[toc]It was only three years ago when PalaCasino launched into New Jersey’s regulated online gaming space. At the time, an online casino majority-owned by California’s Pala Band of Mission Indians entering a market on the other side of the country did raise some eyebrows.
Pala was playing catch up in a crowded arena. Additionally, the team behind the online casino, Pala Interactive, didn’t have a player database to harvest. Nor did it have a land-based property and established brand presence in the Garden State. They were very much behind the eight-ball from the outset.
Nevertheless, the company more than held its own ever since. The leadership of Jim Ryan, gambling industry veteran and former co-CEO of online giant bwin.party, is certainly responsible for part of the company’s success.
Pala is the only operator to offer customers three gambling verticals: casino, poker and bingo. This speaks volumes about the company’s growth in New Jersey as well as its ambitions elsewhere.
PlayNJ recently caught up with Ryan in Toronto to discover more about the ups and downs of the first three years in New Jersey. We also heard from Ryan about how Pala is becoming a credible challenger to the state’s household names.
Ryan on Pala Interactive’s success so far
PNJ: PalaCasino.com recently celebrated three years in New Jersey’s regulated online gaming space. How would you assess Pala’s performance over those three years?
Jim Ryan: We are proud of our performance. Why I say that is because we entered the market a year after it opened without a brand and without a player database. To any onlooker, we were seen as an underdog.
However, we have quietly built our business and continued to improve our platform and add new games. We have been largely focused on our casino business and the casino offering has upwards of 300 games today. We were only one of two operators to introduce a bingo product and we offer bingo three times a week.
We have a very loyal customer base that comes and plays bingo but, equally importantly, that same customer base enjoys our casino games, so it is a growth driver. With the launch of our poker product in June, we are the only operator in the marketplace that has got casino, bingo and poker.
Equally with poker, which although has very small liquidity, it is already breaking even for us. So, in terms of overall performance, we have come from nowhere and while we certainly aren’t the biggest, we are far from the smallest operator. And in that respect, we are proud of those accomplishments.
PNJ: What about your performance in terms of revenue?
JR: We generally haven’t quoted the size of our business, but we do over $600,000 a month in revenue and we are continuing to grow at a reasonable pace.
Player acquisition in the crowded NJ online casino market
PNJ: You mentioned about not having an established brand or database three years ago, so just how daunting was the prospect of entering New Jersey?
JR: In retrospect, it was far more daunting than any of us understood, which is probably a good thing. If we realized how difficult it was going to be, we would not have undertaken the task.
The first year in particular was about grinding and building a database. The cost per acquisition (CPA) for each player in the marketplace was north of $700, and we didn’t have any view as to the lifetime value of that player. That made it difficult.
So, we went into the market knowing that we weren’t going to make money in the short to midterm, which was daunting. Looking at it three years on, we have been able to lower our CPAs by a couple of hundred dollars per player, and we have discovered that lifetime values are about $3,000 per player.
But I think the key lesson all of us learned is that we didn’t realize the land-based brands would have the market share that they do in New Jersey. The trust that comes with the brands of the incumbent operators is a different equation in New Jersey to Europe because you don’t have casinos with that brand presence in European markets.
But we have struggled through that, and we have been able to compete with them. We try to differentiate ourselves, and we focus on the consumers who are good enough to come and try our site. We then try to foster loyalty, be it through our loyalty or VIP program or just the value of our offering.
PNJ: How have you managed to lower those CPA’s?
JR: It’s interesting because, when we first entered the market, we didn’t know what was going to work and what wasn’t, so we entered trying everything from digital to traditional like TV. It was a case of leveraging those efforts that were making hay for us and chopping out the stuff that was super expensive.
Taking my European experience where much of the player acquisitions were done in the digital environment, it was kind of shocking that this didn’t work as well in New Jersey – and still doesn’t work that well. Maybe it’s because we had to build a brand, but the more traditional modes of advertising have been where we have had our greatest levels of success.
PNJ: Pala Poker, which was built in house, was rolled out in June, yet the product had been ready for some time. Why didn’t you launch it sooner? Were you concerned about liquidity and the competition?
JR: We saw what other operators were doing in the market, the size of the market, and so it was just a commercial decision [not to launch]. We had launched our casino product and the poker market, if memory serves me correctly, was about $2m or less a month.
The casino market was five times that, if not more. Our interest in poker was regenerated when we had a B2B customer who was interested in taking our product, so we worked hard getting it through the certification process. That deal did not come to be, but we thought, ‘well our product is actually ready to go.’
We couldn’t improve it further in the lab, and we felt it was necessary to expose it to the marketplace in order to continue to enhance the product and make sure it scaled as we thought it should scale and work out the bugs.
This is what we have been doing since June, and we are pleased with how it is going. We have pretty much been in a beta launch, as we only offer poker between 3 p.m. and midnight because with a small liquidity pool, we want to make sure there are games and tournaments for consumers to play. We will expand the hours as the player base grows.
It hasn’t been perfect and I would never advocate that it has, and do we have more work to do? Absolutely. The plan is a year or year-and-a-half after going live, we want it to be as feature- and function-rich as anything operating in the marketplace.
Generating business across Pala verticals
PNJ: Have you been able to successfully cross-sell casino games to poker players?
JR: When we launched poker, our depositing players went up by close to 20 percent while casino revenue went up 6 percent. We didn’t spend one dollar on marketing. We just launched poker, and the consumers came to check it out and to play.
Observes might say that it is a dumb thing to launch poker, but you have got to look at the complete picture and what it does for your casino business if you have that complimenting product.
PNJ: Online poker continues to flatline in New Jersey. Is this solely down to a lack of liquidity?
JR: Well, it is a liquidity-based game. Poker certainly isn’t growing as it once was and, arguably, one could say it is in a slow, structural decline on an international basis.
But that all being said, the New Jersey market is not able to leverage international liquidity, and so a consumer has better places to play, unfortunately. And they can relocate not far north of the 49th parallel in Canada and play in the international poker world.
For the mass market, the absence of liquidity is the issue. Is there a high level of interest in poker? Absolutely. But as New Jersey compacts with other states and poker liquidity grows, so will poker revenues.
The role of shared player pools in the future of online poker
PNJ: So how do you see compacting boosting liquidity, prize pools and poker generally?
JR: New Jersey compacting with Delaware and Nevada only benefits the 888poker network because in Delaware it is a lottery-run program and 888 is the only supplier. And in Nevada, Caesars and the 888 platform are the only poker offerings that has any liquidity.
However, Pennsylvania is going to be interesting because it is a meaningful market. If New Jersey and Pennsylvania compact, it is phenomenal news for poker liquidity in both states. New York state has been toying with poker-only legislation for some time, so if you could have New Jersey, Pennsylvania, and New York compacting, you have a very decent opportunity.
And that’s why we wanted our poker offering out there now. Our core business model was always to provide our product on a B2B basis, so we hope to offer our platform to a land-based provider in Pennsylvania. And the same is true for the state of New York.
No plans for PalaPennsylvania for now
PNJ: Do you plan to launch PalaCasino.com in Pennsylvania?
JR: No, not at this time. We are thrilled that Pennsylvania has regulated but, unfortunately, a 54 percent tax rate on slots is virtually impossible to make a profit.
So again, it is hard for a company without a database and without a brand to write a seven-figure check to get into the marketplace, and then operate with zero prospects of making profits on 80 percent of its revenue, which is what slots will be. Strategically, it is interesting to be there but, commercially, the road to bankruptcy is paved with good intentions and bad business decisions. That would be a bad business decision.
My prediction is that they will sell all the licenses, but that it is going to be pretty hard for organizations to invest aggressively in marketing in order to grow that marketplace. It will very quickly hit its maximum potential and then stagnate, at which time I think the legislator may revisit some of the tax rates. But we are glad that it is open.
Other innovations Pala is rolling out
PNJ: Pala will launch virtual sports imminently. What will this bring to your product suite in New Jersey?
JR: We are just going through the DGE (Division of Gaming Enforcement) process with it now. It’s a new entertaining format for consumers, so instead of playing a slot machine, you can actually watch a horse race or motorcross.
I think it is a nice variant. It won’t be earth-shattering in terms of what it does, although giving consumers new and innovative content is always a good plan and we look forward to having ours live shortly.
PNJ: In Europe, virtual sports are a useful filler between natural lulls in sports events. Of course, there is no sports betting in New Jersey – yet – so will casino and poker players bet on it?
JR: I honestly think it is just going to be seen as another casino game, although having a ‘sports’ tab in the lobby might be the sensible way to go about this. It provides a stickier experience for consumers because it is an innovative and entertaining product.
That’s what every operator should be looking to add. Also, consumers demand instantaneous entertainment, so having in-play betting is important – I think the product will evolve very nicely in New Jersey.
Looking ahead to 2018
PNJ: What are the targets for Pala in 2018?
JR: You will continue to see us build upon our New Jersey business and continue to grow nicely. I’m very hopeful that you will see us launching a B2B partner in the state of Pennsylvania.
We have a social gaming business which doesn’t get a lot of coverage, but you will see us add more customers there. We are also launching a mobile ‘on-premise’ product in Q1 that we are very excited about. And we will launch our platform in a B2B structure in a new country, but I’ll hold off from revealing the country for the time being. Hopefully you’ll see that in February.