Posted on: March 28, 2023, 11:58h.
Last updated on: March 28, 2023, 12:39h.
Chicago-based Rush Street Interactive (RSI), a subsidiary of Rush Street Gaming, announced Monday its intent to wind down its sports betting operations in Connecticut.
RSI continues to struggle to reach profitability nearly three years after its initial public offering. The interactive gaming firm reported a net operating loss of $134.3 million for 2022, with adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) at a loss of $91.8 million.
Rush Street Interactive said Monday that after much consideration, the company’s leaders believe ending its sports betting partnership with the Connecticut Lottery Corporation (CLC) is in the best interest of the company and its shareholders.
Rush Street handles the Connecticut Lottery’s online sportsbook operations through the company’s PlaySugarHouse.com platform. RSI additionally operates retail sportsbooks on the lottery’s behalf at brick-and-mortar restaurants and bars.
RSI’s statement on its Connecticut business winddown said all bets placed online or in person will be honored and paid out appropriately. Rush Street is working with the Connecticut Lottery to find the state agency’s next sportsbook partner.
Rush to Market
Rush Street Interactive won the Connecticut Lottery’s competitive bidding for sports betting in August 2021. At the time, the announcement was a major development for the relatively new interactive gaming firm.
Connecticut allows its two federally recognized tribes, the Mohegan Tribe and Mashantucket Pequot Tribal Nation, which respectively own and operate Mohegan Sun and Foxwoods, to operate online casino games and in-person and mobile sports betting. The only other qualified entity to run a legal sportsbook online and in person is the Connecticut Lottery Corp.
Though Connecticut is home to only about 3.6 million people, which ranks 29th among the 50 US states, the state’s average household income of about $80K ranks sixth. The financial earning power of the population is what rendered the CLC sports betting partnership so attractive to RSI.
Rush’s CLC offer outbid 15 other presentations. The lottery went with Rush because it provided the best value for the state, CLC officials said at the time.
Rush’s bid included a guaranteed minimum revenue share of $170 million during the life of the 10-year agreement.
Difficult Business Conditions
Sports betting’s razor-thin margins paired with pricey marketing costs and expensive customer promotional incentives have sent RSI shares tumbling since the firm’s 2020 IPO. PlaySugarHouse has also been dominated by the tribes’ online sportsbook partners, Mohegan Sun with FanDuel and Foxwoods with DraftKings.
The household sports betting platforms have attracted bettors and rendered PlaySugarHouse light on traffic.
RSI paid the state just a little more than $1 million in online sports betting taxes last year. Rush additionally paid about $1.3 million in retail sports betting taxes to the state. Connecticut levies a 13.75% tax on sports betting proceeds for both the tribes and the lottery.
With Rush pledging in August 2021 to direct about $17 million a year to Connecticut in exchange for the online and in-person CLC sports betting privileges, the company has learned less than two years into the arrangement that it greatly overestimated Connecticut’s sports betting market, or at least failed to adequately obtain market share against the larger, better-known DraftKings and FanDuel brands.
Casino.org reached out to the CLC to learn whether there’s a separation fee for Rush terminating the sports betting partnership less than two years into the 10-year agreement, but the lottery said it had no additional information to provide.