Chris Sheffield joined Penn National in 2015 and was tasked with setting out the blueprint for the operator’s approach to online gambling in the USA. Leveraging his experience from the European market and his time at Betfred, Sheffield’s battle plans included a social casino proposition, real-money slots, bingo and poker, as well as sports betting.
Of course, this strategy was devised ahead of time and only now with Pennsylvania finally moving ahead with legal iGaming can it be properly deployed. Below, Sheffield talks to iGamingUSA about how Penn National will capitalise on legal iGaming and sports betting, the key lessons learned from New Jersey, and the battle between US and EU operators.
Q: How are your plans shaping-up for legal, regulated online casino and poker in Pennsylvania? What brands will you be launching with, and what products can we expect to see?
A: We are currently working through the license process, and already have a platform partner lined up – we are in the final stages of getting the contracts written and signed. We plan to be live by the end of the year with our Hollywood Casino brand, and will launch additional verticals such as poker, bingo, virtuals and live dealer throughout 2019.
Aside from our own brands, we plan to make use of the unlimited number of skins land-based operators are permitted to run in Pennsylvania. We intend to give other brands a cost-effective route to market; of course, this will increase competition, but we believe this will be offset by the revenues we are able to generate from these skins.
Indeed, it is the same model used to great effect by Golden Nugget in New Jersey.
Q: Why have you chosen to work with a platform provider instead of building your own technology in-house?
A: We will build some elements of the platform in-house. We have a dedicated development team based in San Francisco that has been creating content and features for our social casino brands, and we will look to leverage this. So, to begin with, we will create our own real-money slots games and use them as a point of difference.
As to why we chose to work with a platform partner; we are in a race against time to launch, and building technology from the ground-up takes too long. In addition, we want to take a considered approach to the wider roll-out of iGaming in the USA. Following the Pinnacle acquisition, Penn National will have around 40 properties in 21 states, and we need to gain a clearer picture of what the landscape will be.
This will determine how and where we built our infrastructure, and what approach we take to our technology in the long-run.
Q: What impact has Pennsylvania’s 54% tax rate on online slots had on your plans? Is it still a point of contention, or have you come to terms with it?
A: It is still a huge point of contention as it makes offering online slots games to players almost unviable. To help mitigate the tax, we are looking to get slots content as cheap as possible, and we are in a good position to do this thanks to the scale and scope of our land-based businesses.
Once Penn’s acquisition of Pinnacle completes, the group will be the largest slots operator in the world. This gives us major buying power, and should allow us to gain access to online slots games at a reduced price.
We are also looking at non-slots content such as table games, live dealer and lottery games. Of course, players will want slots content and we have to meet their needs, so it will also be a case of just having to take the hit.
Q: What have you learned from operating your suite of social gaming brands and products, and how have these lessons shaped your approach to RMG?
A: Our social casino business is performing well, and it has given us great confidence in our real-money gaming products when they launch. We believe that if players are willing to spend money playing social they will spend money playing RMG slots. Of course, this could have a major impact on social casino in the US and has the potential to cannibalize social casino players to real money players.
That said, we believe the incremental revenue from real-money gambling – especially as more states embrace regulation – will more than outweigh that loss if it does occur.
Operating our social casino has been something of a test run when it comes to key functions such as content/product, marketing, bonusing, rewards, etc – experience we will deploy with our real-money online casino from day one.
Q: What challenges do you anticipate once PA opens its doors to regulated online gambling?
A: There are going to be several pain points, some of which are already being felt. The first is talent; there is a serious lack of experienced iGaming specialists available. New Jersey and the social casino sector are the only two talent pools that can be immediately engaged, outside of onboarding experts from Europe and beyond.
This is leading to a lot of talent poaching at present, and some serious wage inflation – in some cases 50%-100% above market rate. All this is going to do is make it harder for operators to make money in Pennsylvania, especially when you consider the high tax rate. Other issues include obtaining work permits, visas and licenses.
Thankfully, we began building our iGaming team several years ago and already have a fully-functioning team working across offices in Pennsylvania, Nevada and San Francisco.
Aside from talent, the other issue we are going to encounter are with payments as the majority of debit and credit card transactions are still being declined by banks and financial institutions.
Q: How will the market shake out? Do local brands have the edge over those from Europe and elsewhere?
A: I think it’s going to be crazy at the start. We will see a similar situation to that in New Jersey and Spain where operators fly out of the starting blocks and spend big on marketing and advertising. Over time, however, the dust settles and a clear image will emerge regarding the size and potential of the market.
In Nevada and New Jersey we have seen some brands fall by the wayside, and to this day in the Garden State some operators have yet to break even.
I am also expecting an influx of European brands to enter the market alongside land-based operators from Pennsylvania and beyond. I’d say the land-based operators have the advantage because they have brands, databases and understand the culture and player expectations, but European operators with plenty of experience and deep pockets could do well, too.
If you look at operators like The Stars Group they are multi-vertical, have decades of experience in the sector and have plenty of money to throw at making a success of iGaming in Pennsylvania and the US more broadly. That said, I think it will be a close and fair fight between land-based operators and EU brands.
Q: If keeping a watching brief on the New Jersey market has taught you one thing, it is..?
A: The skins model being perused by Golden Nugget is a smart strategy. They are able to generate additional revenue, while also unlocking economies of scale when it comes to functions such as customer service, KYC, AML, fraud and payments. This will be essential for Pennsylvania operators looking to limit the damage caused by the insane tax rate.
Q: As an expert from Europe, how have you found working in the US market? What are the main differences both in terms of culture and player preference?
A: One of the greatest differences is the popularity of social casino.
Indeed, when you look at New Jersey it is clear real-money poker is in dire straits, but this may have a lot to do with the quality of the social poker products players in the Garden State have access to. When compared to the limited games, poor liquidity and small prize pools available when playing RMG poker, it is clear why most turn to social games like Zynga Poker.
Another key difference is sports betting; rolling-out European products and odds/markets simply won’t work. For the US market, operators are going to have to go back to basics and invest a great deal of time, effort and money in educating players about what is available to them and how the different types of bets work.
To really succeed, operators must understand the nuances of the US market, and innovate and customise around that. For example, betting the line and spreads are hugely popular in the US, so operators should look to build new products to take this to the next level.
In addition, they must also take into consideration differences in betting terminology and the odds and markets players like to engage with.
Q: European operators seem to think they are in the driving seat to cash in on the sports betting/online gambling opportunity in the USA. Will the reality be different with US operators taking the lead?
A: Like I said, I think it is going to be a fair fight between US operators and European brands with solid experience and big budgets. That said, I think generally people are getting carried away when it comes to the perceived “gold rush” that legal online casino and sports betting presents. The market simply won’t be as big as most anticipate.
Sure, it has the potential to generate substantial revenues, but there are a lot of organisations looking to cash in, from state regulators, the leagues, platform providers, advertisers etc.
In addition, there are several hurdles to clear to unlock the true potential of the market – payments, geolocation, whether the likes of Apple and Google will allow sports book apps will all have an impact on revenues generated.
Here at Penn National, we see sports betting as very much a land-based activity.
Several states have already said they will only permit retail sportsbooks, and this puts the power in our hands. When it comes to sports betting, we want to push as many punters through our casino doors as possible, and provide them with a world-class experience beyond being able to place a wager on the Cleveland Cavaliers to win the league.
This is different to Europe, of course, where sports betting is seen to be an online/mobile activity. But, once again, this is one of the many differences between sports betting in Europe and the United States. For Penn National the focus is on using sports betting to super-charge our land-based casino proposition.