On the eve of releasing its second quarter financial results for the first six months of 2019, Penn National Gaming, Inc. dropped a bombshell on the final day of July that carries significant ramifications for the sports betting industry over the next several years to come.
Besides unveiling online sports betting marketing access agreements with DraftKings, PointsBet, theScore and The Stars Group, Penn National announced a partnership with Kambi Group plc as its national service provider. Of the companies partnering with Penn National, the Malta-headquartered Kambi could emerge as the deal’s top winner.
As part of the agreement, the global B2B service provider plans to lend its technical expertise to Penn National to help the company offer a customized, unique sports betting product across more than a dozen states. In particular, Penn National Vice President of Interactive Gaming Jon Kaplowitz noted that the partners could incorporate Kambi’s managed-trading services to create a differentiated product for customers from both an online and retail perspective.
Kambi has received high marks for a function known as open API (application programming interface) access that allows companies such as Penn National interact with partnering sportsbook operators. In essence, Kambi serves as a conduit or messenger through the interface that enables two applications to communicate with each other. The technology is critical for cutting-edge sports betting apps.
Earlier this week, we discussed Kambi’s involvement in the partnership with Max Meltzer, the company’s chief commercial officer. Meltzer described Kambi’s relationship with Penn National, explained the company’s stance on pricing considerations in various states impacted by the transaction, and provided granularity on why some U.S. companies are reluctant to accept sharp action.
The following interview was lightly edited for brevity and clarity.
Sports Handle (SH): Based on the response across the sports betting industry, the agreement with Penn National has largely been viewed as a potential game changer for the U.S. market. How intrigued are you by the partnership?
Max Meltzer (MM): For us, we always had them among our top targets when we first analyzed the marketplace, for many reasons. Obviously, their market access, being in 19 states, and their properties are fantastic. It’s also a business with clear abilities to grow at really extraordinary rates. That, for us, proved that they’re a company that really understood how to succeed in the various realms of entertainment.
When they started introducing and hiring people that were running a venture in sports betting you could tell they were hiring experienced people and that they had a really clear vision….We’re very excited with what they want to do with the technological aspects of Kambi, because once you get a hold of what we can do and start utilizing our APIs and utilize our tools you can do some incredible things as an operator.
Kambi is delighted to announce a multi-channel partnership with @PNGamingInc, the largest regional gaming operator in the United States. Penn National operates gaming properties in 19 US states. First stop, Iowa. Read more here: https://t.co/b7HrWpSKnG pic.twitter.com/lm9NzFss3M
— Kambi (@KambiSports) July 31, 2019
SH: How do you foresee Penn National making use of Kambi’s technology and open APIs to develop a bespoke, front-end product? At the same time, how will Penn National integrate Kambi’s back-end technology?
MM: The best part about Kambi’s API suite is we really let the market do that. I think that’s why the likes of DraftKings are so influenced in their decision making by the flexibility of our technology. I think what you have with Penn National is a company that already has some great technology people in the business. They’ve been able to quickly understand what you can do. I think what you’ll see from Penn National is something that will be very unique to the marketplace — of course, I can’t disclose what that will be.
But when they do get to the market it’s something that will be very innovative. They recognize that price differentiations will be important to them in directing different states to different markets. They understand the ability to use bonus tools the right ways, the ability to attract and retain their customers within their current database and they know that we provide the right set of tools.
I think you are going to have a very exciting front end. I think they will understand which events and sports to push at the right times, which is relevant for the customer. I can only see them, basically, building their own IP around the sportsbook and owning the right kind of IP that you want when you need to differentiate; rather than focusing on some of the other core aspects that may or may not drive value for the player.
SH: When you say that Penn National can potentially build their own IP what do you mean, exactly?
MM: If they are building their own front end, building their own apps and building their own technology, they are building it on another layer that’s on top of Kambi. That’s the benefit of having the API access and everything we’ve got. So everything they have, whatever experience they provide will be owned by Penn National so there’s incredible intrinsic value they will be developing and designing themselves. I think that’s one of the greatest things about the Kambi technology that our partners have experienced.
SH: For now, Penn National appears focused on the imminent roll-out of sports betting in Iowa and Indiana. Considering the disparate tax rates and markets between those states and others, how do you see the pricing varying? More broadly, how will the pricing differ by operators on a state-by-state basis for all the jurisdictions involved?
MM: There are abilities within Kambi’s technology suite to set different pricing and risk management strategies for each operator and each state. But regardless of tax rates, you still have to appeal to your end user. That would always be our advice. While there is an ability from our side to change pricing based on tax rates or any other reason, it is really about if it is going to be good in acquiring and retaining customers.
We don’t set the strategies for our partners, we just give them advisement. We try to put out the best account management experience in the industry in the way we guide our partners. I always say, just treat your end users correctly. I wouldn’t get too held up on the different tax rates among the different states. Just look at what we’ve seen in Pennsylvania thus far with the pricing offered on a par with those in the more favorably taxed New Jersey
We’re providing the technology, risk management and customer service — everything that is incorporated in the Kambi service to PNG. Obviously, they rolled out skin deals with the likes of theScore and the other companies. If you look at those that are in Indiana and what will happen next, I imagine they will look at pricing and try to set their own strategies.
But what we have seen in other markets around the world is that pricing is merely one strategy. If you only focus on pricing and everyone is competing on that alone, actually, the end user suffers. I’d be interested to see as much as people focus on pricing, how well will they try to acquire and retain their customers? What Penn National has at their fingertips is a huge level of flexible technology that a lot of their competitors in different markets will struggle to compete with.
SH: There’s some criticism across the industry that a few operators and tech providers, not Kambi in particular, are too risk-averse at times. To that end, the criticism centers around the companies’ hesitancy at times to book sharp action. What is Kambi’s game plan to handle such concerns under the Penn National partnership?
MM: We do offer the bespoke risk management to different organizations, the same with Penn National. Ultimately, the sharp action is some of the most insightful [in the marketplace]. I think it would be strange for us to avoid that completely. But we have to rely on the strategies that our partners take.
Now, certain other technology companies or other organizations may have a completely different view to that. There’s a reason why Kambi is a market leader in the B2B sportsbook business globally, not just in the U.S… There are many benefits to understanding what type of bets you should take. We merely have the technology, provide our top level of customer service to our partners and let them make the decisions on what type of strategy they want to take.
SH: Has Kambi developed a strategy for advising operators on setting various limits for certain bet types or is that a little premature given that the Penn National deal was just announced a week ago?
MM: Our risk management team is in constant dialogue with our operators, and the terms of limits and those sort of things are completely determinant on the operator. It’s not really something I can disclose, but certainly I know that Penn National is very interested in their end users and giving them a great experience. While there isn’t much I can share, it’s a risk management strategy and we will support them with whatever they want to do.