Q&A: Jim Ryan outlines his US battle plans

It’s a strange time for US online gambling, with the initial enthusiasm all but evaporated as operators in Nevada, Delaware, and New Jersey struggling to keep their heads above the water. In October Ultimate Gaming became the first casualty of the market, shutting up shop for good and revenues are far short of even the most bearish of estimates. But none of this has stopped Pala Interactive, the start-up owned by Californian tribe the Pala Band of Mission Indians and headed up by egaming veteran Jim Ryan, from pushing ahead with its plans for the market.

The online operator went live in New Jersey in November, and interestingly Ryan says that making a profit is not even one of its three initial objectives in New Jersey. California-based Pala has built its platform in-house and the former bwin.party co-CEO Jim Ryan says it is vital for the firm to enter the fray to become regulated, test and develop its platform, and build out its US management team. This is a long-term play in a market that is showing little payback in the short-term.

Part of the licensing process has seen the New Jersey regulator take a thorough look at Ryan himself, and in particular his time at Excapsa during the Ultimate Bet cheating scandal. In awarding Pala its transactional waiver, the regulator ruled that Ryan had no knowledge of the situation at the time, and Ryan says the regulator’s ruling draws “a line under the matter”. It’s just one of many issues the firm wants to clear up before making an attack on a market Ryan still believes will be a significant one for online gambling despite initially flattering to deceive.

eGaming Review caught up with Ryan a couple of days after PalaCasino.com went live to players in New Jersey to get his thoughts on the health of the US market, what he will do to make sure Pala doesn’t go the same way as Ultimate Gaming, and what he makes both of the future of the US egaming sector and the potential for the social and daily fantasy sports markets.

eGaming Review (eGR): What market share are you targeting in New Jersey?

Jim Ryan (JR): Our objectives in terms of entering this market were not related to securing a particular percentage share. We had three objectives. The first was going through a regulatory review process, and having the company, its management, and most importantly its product, being certified by a regulator. We felt that was critical for us and positions us brilliantly for the New Jersey market and other markets as they open up.

Secondly, we have built an entirely new platform from the back office to the actual games, so the ability to go into the market and perfect our product was important. And last but not least, we have been building a management team to work in a regulated marketplace. It’s one thing to do it theoretically, but it’s a whole different thing to actually do it while you are operating and taking bets from consumers. We believe that if we do all of that right, we will take some meaningful market share in New Jersey.

eGR: Why did you chose the Borgata as your land-based partner? Did you hold discussions with any other operators?

JR: The Borgata is Atlantic City’s premier hotel and spa, both in terms of the market share and also in terms of its financial stability. One cannot underscore the importance of the last point, especially with what some of the land-based operators have gone through in Atlantic City over the course of 2014. We were actually in discussions with three properties, and I would have been thrilled to have done business with any of them. We ended up with the Borgata because they liked what they saw and were reasonably accommodating in terms of doing a deal with us. So we are thrilled with where we have landed, I think we couldn’t have done better.

eGR: Do you expect to turn a profit in New Jersey?

JR: The truth be told, today I can’t really say when we will turn a profit. But if you go back to our three objectives, profit was not one of them. I believe there is the prospect of being profitable in this market, but to do so we are going to have to invest. We view the development of our position in the New Jersey market as a marathon as opposed to a sprint, and we are committed to this market for the long term.

eGR: Why has the US egaming market being mediocre to date? What changes need to be made?

JR: The problem with New Jersey is there were any number of unrealistic expectations set for the marketplace before it went live. We had a very realistic view as to what the prospects for New Jersey were. If I take you back to my bwin.party days, specifically to my Party Gaming days, we generated about $40m a year in New Jersey pre-UIGEA. And we had about 40% market share. So if you reverse engineer that, it leads to a $100m a year poker market. Granted, the poker market isn’t anywhere near that level at this time. So what are the issues? As it relates to poker, it is the size of the liquidity pool, which pre-UIGEA used to be an international pool. So I think poker will remain challenging until liquidity is increased. For poker and casino I think growth will be driven in a large part by an improved awareness of the online offerings and the ease of consumers being able to get money into the system.

eGR: How does the US market differ to Europe? Are those differences partly to blame for the US industry struggling to gain traction?

JR: There is some great content in Europe, but I am not seeing that same content in the US yet. There is a reason for that. I think people are scratching their heads as to whether they should invest in content given the current size of the market and the fact that New Jersey may be one of only a few that will legalise online casino as well as poker. The US consumer would certainly love to see and be able to enjoy some of the games found on European sites. Offering those games would help improve the entertainment value of the offering, increasing site visits and session times. But this is just part of the evolution of the marketplace. As the competitive set straightens itself out and organisations realise the market opportunity is in excess of $200m split between five or six players, I expect to see the better content finding its way over and being deployed.

eGR What are your thoughts on the opportunity presented by social gaming?

JR: The social gaming evolution of our business is a very easy step for us to make, and we will make that step in 2015. We will seek to do B2B deals with operators in the US who are interested in having a social casino or poker offering. We will also do it for our own Pala brand, as we wait for the state of California to move forwards with online poker legislation.

We have got assets, and a back office platform, and are building the team to help us with this evolution of our business model. We have got a couple of willing customers at this point in time, so there is a lot we can do in the social market. We also see it as a facilitator to helping us find partners in other to be regulated markets. We see it as a unique way to bridge the gap until further state regulation comes along, and to generate revenues. We think it is logical; why wouldn’t we go in there and help land-based operators launch a social gaming offering. Then if and when the state regulates we happen to have a real-money gaming offering that we can use to take them to the next level.

eGR: And what about daily fantasy sports? Is that an attractive market for Pala?

JR: We are watching it. We have got to be mindful of the regulatory environment, and I think we need to a little bit more learning. It’s quite interesting to us that no US land-based operator has embraced the model yet. Given that we are operating with the intention of being regulated in US states that pass online gaming legislation, what we don’t want to do is put ourselves in harm’s way by going down a strategic path that may preclude us from operating in any given state market. I don’t mean to imply that it would, but my message is clear that we are at an early stage with daily fantasy sports. Early discussions we have had at this point in time are to white label. Our development calendar is full. We have launched casino, we are going to launch poker in Q1 in New Jersey, and we have got a couple of customers for social gaming.

eGR: What do you make of the New Jersey regulator’s investigation into Pala and yourself – especially about your time at Ultimate Bet?

JR: The cheating scheme that occurred at Ultimate Bet during my tenure at Excapsa is unfortunate and very regrettable. The cheating scheme occurred from 2003 to 2007 and I was the CEO of Excapsa for 23 months. So going through the New Jersey regulatory process, the regulator has to make sure that you weren’t involved, you didn’t have knowledge, and you didn’t participate in any way shape or form. And I didn’t. I didn’t know the scheme was going on when I was there, had no involvement, and didn’t participate in any way. I actually see this investigation as quite positive in that you’ve now got a regulator who is looking at the matter in depth and has concluded to date that Jim Ryan and Pala Interactive are suitable enough to be given a transactional waiver and that we are suitable enough to offer our games to the consumers in New Jersey. All of this is normal process for any applicant. The disclosure I guess is somewhat unique, but I like the transparency, so I am good with it. There can be no questions moving forward, and I look forward to the conclusion of their investigation and drawing a line under the matter.

eGR: What’s the US online gambling industry going to look like in 12 months’ time?

JR: In 12 months’ time you could flip a coin as to whether it’s going to be pretty much status quo, or whether you are going to see another material state coming into the fold. My prediction is that you will see New Jersey start to turn the corner, as hopefully VISA and MasterCard will come out with their new regulated egaming coding and systems for online gaming transactions. I think there is a reasonable prospect for online poker regulation in California too; significant progress was made during 2014 and we just simply ran out of time. So we go into this session with a lot of building blocks that can be used in 2015, but there are three issues that need to be addressed in California. The issues are the racetracks, the “bad actor” provision, and ensuring that draft legislation is compliant with the requirements of the Department of Justice. That seems like a manageable path to me, so in a year’s time I would say New Jersey will be growing and legislation will have passed in California.