{audio:0:00:01} Geoff, it’s a pleasure to have you with us today. Can you step back and provide some context to when you first joined FanDuel, over 10 years ago?

{audio:0:00:13} I joined FanDuel extremely early on. I was one of the first full-time US hires. The company had fewer than 10 employees, at that point and was largely working out of an incubator, at the University of Edinburgh. I had found out about FanDuel, based on the fact that the start-up that I was working on, in San Francisco, was actually starting to explore the Daily Fantasy space. This was back in 2009 and I was physically tasked with finding all the sites, taking a look at the products, to see how we could, potentially, build ours.

{audio:0:01:03} The one that just really blew all of them away was FanDuel. It was just a good, easy to understand product. I remember my first game on it. I played a guy called Mojo, for $5. I can’t remember if I won or not, but I just remember the product experience being really seamless and it was just really clear to me what was going on. My first three immediate thoughts were, firstly, this is amazing and a fantastic product. Secondly, how is this legal? Thirdly, how can I find a way to go and work for these guys?

{audio:0:01:43} The company that I was at, at the time, was really having a difficult time, figuring out how to make the product operational. I think a lot of people don’t really realize that, for both Daily Fantasy and for sports betting, there’s a ton of data that goes through the products and platforms. It’s very difficult to build, because you’re constantly getting in all this live data and everything else. That was true for DFS, as well. By seeing how difficult it was, for us, to build a product, it just made it all the more clear to me that I really wanted to try and find a way to work with FanDuel. As that company was circling the drain, I was introduced to Nigel Eccles, the former CEO of FanDuel. Basically, I was like a wolf scratching the door, eager for an opportunity. I kept hitting him up with emails and at one point, when he was in San Francisco, I met up with him, for brunch. My pitch to them was, basically, at the time, since they were a Scottish company, they didn’t really know the US market well. I had spent a lot of time in the US sports media landscape, so I knew a lot of people there and ways to, potentially, get FanDuel in front of audiences, at that time, of Sports Illustrated, Bleacher Report and numerous blogs, where they could start to gain a foothold.

{audio:0:03:30} At that point, I think they had only raised about a million or so, in funding. They had actually pivoted from a previous company that was called HubSpot, which was kind of like betting on the news. It was a freemium version in the United States because, at the time, you couldn’t bet on things like elections and things like that. They were at a unique point and they needed to quickly show that they could get traction in the United States. So my pitch to them was, hey, I’m willing to work for peanuts and I think I can help you guys, a lot, on that. That’s really how everything started and they brought me on. Within a month, they realized that I was somebody who knew the space quite well and I was, basically, full time from that point on.

{audio:0:04:32} How would you describe the DFS user, in terms of demographic, frequency of use, spend?

{audio:0:04:43} It’s overwhelmingly male. I remember a point in FanDuel, where we did user surveys, and it 97% or 98% male. The demographic was overwhelmingly younger, so it was mostly 35 and under. If I remember correctly, I think it was over 60%, maybe 62%, who were 35 or under. In terms of what you call user value, it’s certainly much lower than it is for sports betting. When FanDuel and DraftKings were really getting to scale, which was really around the 2014 to 2015 time period – you could also look at 2016, but that was caveated by the fact that there were a lot of regulatory issues and things like that, going on – the average user, say during football season, which was when 80% to 90% of all acquisition was going on, those guys were worth, usually, between about $55 and $65, per year. Typically, you were seeing retention, year on year, of about 50%.

{audio:0:06:10} One of the classic challenges which, in the early days of DFS, I don’t think anybody was really paying a lot of attention to, including investors, was the churn rate of these players. Why were they churning? One of the big reasons – and this was a classic, double-edged sword, for the DFS space – was that really attracted players was the big prize pools. It was a bit like the lottery. I’m a guy that knows that my odds of winning the lottery are extraordinarily low, but if you get to a point where, all of a sudden, like when the lottery went over a billion dollars, here in the United States, everybody was playing. Why not? I can throw $2 down and win the lottery. There is a similar type of logic with DFS where, with large-scale tournaments, when we started to hit a million dollars or more, you would see floods of people. It was a very good marketing tool, as well.

{audio:0:07:15} But the issue that you would have is, if I come in 480,000th place, wow, I don’t know what I’m doing; I don’t really belong on this site. There’s also the skill element, which was always an issue, and is an issue, for any skill-based game. You have to constantly feed the beast with minnows, basically, because the sharks are eating. If, at some point in time, that stops, the sharks wind up eating themselves. It just becomes, increasingly, more difficult to play. So if I’m an average, casual person, coming on, I’m really going to get my clock cleaned, when I come on the site.

{audio:0:08:06} There was a point in time what that was the focus and we were starting to work on that. How can we solve that? There were various tests and everything else, such as, what’s the best first-user experience? Should we not have them in tournaments? Should we put them into 50/50 contests, which means that half the people will win and half the people will lose, but you at least know that you were closer to winning? We also knew that people that won their first contest, historically, were 10% more valuable than people that didn’t. There was a lot of that going into the experiment phase. But all of that got blown up by the regulatory issues that hit us, in late 2015, where, literally, the only thing was trying to figure out how you survived, at that point.

{audio:0:08:58} There’s a clear economies of scale and feedback loop, for the biggest players, for Draft and FanDuel, where the more players, the more competitions, the bigger the prize pool, the attractive the platform, the more your friends are on there, versus smaller fantasy and sportsbook? It seems as if those DFS players are going to own a huge portion of that US sports market.

{audio:0:09:29} I think so. I guess the right way to think about it is, in a skill-based market, like DFS, where economies of scale are very, very important, yes, there were only going to be a handful of winners. If you could make an argument that there wasn’t even enough space, in the US, for FanDuel and DraftKings and we were competing against each other, so heavily, that honestly, had PASPA not been repealed, both companies, almost certainly, would have gone bankrupt. The issue with that is, there were smaller DFS players, and I remember one of their issues was that they told us that they would bring guys in who would, inevitably, just move over to FanDuel or DraftKings. The reason for that was because, yes, they’d bring them on, but they had smaller prize pools, where they had tournaments that were for $100,000, versus FanDuel, who were running tournaments for $1 million. We were running multiple ones of those, so those guys would, inevitably, switch over.

{audio:0:10:41} I think the difference with the sports betting market is, there is nothing like that. The economies of scale don’t work anywhere near the same way, when it comes to sports betting. FanDuel and DraftKings are leading the US market, by a wide margin, right now, because of the fact that they created these massive databases across all of the states, in the United States. It’s a perfect lead gen tool. Even if those businesses, right now, are losing money, it almost doesn’t matter because they’re 80% or 90% self-funded, if not profitable. For example, if I am William Hill right now, yes, I have retail stuff that I do or things like that but, let’s say, talking about California, I have no footprint in California. Whereas, FanDuel and DraftKings have been serving California since 2010, for FanDuel, and 2012, for DraftKings. They probably have email lists that are a million plus, in the state of California. When that state opens for sports betting, they can pound that list and, at this point, it’s free advertising, basically, for them; it’s free acquisition.

{audio:0:11:58} On that end, that’s where those guys have a major advantage, in the United States and everybody is playing catch up to them. But in a world where everything was flat, at this point, in the United States, yes, brand would matter. But unlike economies of scale in DFS, which were super important, that doesn’t exist in sports betting. All our odds are probably going to be very much the same. That’s really where the secret sauce is, for FanDuel and DraftKings, in the United States and where people need to catch up. If you’re just looking at it from a product perspective there, honestly, is not much of a difference between all of the major players.

{audio:0:12:42} But these two DFSs can, basically, bid as much as they like or outbid any of the William Hills, for the customer?

{audio:0:12:52} Yes, they can. This is a perfect example of this. FanDuel and DraftKings have worked with affiliates for years. One of the things that they are telling affiliates is, we will not pay you for an existing player, who is already in our database. If they go and work with affiliates, and affiliates are also trying to make money, the affiliates will be collecting a bunch of guys, in states where they’ve already got customers for FanDuel and DraftKings. FanDuel and DraftKings may end up getting 25% to 30%, or 40% of their customers back, through their affiliates, who they’re not going to be paying. Whereas somebody like a William Hill has to pay for 100% of it. As a result of that, a FanDuel, for instance, could go to a Catena Media and say, I’m willing to pay you $300 or $400, for an acquisition because, realistically, for them, the cost is, honestly, about half that. If they’re getting 40% or 50%, I can’t pay that, if I’m William Hill; but FanDuel can because, to them, it’s like paying $225 for a guy.

{audio:0:14:11} It really gives them enormous advantages, not just from a user database perspective, but also, fundamentally, from a marketing perspective. Particularly, in sports betting and DFS, this is not rocket science; it’s really about, how much can I acquire a guy for and then how much value can I get out of him? If you have somebody that has a 50% advantage on you, in many of these things, from acquisition costs to user value, in the sense that they don’t have to pay as much as you do, for guys, it’s not game over, necessarily, but it certainly puts them a lap or two ahead of you.

{audio:0:14:58} I’m curious as to how we can look at the lifetime value or the cost of acquiring a betting customer and whether you see the betting at DFS as separate or you just look at the one customer, right now?

{audio:0:15:38} I think the right way to look at it is that there are trends that are already there, from DFS, that I believe will, ultimately, play out the same way for sports betting. Even though we’re two years in, in the United States, that’s two years for New Jersey and it’s less than a year, for Pennsylvania. There’s many states that still to come, at this point in time. I’m using New Jersey and Pennsylvania as the two large states. Obviously, there is West Virginia, Indiana and some others, but those are the big ones that have the most data.

{audio:0:16:15} In DFS, what you can see from the early days is, when those players came in, they were very valuable, which is not uncommon. It’s very common, for any product or industry, that you have what’s called early adopters, where those people are very sticky. They play a lot or use your product a lot and are, henceforth, very valuable. The way we thought about it at FanDuel was that it’s levelling up. You start out with a base of going out to these really hardcore fantasy sites and bring in those guys. Then you go next to the more casual fantasy player, then it’s super casual, then it’s general sports fans. What you see, over time, is that customers just, inevitably, get less valuable. As you go to a wider scale, value decreases. I think sports betting, in the United States, is still at a very early stage where, what has been interesting to see is that the players here appear, so far, to be really, really valuable and, at least right now, are significantly different from Europe.

{audio:0:17:27} When I was at Paddy Power Betfair, before it bought FanDuel, they came over with their numbers for, this is what we see in Europe. This is what the average sports betting customer is worth, over in Europe. Honestly, to me, it seemed a little bit low but it was a good barometer for us to go by, as we were starting to put things in place, as Paddy Power Betfair had acquired FanDuel and how we were starting to lay things out. But then, I think, everybody, across the board, has basically seen that US sports betters like a thrill, more than the mature market does, over in Europe, which means they play a lot of parlays. 25% or more, of bets, in the United States, thus far, are parlays, which is usually lighting your money on fire. Books can have better than normal holds than you would normally expect.

{audio:0:18:29} In terms of surveys that were done, while I was at Paddy Power Betfair, we were working with a company called DRAFT, that was their foray into the DFS space, and it was very clear that DFS players were going to, overwhelmingly, turn into sports betters. A lot of them also said that they wouldn’t stop playing DFS and I think you can see, based on the numbers that FanDuel and DraftKings have had, although some people were worried that that would fall off a cliff, it actually seems to have helped it, because these guys like doing both. Fantasy is ingrained in the US mindset but, at the same time, I can bet too. So it’s, basically, additive.

{audio:0:19:20} But how you think about player value is really different. I think it’s a lot better than many people expected, in the United States. There wasn’t necessarily a lot that you could glean, from DFS, about how valuable sports betters would be. What’s become true, just based on seeing what’s happened, in the very early days – and this may not be true forever, but at least right now – is that Americans tend to like going for the score, more than the very mature European sports betting market, where your main goal is to be winning at a 5% to 10% clip and if you’re doing that, you’re happy. A lot of people here just want hit something that’s 10 grand or go home with 100 grand. That will happen; I’ve seen it happen. It’s pretty amazing when it does, but honestly, they’re few and far between. Books love that and so, as a result, I think you’re seeing this particularly with companies like FanDuel and DraftKings, they’re seriously ramping up their marketing budget. I believe the reason why is because they’re starting to know, from a couple of years of experience, particularly in New Jersey, that these customers are very valuable. Particularly during seasons, such as the football season, they retain very well.

{audio:0:20:56} We can ramp up our CPAs or our return on ad spend, or things like that. We can push that further, in order to gain greater market share. If other people are afraid to do that, we’re not, because we have the data and we can see that. But I would think, every operator right now, is seeing similar things in the sports betting space.

{audio:0:21:19} Why has FanDuel seemed to have beaten DraftKings, in most states?

{audio:0:21:27} Bear in mind that FanDuel was a little bit later to market than DraftKings, by about three to four weeks, in New Jersey. The same thing is true in Indiana, where they are catching up. I would attribute it, right now at least, to the fact that it’s largely based on the fact that they were bought and are being run by, what is now, Flutter Entertainment. Flutter know everything. When I was working for Paddy Power Betfair, before it became Flutter, I went over to Dublin. I saw their capabilities, everything they have. While FanDuel is largely led by their New York team, the fact that you have all of these people to lean on, who have incredible experience, from regulatory to data analytics, that’s utterly invaluable. I think having all of that, behind them, is why they have been so extraordinarily successful.

{audio:0:22:41} There are other elements of it too. A lot of this is a large credit to their US team. I think the deal that they did with the Meadowlands is absolutely incredible. What I’m sure they understood was that, look, the New York market is an incredibly wealthy market. A lot of guys in Wall Street were huge players of DFS. Those guys are going to be sports betting, at least in the early days. The Meadowlands still does a lot of money, on a monthly basis. Having that experience, if you want it, of going over and being able to go to a sports club, that’s right across the river, in Meadowlands, no one else has that. That was a really smart move.

{audio:0:23:32} So you think it’s just access? Experience and market access expertise, where they have an advantage over DraftKings?

{audio:0:23:42} It’s a whole combination. For example, they have their own trading platform; they do everything in-house, whereas DraftKings relies on Kambi. They bought SBTech to try and bring that all in-house, but that’s still going to take them another year or two to get that done. FanDuel can be more flexible on their pricing. Kambi does everything universally and that can be an issue. If you’re in a specific market and you’re getting hammered, you really can’t change it because it’s based on universal Kambi odds. Whereas FanDuel group the US entity and they can change their prices around. At least from everything you hear out in the market, FanDuel is also willing to take larger bets than anybody else, which is where you do get into a little bit of, potentially, scale dynamics. If I’m a really big better, I want to get $100,000 down on Sunday’s game, on the Cincinnati Bengals, if the only place I can do it is FanDuel, that’s an advantage for them. So, as far as I know, they have higher limits than anybody else in the industry. So you have a combination of all those things, market access, the help of Flutter in total, and the fact that they have teams, all set up and ready to go.

{audio:0:25:27} Can you elaborate on that point around the flexible book and flexible trading platform, from Flutter, that enables you to manage your profitability in the sports market, much better than a more universal platform, like Kambi?

{audio:0:25:44} The idea is that I could change the odds at any time. If you run everything in-house, let’s say I’m getting 90% of the money on the Eagles, right now, and I am operating in Pennsylvania, if I want to change the odds – the Eagles are minus three and I want to make them minus four – I can do that in the blink of an eye. Kambi can do that too, but the point is, they do it on a universal basis. For example, if 90% of the money is on the Giants, who they’re playing everywhere else, but not in PA, Kambi is not going to move that line. Theoretically, somebody like a FanDuel could do that, in a regional market.

{audio:0:26:41} I think the other thing is, how much do you trust your risk and trading team? Kambi is a very good platform but I think a lot of people would say that Flutter probably has one of the best trading teams out there, too. When you think about it, it may not seem like a lot, 0.25%, but over the course of a year, where billions of dollars are being wagered, that’s tens of millions of dollars that it could result in, for your business. Those very fractional differences mean a lot in the sports betting industry.

{audio:0:27:25} I want to move onto discuss the shift of land operators, online. Can you provide some context to how Parx were thinking about moving online?

{audio:0:27:40} Pennsylvania went through an interesting journey, to getting to online gaming. Some casinos were very much against it. Others were more positive. You tend to see, in most states, the more established sometimes see online as a potential threat to their business. Although I think that’s really starting to change, based on what’s occurred in states like New Jersey and PA, where it really does seem to be, basically, all additive, for the businesses. I think that will help progress things, in the United States and other states, particularly when it comes to, mostly, online casino. But it does apply to sports betting too.

{audio:0:28:34} So I think Parx looked at it as a, this is an interesting opportunity to add to the business and, in Pennsylvania, it was going to be both sports betting and online casino, coming online, more or less at the same time. The goal then is, great, we want to do this, but if you’re a land-based casino, one of the big issues you will have is, that although you may have a digital marketing team, it’s all going to be focused on how you get people to your retail casino. When you start talking about an online only business, you’re sitting there, as a retail casino, saying okay, I’m excited about this opportunity, but I have no team.

{audio:0:29:25} What Parx needed to do was build a digital team, up from scratch, to prepare for that. Even though, usually, from when legislature passes, to when things actually get live and up and running which, for PA, was a very long process, of about 18 months, from passage to ultimately getting things live. That seems like forever but, actually, in most cases, for many retail casinos, it’s cutting it really close, is the right way to describe it. You need to hire staff, or find agencies, if you want to be working with them. You need to find platforms and that’s where I think things get, what I would say, tricky. At least in my experience, there is a sort of blueprint that I could give to land-based casinos to say, these are the things that you absolutely need to do, to have a good online business, when you launch. If you mess up on any of these things, it could get bad for you, pretty fast. You’re going to need to find a good platform, good marketing partners and things like that.

{audio:0:30:39} How did you think about the marketing? You’ve got a land-based customer base. How did you think about matching the loyalty of the land customers and revenue, with the online offering?

{audio:0:31:02} That was really simple. The decision was made to make it one to one, which was unique, in that there are a lot of operators out there that don’t do that. They have separate reward programs for both retail and online. The logic with Parx was, let’s try to make this as seamless as possible, for the customer. At least on that end, that’s how we thought about it and that’s how I think it probably makes a lot of sense to think about it. Then it’s an easier transition, to get somebody downstairs, on to online, because I’m getting rewards for playing online and playing downstairs and I can use them on either platform.

{audio:0:31:57} Did you seen cannibalization of offline revenue, when you opened up online?

{audio:0:32:05} No. I don’t know how long this will hold true, but the amazing thing about it is, it was actually additive. By additive, what I mean is, retail customers were actually coming in more, when they were playing online, which is incredible. A retail player was actually becoming more valuable and coming in more, once they started playing online. Then on top of that, they were also playing online. We’re, basically, doubling the revenue that we were getting, from a customer.

{audio:0:32:45} Keep in mind that this may wind up being very similar to the DFS days which is, you’re talking about early adopters. Who do you think is going to be more valuable than anyone else? It’s going to be the people that are downstairs, in your retail casino. This is certainly true, so if you look back on the history of New Jersey, it’s changed over time, but in the early days, the brick and mortar casinos, when online started, were the frontrunners in this space. That makes sense, because they were hitting their retail bases and they had a major advantage, over other people.

{audio:0:33:31} What’s transpired, over time, is that there are a fair number of non-endemic guys, who really mastered the digital game, in New Jersey, who are now leaders in that market. The leader is Golden Nugget and Golden Nugget is endemic to New Jersey. But there are a bunch of other guys, like Betfair, which is obviously owned by Flutter, which is number two. DraftKings has moved up pretty fast. There’s Rush Street, as well. None of those three that I just listed are endemic. MGM and Caesars are pretty good, as well and they are endemic. But it’s just fascinating how, over time, this happens. Again, it speaks to the fact that this is a challenge that, I think, retail casinos face. You have to have digital expertise. If you wonder why FanDuel and DraftKings are leading the market, right now, a large reason for it is because they are digital first companies. That’s what they have always been; that is their bread and butter.

{audio:0:34:37} If you think about somebody like an MGM, they excel at what they do, which is that they are a great retail hospitality experience. They’re not as strong on the digital front. They’ve been making a lot of inroads on that. If I’m in California, right now, and I’m a Native American tribe, like a Sam Manuel or Viejas, they make a ton of money, they are well prepared to do something in the online space. But if I’m starting from scratch, there are a lot of digital deficiencies I would have, at this point in time, that I would need to make up, in order to have a really good online business.

{audio:0:35:27} How crucial was it to link the loyalty scheme for offline and online?

{audio:0:35:36} Up to the point in time that we’re at now, I think results are still coming in, on that.

{audio:0:35:56} Or social to online, for example. For some of the social gaming products that some of the land casinos have, how crucial is it that those loyalty points and those gamers can act as a lead gen for real money gaming?

{audio:0:36:10} They’re helpful. Parx has a social gaming platform and we saw, when we were trying to bring over social game users, those are certainly people who do cross over. Those, I think, have never been an enormous part of the business. Social games, free to play games, for casinos, they tend to attract lower-value players, if they’re playing at home and not playing in the casino. I think what I would say is, they’re a good database to have. You can get people over from that but I think there are better lead gen tools. Honestly, what FanDuel and DraftKings have with DFS, at least for sports betting, that’s really good. I don’t know that there is a casino equivalent. I think the best casino equivalent is those social games but the best ones, honestly, for retail casinos is your existing retail casino customer base.

{audio:0:37:29} There’s actually, not a huge overlap between sports betting and online casino. Flutter claims that they’ve gotten 30% of users from their sports betting operations, over to online casino. That’s largely because they’re funneling them into, most notably, blackjack. The real money maker is slots, for online casino and there’s very little crossover there. Even though a lot of what we’re talking about here is in relation to sports betting, there’s another angle here, which is online casino, when you’re talking about online gaming, in the United States. That’s where I really think where the advantage actually lies, with the retail operators. When FanDuel comes into your state and they don’t have access to a database, where you have a one-million-person database and you have a major advantage over them, because you’re going to get a lot of those people playing slots. They will be able to get a bunch of people in to say, table games, which they’ve been very successful on, in PA, but their slot numbers are not very different from anyone else. Maybe even somewhat pedestrian, on some level.

{audio:0:39:06} How do you think about that? If we just take a step back, put you in the position of Parx, a few years back. You go into that role, you’re moving online, everybody knows that online casinos are where the money is really made, how do you think about acquiring a customer and then driving the lifetime value, in those casino games? How much would you pay for them? How do you think about the value of a customer, in that sense?

{audio:0:39:31} If you’re in a state where you’re going to be able to do both, it still makes sense to do both. You’ll have targets for them. People vary on this. Some people look at straight CPAs. I usually like to think about things based on return on ad spend. I think it’s all about the level of – risk is probably not the right way to describe it; I’m trying to think about the best way – what you are willing to tolerate, almost.

{audio:0:40:07} How much would you pay for a sports better, for example?

{audio:0:40:10} Usually, it’s anywhere from, probably, $200 to $350; that’s usually pretty good, based on what return on ad spend is, so far. You’re taking some risk on this, so I’ll use an example. At Parx, we’re early on and I don’t have the same data that FanDuel has, from a year plus, in New Jersey. They might be able to say, I don’t want to pay more than $277 and they’ll know that. You have to figure that out, in the early days, when you do these models, which are really a combination, in my mind, of CPAs and return on ad spend.

{audio:0:41:03} If you do just CPA, you could wind up with a channel, for instance, where you are like, wow, I’m getting guys in for $200. But if their return on ad spend is terrible, then you shouldn’t be spending on that channel or your CPA should be significantly lower. It’s balancing those two, which is why there’s that range. If you’re working with affiliates, you might be able to get guys for as low as $200, but you should be monitoring how those guys are trending, over time. Are they valuable? If they’re very valuable, then yes, you should probably be continuing to work with that affiliate, or continuing to work with affiliates.

{audio:0:41:43} You might see that Facebook is $400, but if the users are twice as valuable than you are seeing on other channels, it’s absolutely fine to be spending there. That’s why, in my mind, it’s really a combination of those two things.

{audio:0:41:58} What was the payback that you saw, typically, in the early days? PA opens, for example; you spend $500 on a sports better. What would be the payback that you could expect?

{audio:0:42:14} People look at it differently. For some people, it’s just gross gaming revenue back. Most people, in the industry, usually look at net gaming revenue, which is total revenue, minus promotions. On that, in the very early days, you could be seeing return on ad spend, for sports betting, as quickly as four months. As it gets more competitive in the space, it usually lengthens out to eight to 12 months. Flutter has been very open with their shareholders, that their payback time period is 18 to 24 months. I would assume that DraftKings is in a very similar position, based on their spend.

{audio:0:43:13} It all depends on what you want it to be, as an operator, because that’s where the flexibility comes in. That’s where all of these elements come in, particularly if you’re talking about sports betting. For example, if you’re a sports better that is aiming for a higher hold, most operators would probably be looking at somewhere between 3% to 5%. But if you really want to cut off shark betters, who won’t take big bets, and your goal is to have a higher hold rate, of 8%, 9% or 10%, then you’ll probably have different ideas of what makes sense for you, for return on ad spend. Or if you are also doing that for online, what your payback period is. Everybody has different payback periods. I can certainly tell you that Parx was not looking to have an 18 to 24-month payback. It’s all based on the individual operator and, if you decide to do certain things, which you do have some control over, such as how much you want to pay for a customer or how you’re thinking about your hold percentage, you can vary those. You can say, I want it to be only eight months; I want it to be only 12 months. You do have some control over that, versus 18 to 24.

{audio:0:44:36} I think, in the long run, where things can be problematic, is that if somebody does have an 18 to 24-month payback period and is willing to take a lot more money than you are then, over time, you’ll probably lose market share. The guys that are betting with you will be like, I can’t get this 10K or 100K down, and they’ll start to go elsewhere. Over time, you will gradually lose customers. But there’s probably about a two to three-year period where different operators can have different return on ad spend or different CPA models and do reasonably well.

{audio:0:45:22} What was the type of behavior, in terms of frequency of betting or type of betting and stakes laid out, in those early adopters, when you were at Parx?

{audio:0:45:39} I’m not on risk in trading; I’ve never done that. I’ve only seen it from a step removed. Again, the biggest thing, in my mind, that I think everyone has seen, in the United States, is that American sports betters do significantly more parlay betting than elsewhere in the world. That’s why holds tended to be higher in the United States.

{audio:0:46:11} The lifetime value should be higher, then, in that case?

{audio:0:46:13} Yes. Lifetime value, at least for early ones, for many people, is a lot higher than they expected. The question though, for this industry in the US, is retention. Most data analysis people would tell you, you really need 18 to 24 months of data, to really be able to model what you will see, in terms of future retention, based on those numbers. The only state that has seen that, so far, is New Jersey. The problem in the United States is that every state is different. You’re, literally, talking about 50 different countries here and states will vary wildly.

{audio:0:47:01} If you look at New York or California, which are states where there are a lot of wealthy people, versus a state like West Virginia, I don’t think any smart person would expect that you would see the exact same thing happening West Virginia as you would in New York or California, at least from a user value perspective. You may see the same penchant for parlays, but user value will usually be lower.

{audio:0:47:30} If you had to estimate the retention of the numbers of those early adopters, after two years, in PA, what would you estimate the retention would be of those sports betters?

{audio:0:47:47} Since it hasn’t gone through a full year and I don’t even know if football will return this year I think, honestly, the answer is I don’t know. I’m not afraid to admit that because if I had had access to New Jersey data, I would be surprised if it were noticeably different from DFS. I would also think that it’s probably going to be better, personally. I think it’s just easier to bet on a football game, place $20 on the 49ers. I would think that retention would be better. But there’s also a lot of other things that are drastically different from DFS, particularly in a market like New Jersey or Pennsylvania, there’s a still a fair number of operators. DFS was, basically, FanDuel versus DraftKings. I have one choice or the other.

{audio:0:48:58} I think, actually, that retention will be pretty high but the issue is, will it be high for you, as an operator? That’s got more of a question mark. This is where sports betting is different from DFS. It doesn’t matter if I place $20 on the 49ers because I’m on FanDuel. If you have these time periods, year after year, where it’s, here’s your NFL bonus, or something like that, I probably will be retained, on a pretty consistent basis, but it may not necessarily be to the same operator. My guess would be that you would probably see 60%, 70%, maybe even 80% of the same market who bet the previous year, who will return, but they may not return to the same operator or their wallet share may vary, depending on who has the best bonus or things like that. I think it’s a difficult question to answer.

{audio:0:50:08} Can we take a step back and just look at how Parx approached building the technology solutions to move online? What was the stack that you chose? What providers did you use?

{audio:0:50:22} This is all out there, so people can read it on websites and things like that. We decided to go with Kambi, for sports betting.

{audio:0:50:37} What’s the first decision you make? What’s the pivotal, critical first solution you have to decide about? Is it the sportsbook?

{audio:0:50:48} What I would say is, I was not as heavily involved in those discussions. Both were scheduled to come online at the same time and both had to be adopted at once, so the issue was, how we solve it, for both online sports betting and online casino? If you were just doing sports betting, it’s easier. We’re going to go with Kambi and I need a wallet of some kind and payment processing. Pennsylvania was a unique state, even more unique than New Jersey; Michigan will be going through the same thing but Pennsylvania is the only state, to date, where they launched at the same time. New Jersey launched online casino, back in 2013 and then sports betting didn’t come until 2018, so they were split out. For PA, they had to do both.

{audio:0:52:03} Parx’s goal was, we want to have both up. We want to be first to market, or one of the first to market, at the same time.

{audio:0:52:13} How do they prioritize? Because casino is more profitable and has a higher lifetime value, do they prioritize that, internally?

{audio:0:52:22} The online casino partner and, also the wallet, was GAN, which they already had a pre-existing relationship with, because that’s what powered social games for them.### {audio:0:52:38} How important was that, in the decision?
{audio:0:52:41} Since it was already pre-existing, it made it easier and there was a contract in place, for social gaming. Then you start thinking about, how can we plug things in to GAN, since we already have that and there was already a mechanism in place, for a wallet. I think, at least for Parx, having GAN already in place made it easier. For example, if you are in Michigan right now and you don’t have a social casino product, then your very first thing, if you’re going to get sports and casino up off the ground is, what will my platform be? Is there anybody, potentially, that does both? How do I, at least, get my wallet in place and then plug in casino and sports betting. That’s how you have to think about it, from a technology stack. So Parx wasn’t starting from Ground Zero.

{audio:0:53:43} How important is the wallet and the player account management system?

{audio:0:53:54} It’s probably the most important thing. The reason why I would say that is that you can’t do anything without it. Here’s why. Kambi is a front-facing sportsbook, but Kambi doesn’t provide a lot of that backend stuff. That’s what makes them very flexible. I don’t know, from personal experience, but I would think that one of the reasons that DraftKings has decided to work with Kambi is that they offer the most flexibility, to create the sportsbook that you want, because that’s what they are. They are a front-facing product and you can iterate off them.

{audio:0:54:37} There are other companies, out there, like SBTech, that have a full-scale solution, where they’ll also be able to do your wallet, but they are a little bit more set in place, in terms of what they can offer. If you’re a company like Parx and you already have something in place, like GAN, it makes it easier to be able to say, all right, I want to go and work with Kambi, because I already a wallet and service system in place, a platform, which also has that user account management system. Kambi has similar stuff, but their rewards platform, for Parx, was better served through the GAN platform, plugged in with Kambi.

{audio:0:55:43} The tech stacks are very complicated. As I’ve said to many people, it’s like a building a Frankenstein monster. If you are lucky and you are Flutter, you’ve built your entire tech stack in-house, for sports betting. Even Flutter – and I think this is in the US – they rely on GAN; their platform for Betfair, in New Jersey, is GAN. That’s probably because it was one market, it was in the United States, they didn’t want to build an online casino from scratch; it would take them years to do. So you end up working with a platform provider, who can do that for you.

{audio:0:56:31} Will FanDuel’s and Flutter’s ideas change, if you end up with 15 states open? Yes, they might say to themselves, we should build our own casino platform. That’s largely the reason why DraftKings appears to have bought SBTech, so that they will have their own in-house online casino, in the future and they won’t have to work with anybody, except for themselves.

{audio:0:56:58} How hard would it be for Parx to shift away from a solution like GAN, versus Kambi?

{audio:0:57:07} Those ones are separate from each other.

{audio:0:57:16} But what is more critical? Is it easier to replace GAN with a different provider or build your own, or replace Kambi with someone else?

{audio:0:57:28} I guess I would say that it’s always going to be harder to extricate yourself from a system that you’re working with, that basically shares or matches up with your database, that you’re pulling all of the data from. For example, if you’re getting all of your data in a setup which is coming from GAN, it would be more difficult to disconnect from GAN than it would be from somebody like a Kambi. If you’re getting all your data from Kambi, or any other number of different operators or things like that, it’s always the one that you’re getting your primary data from, which is the hardest one to disconnect from.

{audio:0:58:18} What was tricky about the rewards system that you mentioned, with Kambi and GAN?

{audio:0:58:28} I’m not a product person, so I’m not really the best person to give you the answer. But, basically, my understanding is that we were operating off a rewards-based system, with GAN, and that’s how we reward our users.

{audio:0:58:58} So that means that each user gets a free bet of X amount or they’ve got a reward that, when they come into the property or in their online account, they have a $100 free bet, for example?

{audio:0:59:10} Yes. If that’s your reward delivery system, when you say, GAN, I need you to link up with Kambi, because we need to deliver a free bet to somebody who’s on the Kambi platform, when they’re on our sports betting app, they have to synch the two. It requires the two systems to talk to each other and that’s difficult. That requires development work. We were able to make that happen, but it’s not always the easiest thing. Again, that’s the reason why, for somebody like FanDuel, it’s already all built in; they don’t have to worry about any of that. They don’t have to spend a month on development work, trying to figure something like that out.

{audio:0:59:57} When you have different systems, such as GAN and Kambi, they have to speak to each other, in order to do some type of reward.

{audio:1:00:10} But FanDuel also uses IGT, I think, and GAN. It does seem as if even FanDuel and Flutter, they do tend to use some of these off the shelf solutions?

{audio:1:00:27} They do, yes. Even very big players do that. But what I can tell you is, for example, FanDuel, all of their rewards system is all on their own platform, so that’s easier for them. Again, I could be wrong on this but, IGT, I think, is a component of what they are utilizing, on the sports betting side, largely for data and things like that, which they can run through their own system, to help them trade better, and GAN is their wallet. GAN doesn’t do anything more for them, on the sports betting side, than just act as a wallet. They’re totally independent of risk in trading. GAN does not do risk in trading.

{audio:1:01:10} For GAN, their primary role, at least here in the United States, has been wallet or online casino. They do a lot of online casino stuff. For example, FanDuel or Betfair, which is the brand they will leave it as in New Jersey, because it’s been that brand for seven years, that’s on GAN’s platform, just like Parx’s online casino is on GAN’s platform. It’s also true why, as I said earlier, I think there is less of a difference for online casino than there is for sports betting. If I’m a customer at a retail casino and they say, hey, we have online casino and I play slots downstairs, most likely, I am going to use the retail casino’s online casino, rather than seeing ads for FanDuel and I really only know FanDuel as a sports betting brand. Why would I go play casino games there? I’m going to stick with my casino, which is now offering games online. I think that’s a really big opportunity, for retail casinos, across the United States.

{audio:1:02:28} How would you explain or describe GAN’s offering, for casino?

{audio:1:02:39} It’s a fairly standard platform, from an online casino perspective.

{audio:1:02:59} Again, we had a pre-existing relationship with GAN and they also had experience with online casino. This is nothing untoward, towards GAN, but it’s pretty simple to set up an online casino. There’s certain things that you want and they have some flexibility, in terms of how you can set it up. It doesn’t give you quite the same level of flexibility as Kambi would give you, from a sports betting standpoint. But there are things that you can do to it, change colors, set stuff up the way you want. It’s a casino offering. New Jersey and Europe have written the book on this, so there’s not much variation.

{audio:1:03:51} Did the decision to choose GAN, largely result from the fact that they had social gaming and they had the account and player management details? As you said, there are a million online gaming casino studios or offerings out there?

{audio:1:04:11} It’s actually more complicated than that. Yes, there are a million studios, but when you think about some large studios – well, they’re not studios; these are large companies that do stuff, including the lottery and scientific games or NetEnt for IGT or for a whole variety of places – a lot of those guys just make games. That’s their primary business. You decide to put games on your site and they get anywhere from 8% to 14% revenue cut of it. There aren’t as many of those, what I would call, platforms. GAN, itself, doesn’t necessarily have a ton of games, but that’s not why you’re working with GAN. You’re working with GAN because they are a platform that has, for years, worked with all of these other operators. If I want to plug in a ton of scientific games or NetEnt games or this or that, they have them and you can start to stick them on. I almost think of it as like a Velcro board. They are the Velcro and you have all of these individual ornaments or pieces that you then stick on there. They’re the base. There aren’t, necessarily, a ton of those guys.

{audio:1:05:39} There are other versions. There are ones across Europe and Israel, as well, like Playtech and various others. Part of the issue is, GAN was the first mover in the United States. This is a big thing that we haven’t even talked about, which is the licensing process. I don’t know when it happened, but years ago, GAN got licensed in the United States, so it takes a lot of the burden off, if you’re working with them. If I’m an operator, not only do I have to build it, I have to make sure it gets licensed and all sorts of other things. It’s a very lengthy process, in order to get your platform ready. If somebody like GAN has already done that, it’s great. I already have that Velcro board; I can start sticking stuff up on it. Whereas there are a bunch of other companies that are over in Europe, who decided, because New Jersey was just a single state and they didn’t know how wide the opportunity could, ultimately, get, in the United States, they did not do that.

{audio:1:06:45} So GAN is reaping the rewards right now and they also relisted on the Nasdaq, here in the United States. By making that decision, years ago, to be here, at this point in time at least, they have a little bit of a mini monopoly in the United States, that they are taking advantage of and more power to them. There will be increased competition. Everybody abroad sees the opportunity in the United States and they see it, not just as sports betting, but online casino, too.

{audio:1:07:18} Let’s say competition does come in for GAN, for example. Maybe Playtech comes in rapidly and other competitors from Europe. What is the decision-making process, from the operator? Is it around how quickly you can get to market or how good are the games or how cheap it is? What is the plane of competition that you see GAN competing on, with other operators?

{audio:1:07:46} In the United States, I think speed to market will be really important. It depends on the operator. If you feel one product is vastly superior to the other and you think, if I’m going to be in this for the next 20, 30 years, six months may not make that much of a difference. If this one is much better, I want to go with that one. I do feel that, at least from a sports betting standpoint, it’s definitely speed to market, because so many states are rolling out. Online casino seems as if it’s going to be slower. Michigan is the next state coming. If I were in Michigan, I would be, speed to market, who do I need to work with? I need to make a decision fast.

FanDuel, Parx Casino & US Online Sports and Casino

Historical CAC and retention of DFS players

How online is additive to casinos' land business

Why US sports bettors are potentially more valuable than Europeans

Core differences between online casino and sports betting

How and why Parx built a stack of GAN and Kambi to offer online sports and gaming products

FanDuel, Parx Casino & US Online Sports and Casino

Former VP at Parx Casino and Head of Business Development at FanDuel

inpractise.com/articles/parx-land-casino-transformation

Why is this interview interesting?

Executive Bio

Geoff Bough

Former VP at Parx Casino and Head of Business Development at FanDuel

Interview Transcript

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FanDuel, Parx Casino & US Online Sports and Casino(June 10, 2020)

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