better” product and improved marketing around the offering, Schwartz added.

“We’ve also introduced machine learning to further advance our recommendation engines to improve the lobby experience for our players and get them to the games that’ll excite them and improve their entertainment experience,” Schwartz said.

Can basketball continue the trend?

Those expenses were reflected in general and administrative costs, which increased slightly in the fourth quarter to $13.3 million, up from $12.7 million in the previous quarter.

The company hopes to translate that over to its squares and box pool game to engage basketball bettors now that football season is over.

“We continue to make prudent investments in the growth of corporate and our technology and product teams. So we expect G&A to continue to grow modestly over the coming quarters,” Schwartz said.

Rush Street Interactive caps busy year

RSI had a busy 2022, launching in Ontario, Mexico, New York, Maryland, and Louisiana. The company also started in Ohio in January 2023.

Schwartz told investors to expect a slightly higher marketing spend in the first half of 2023 as a result of those launches, as well as continued rebranding efforts in New Jersey, where both brands consolidated into BetRivers.

RSI posted $166 million in revenue for the quarter, a 27% increase over last year, with a full 2022 revenue of $592 million, up 21% from 2021.

Older markets see significant growth

The company saw 95% growth in iGaming and sports betting markets it launched in 2020, according to the presentation. Net revenue by yearly cohorts in both segments grew 33% in the quarter compared to the same period last year.

A customer’s average lifetime value (blended between iGaming and sports betting) was $6,000 in US or Canadian markets where RSI has operated for 60 months or longer, compared to $1,000 in its 12-month-old markets.

“I think something in the range of 80% to 90% of our growth is likely to come from the markets that have been live for more than a year,” Sauers said. “So if you’re thinking about same-store basis, that’s a rough guideline. Most of the growth in 2023 is going to come from our North American markets that launched after 2020 and Latin America.”

The iGaming piece

Like most operators outside of the top five in US market share, RSI is bullish on its approach to converting sports bettors to online casino players in the states where iGaming is legal.

iGaming accounted for 75% of RSI’s revenue in Michigan, New Jersey, Pennsylvania, and West Virginia, Schwartz said.

RSI’s iGaming users are 53% female and 41.5 years old on average. Its online sports betting users are 17% female and 37 years old on average. The older age makes iGaming customers more appealing to RSI as they “likely have more disposable income,” the company noted in its presentation.

Real-money monthly active users in the US and Canada were up 22% year over year in Q4, with the average user generating $327 in revenue during the quarter. Customers that use both the company’s iGaming and sports betting apps generate almost 2.4 times more revenue than customers using just one.

Executives were encouraged by recent iGaming legislation introduced in Indiana, New Hampshire, New York, Maryland and Illinois, saying that even if the bills do not pass, it shows that lawmakers are moving in the desired direction.

No update on Massachussetts

RSI is live with sports betting apps in 15 states and has market access in five more, according to the quarterly earnings presentation. However, the company had accounted for Massachusetts in-person and online sports betting in its second-quarter earnings report, but did not apply for a license, despite filing a notice of intent.

Executives declined to address the company’s absence from Massachusetts, which is scheduled to launch online sports betting March 10.

In the update Wednesday, Massachusetts was listed among RSI’s states without market access. A spokesperson with the company did not immediately respond to request for comment.