Gaining traction: What’s behind Kindred’s Pennsylvania igaming uptick?

Kindred is well known for its measured and calculated approach to expansion into new markets – and its endeavors in the US are no different. As competing operators jockey for position in the States by tapping into their investors, Kindred is set on using its own reserves to grow organically. Via its partnership with Mohegan Sun, the operator has experienced some steady online growth in Pennsylvania, with SVP Manuel Stan insisting that the uptick is down to an increased interest in casino brought about by the Covid-19 lockdown. Elsewhere, Kindred is preparing to storm a new slate of states in the coming year in order to support its national target for gaining high single-digit market share, but Stan says the firm is optimistic it can beat the 10% average in key states like Pennsylvania without injecting huge amounts of capital into its marketing efforts. Here, Stan opens up to EGR North America about Pennsylvania, Kindred’s market-share expectations, and how Covid-19 has halted the operator’s hiring efforts. EGR North America (EGR NA): Kindred’s igaming revenue in Pennsylvania has more than doubled in the last two months, so how have you powered this growth compared to other operators which fluctuate month to month? Manuel Stan (MS): I think [it’s down to] the fact that we have been consistent with what we have been doing. We have kept on pushing throughout the summer and obviously we had a good starting point with casino in Pennsylvania. In March, we already had decent growth and we kept on growing and you don’t see any big fluctuations, the growth is steady month by month. As I said, the majority of the growth is coming from casino and since sports has resumed, the focus is gradually shifting. We are seeing much bigger fluctuations in the sports betting vertical, and in September the margin for the whole industry was a bit on the low side. But in general, yes, for us there has been a steady growth across both New Jersey and Pennsylvania for the last six months. The levels are different as we are more successful in Pennsylvania but even in New Jersey we see good growth driven mainly by casino. September was great for us, as we hit an all-time high in terms of pretty much every KPI: depositing customers, actives, turnover, deposit amounts. As I said in September, one of the challenges was with the sports margin, but that’s the nature of the industry. The size for us and for most of the US companies at this point is still relatively low to have a consistent margin, so I don’t think anybody’s panicking right now after seeing their sportsbook margin for one month drop to 4%-5%. In the long term, it will stabilize. EGR NA: How has Kindred US approached marketing and brand awareness on the return of the NFL in September? MS: As I said, for us it was mainly casino that drove the growth, particularly since March. And in the last couple of months during the return of sports, you can see in Pennsylvania particularly that we are probably the most aggressive operator when it comes to our bonus strategy, and that’s somewhat normal considering we have 10 live operators now in Pennsylvania, and we are the operator that started with the lowest brand awareness. We’re very aggressive when it comes to bonusing and rewarding customers and that helps both acquisition and retention. We increased our acquisition bonus in September, pretty much doubling up the acquisition offering for sportsbook in all three states we are live in. But when it comes to retention, 20+ years in Europe has taught us that it’s more efficient to retain a customer rather than acquire one. The marketing team is very much focused on making sure that they are receiving the right promotions, and relevant offers all the time. Obviously, it’s a bit different at the moment because we have to build our database and we put a lot of effort into acquisition, but globally, as an operator, we’re putting most of the effort in retaining and rewarding our customers correctly.  We want to acquire a sustainable relationship with our customers. EGR NA: And how has cross-sell developed since Covid-19 caused an uptick in igaming users? MS: I think that the most interesting thing is before the pandemic hit, we barely marketed casino in New Jersey and Pennsylvania. The majority of the marketing budget was allocated to sportsbook, but as soon as the sports calendar was put on hold, the customers migrated to igaming. You can see the numbers in Pennsylvania and New Jersey and, overall, the market has boomed. Now with the return of sports, we have started refocusing again on sportsbook, but we have still kept some of the casino focus. We have seen really good traction between March and August/September, so it makes sense to continue to invest in acquiring casino customers. We go back to our default strategy of acquiring customers from sports who we can then cross-sell to casino. During the last couple of months, casinos reopened in most states and professional sports resumed, with October having all major US sports back in the spotlight. However, for us, casino activity continues to grow [as do] actives and turnover. Although brick-and-mortar casinos have opened and some players who temporarily moved to casino may have come back to sportsbook, we have definitely noticed that the casino segment of players is continuing to grow, which is great to see.

EGR NA: What is the roadmap for Kindred’s target to gain “high single-digit market share” across multiple states? MS: The overall target is indeed high single-digit market share, but it does depend a lot on the state. Last summer, I mentioned to you that our target is pretty much to beat the average market share in the states where we’re operating. In the states where you have 20 or 30 operators, we’re aiming towards a mid-high, single-digit target, while where you have only 10 or so operators, like Pennsylvania, we obviously want to beat that10% average. In states like Pennsylvania, we aim to have a double-digit market share in the long run rather than high single digit. But overall, it’s fair to say we aim to be somewhere in the high single digits. As far as the roadmap and how we get there, I think we’ve been realistic from the beginning in that this is a marathon and we started with no brand awareness and no database, so it’s challenging for us to get to double digits within one or two years. It’s a journey to get to those levels but we are confident in our strategy and our product. Pennsylvania is a great example where we managed, in less than a year, to beat 5% market share, which is fantastic to see. But realistically, it will be difficult to achieve similar success in other states unless the conditions are similarly favorable. In Pennsylvania, we benefited from a lot of circumstances and everything aligned perfectly: time to market [as only the fourth casino to launch in PA], the retail presence, and the very successful partnership with the [Philadelphia] Eagles. EGR NA: Will Caesars’ William Hill acquisition affect Kindred’s market-access partnership with Caesars to enter new states? MS: No, it will not. Our market access is not impacted by that deal. We have already launched in Indiana through our partnership with Caesars, and in 2021 the plan is to launch in Iowa as part of that agreement, and potentially in other states after that. EGR NA: Which other states are an exciting prospect for Kindred? MS: As I said, we have the Caesars agreement and then we signed an agreement with Penn National [Gaming] earlier this year and that includes Illinois and Ohio. The roadmap for 2021 for us obviously depends on regulation and what may or may not happen, but right now the focus is on Illinois. We are trying to launch in Illinois as soon as possible. There’s a lot of movement there with the in-person registration being either on or off for the last few months, and hopefully soon we’ll get some longer-term clarity. We’re also in the process of applying for a license in Virginia. As you may know, there are a limited number of licenses in Virginia so that will be the next target for us. Iowa is also on the list for 2021. These three states will be the core of the roadmap for us for late 2020 and into 2021. Other than that, Ohio has had some very positive movement, and we are quite hopeful that the bill will pass at some point this year, and the governor will support it. There is a chance that Ohio may go live sometime late next year. And through our market access agreement within Penn National Gaming, that would be very high on our priority list. EGR NA: Last year you set a target to grow your US team to 30 by the end of 2019. Where are you at now? MS: We are 40 [people] right now, and we are looking to grow with a few more roles by the end of the year. The target for end of next year is around 70 as we are expanding into new states. Unfortunately, or fortunately depending on how you see it, everybody has been working remotely since March. We have the same two offices in downtown New York and in Cherry Hill, New Jersey and those will support our growth for the next couple of years. We’ll see after that what will be the next step for us. For now, we are still focusing on growing the teams in the two offices. The bigger challenge in the last six months has been moving any staff from Europe. We have some pending visa applications that have not gained any traction in the last six months, and that is unfortunate. So, we had to focus a bit more on recruiting locally. The last time we talked, I was saying that we believe in finding the right mix between some European sports betting Kindred expertise and local US knowledge. Right now, in the US team, we have five people from Europe and the rest were hired locally. But I think that 10% European expertise makes perfect sense. Unfortunately, in 2020, that’s not the case anymore as we hired entirely local because of the visa restrictions. I generally think that it is refreshing to hire people with outside experience. It’s not always great to limit ourselves to the industry. Our new head of player operations has come from a banking background without any sports betting or gaming-related experience, but he brings a fresh view to things and he’s challenging things from a different perspective. It’s very refreshing to see that somebody looks at things differently, and there may be a massive upside from that. For a lot of the roles, especially in customer services, and risk and fraud, we did not get much industry experience, while in the marketing and product roles we tried to hire talent with industry experience. In general, we are still trying to get people from the sports world. We’ve had a few people come in from sports entertainment. EGR NA: As competing operators like DraftKings, Penn National, and Roar Digital inject huge amounts of new capital from investors, do you feel more investment could be made into the Kindred US business? MS: Consistent with what we have done in Europe throughout the years, we are still confident that we have a good balance sheet and that it’s a marathon, and we are very much aware that there is an investment stage that means we will be in the red for a while until we turn a profit.  We are confident in our strategy and our product. EGR NA: Are you still looking to move the US products onto your own back-end tech stack? If so, what’s the timeline for that? MS: You’re spot on there that the intent was to bring our own tech and the intent remains in the long run. However, with Pala Interactive we have found a very strong strategic partner here and we have been extremely happy with the way things have worked in Pennsylvania. And we are using Pala again in Indiana where we went live two weeks ahead of schedule, which is quite impressive. We were initially planning for the start of the football season, however everything got delayed because of the pandemic so we changed the target date for the restart of the NBA season at the end of July, and Pala has done an amazing job to get us live in Indiana in time for that. And right now, we are working with Pala on our Illinois launch and we will continue to do so for the other states coming in 2021. The long-term plan remains to bring our Kindred platform to the US, however, at this time, we don’t have any timelines to communicate.