Gaming Companies’ Earnings Espouse Online Casino Focus

There are many reasons why similar companies operating in the same markets might see dramatically different results on their balance sheets. In some situations, it’s only a matter of branding or timing. In others, deliberate decisions can propel or weigh down an enterprise.

Penn Entertainment and Rush Street Interactive (RSI) have shared their earnings for the second quarter of 2024, showing some commonalities and some differences. Overall, it looks like one of the two companies is ready to take the next step in a positive direction while the other seems determined to repeat mistakes.

Rush Street Interactive highlights bottom-line progress

RSI is the online gambling arm of Rush Street Gaming. While RSI has international operations, its US products are available in 15 regulated markets.

The products include the BetRivers and PlaySugarHouse brands. Between those two, RSI’s online casino products operate in Delaware, Michigan, New Jersey, Pennsylvania and West Virginia.

In its Q2 2024 earnings report, RSI highlighted its strength in those online casino markets. The numbers complemented that narrative.

$220 million in revenue, up 34% from Q2 2023
Adjusted EBITDA of $21.4 million, an increase of 94.4% over Q2 2023
A year-over-year drop of 10% in marketing expenses, down to $36.3 million
A bump of 24% compared to the same quarter in 2023 in terms of monthly active users for RSI’s Canadian and US operations
Simultaneous increase of 6% in terms of average revenue per monthly user, which sat at $380 (Canada and US only, compared to Q2 2023)
Net loss of $300,000, a drop of 82.1% relative to Q2 2023

Isolating its revenue for the quarter to just its online casino operations in the US, RSI said that increased by 40% year-over-year. A few days later, Penn shared an update with its investors.

Penn breaks down interactive numbers

Unlike Rush Street Gaming, Penn Entertainment has not spun off its online gambling operations. For Q2 2024, it did report those numbers separately to a small extent, however.

Penn operates the ESPN Bet sportsbook online in 18 states, while simultaneously offering the Hollywood online casino in Michigan, New Jersey, Pennsylvania and West Virginia. Penn also has online gambling products in Ontario via theScore Bet.

Penn’s statement only broke out two numbers in terms of isolation to the Interactive division. Those were:

$232.6 million in revenue, a decrease of 9.7% over Q2 2023
Adjusted EBITDAR loss of $102.8 million, compared to an adjusted EBITDAR loss of $12.8 million in Q2 2023

In its presentation¹, however, Penn shared some other data. That included an overall 138% increase in average monthly active users compared to Q2 2023, with that number sitting at 465,000.

With revenues from land-based operations added, Penn reported an overall net loss of $26.8 million for the second quarter of 2024, a far cry from the $78.4 million in net income that it shared in the second quarter of 2023.

With a difference of just 5.5% in terms of revenue from online gambling operations, why is RSI showing a positive EBITDA in the millions while Penn has reported EBITDAR in the red by over a hundred million dollars? While there are many factors, one of the most stark differences is in how both companies are trying to carve out their place in the market.

RSI’s investment in online casino product

If you look at RSI’s Q2 2024 presentation², the emphasis on iGaming is unmistakable. RSI credits success to its “casino-led strategy with attractive demographics and unit economics.”

RSI touted its market share position in the states in which it offers online casino play. RSI says it is in the top four operators in Michigan, Pennsylvania and West Virginia while standing eighth of 29 operators in New Jersey.

In Delaware, RSI currently operates the only licensed online casino brand. Publicly available data seem to support RSI’s claims.

For example, June 2024 New Jersey gambling revenue figures show that BetRivers accounted for more than $6.9 million in online casino win in the state during the month. That was the eighth-highest total in that state for the month for a single operator.

Meanwhile, Penn’s presentation consisted of an entirely different emphasis.

Penn pins hopes on ESPN Bet

Most of the slides from Penn’s presentation that referred to its interactive division focused on ESPN Bet, the company’s sports wagering brand. Among those points were heavy touts for the brand’s forthcoming launch in New York and deeper integrations into ESPN’s digital products.

If those seem to be familiar sales pitches, it’s because Penn has pitched them to investors before with a different skin.

During the company’s Q4 2020 earnings call³, CEO Jay Snowden spoke about Barstool Sportsbook, touting “strong retention, CRM efforts, and creative promotions” while highlighting the forthcoming launch of the same in Michigan. Snowden also mentioned that “we think we can generate meaningful market share and profitability just relying on that Barstool media partnership.”

Meaningful market share and profitability never matriculated with the Barstool brand, however. When Penn divested from Barstool in August 2023, the online version of Barstool Sportsbook accounted for just 4% of the statewide revenue total⁴ in Michigan and the company showed an adjusted EBITDA loss of $50.2 million⁵ for its interactive division.

While many analysts point out that not enough time may have passed to fairly judge Penn’s venture with the ESPN Bet branding for its sportsbook, statistics suggest that the difference between RSI’s success and Penn’s failure is not due to Penn’s branding. It’s about emphasizing online casino play or online sports betting.

Why iGaming is so much more valuable and Penn’s position

Another slide in RSI’s presentation puts numbers to something that everyone in the online gambling industry knows. Online casino products produce a multiple of online sports betting in terms of actual revenue for gaming firms.

RSI specifically says that “users of iCasino have a GGR (gross gaming revenue) that is 5x higher than an OSB (online sports betting)-only user.” Furthermore, RSI touts that online casino players are more diverse and the total accessible market is three times as large for online casino play than sports wagering.

Market share is not a substitute for profitability. However, market share does suggest which brands might be less or more profitable than others because higher revenue totals mean the company is more likely to make enough money to cover its expenses.

To provide an idea of where Penn sits in New Jersey relative to BetRivers, Hollywood online casino won about $3.3 million from players in June, less than half of BetRivers’ take.

The casino-first approach for RSI seems to be driving that company toward profitability at a faster rate than Penn’s focus on moving toward the same goal via media integrations for its sportsbook product.

There’s no guarantee that Penn could quickly replicate RSI’s progress if it adopted a similar approach but early indicators suggest that swapping out Barstool for ESPN hasn’t transformed the approach to compete with online casino-centric strategies.