The Rise and Challenges of Online Casino Gambling in the U.S.
Online casino gambling has emerged as a significant player in the gaming industry, particularly in the limited number of states that have embraced it. However, recent trends suggest that the rapid expansion of this sector may be hitting a plateau. As of March, Rhode Island became the seventh state to permit online casino games, joining a small group that includes New Jersey, Pennsylvania, Michigan, West Virginia, Delaware, and Nevada. In contrast, the landscape for sports betting is markedly different, with 38 states now allowing this form of wagering.
The Initial Boom
For a time, online gambling appeared to be an unstoppable force. States were eager to capitalize on the potential tax revenue that could be generated from online gaming. Companies like DraftKings and FanDuel, which initially focused on sports fantasy leagues, were well-positioned to expand their offerings to include real-money betting. The allure of online casinos was strong, promising not only increased state revenues but also a modernized approach to gambling that appealed to a tech-savvy audience.
Growing Concerns Over Social Costs
Despite the initial enthusiasm, a growing number of state officials are reconsidering the implications of online gambling. Concerns about the social costs associated with easy access to gambling have surfaced, prompting discussions about the potential negative impact on local economies and employment. Many states with existing casinos are now questioning whether online betting could threaten jobs within their communities.
Chris Krafcik, a managing director at Eilers & Krejcik Gaming LLC, notes that the expansion of online casinos in the U.S. has become increasingly challenging. Key stakeholders—including online sports-betting operators, land-based casinos, and labor unions—are divided over whether online gambling siphons revenue from traditional casinos. This division has led to a more cautious approach to online gambling legislation.
Legislative Pushback
The push for online gambling has met resistance in various states. For instance, earlier this year, Maryland legislators declined to pass an online gambling bill, largely due to opposition from local casinos and labor unions. These groups argued that online gambling would cannibalize existing casino revenues and exacerbate issues related to gambling addiction. Mark Stewart, general counsel for the Cordish Companies, described online betting as a “jobs killer,” citing job losses in states like Pennsylvania and New Jersey as evidence of the potential harm.
Les Bernal, the national director of Stop Predatory Gambling, echoed these concerns, likening online casino gambling to highly addictive substances such as heroin and cocaine. The influential hotel workers union has also voiced its opposition to online casino betting in New York, which is already a major player in the sports betting market.
The Financial Landscape
New Jersey was a pioneer in online casino gaming, having approved it in 2013. The revenue generated by online casinos in the six states that allowed it last year exceeded $6 billion. In comparison, sports betting has seen even more rapid growth, generating about $11 billion in revenue for operators in the same timeframe. The appeal of sports betting, rooted in its long-standing presence in fantasy leagues and office pools, has made it more politically palatable.
In states like New Jersey, online casino revenue is beginning to rival that of land-based casinos. For example, in the fiscal year to date through August, New Jersey’s land-based casino revenue remained flat at $1.92 billion, while online revenue surged by 23% to $1.52 billion. This figure does not account for sports betting, which added another $716 million, primarily from online sources.
The Profitability of Online Casinos
From a financial perspective, online casino games are proving to be more lucrative than sports betting for operators. Customers can engage with online casino games at any time, unlike sports betting, which is limited to specific events. Additionally, the house edge in casino games ensures a more consistent revenue stream compared to the unpredictable nature of sports betting.
According to research from Macquarie Capital, operators can expect to generate approximately $6,200 annually from an online casino player, compared to just $1,900 from a sports-only bettor. This stark difference highlights the potential profitability of online casinos, even as the industry faces mounting scrutiny.
Divergent Views Among Stakeholders
Bill Miller, CEO of the American Gaming Association, recently addressed the complexities surrounding online gambling during an interview at the Global Gaming Expo in Las Vegas. He noted that some casino operators feel they were promised exclusive rights to casino games when they invested in their establishments and paid licensing fees. However, Miller emphasized that there is no consensus on whether online betting adds to or detracts from the revenue of land-based casinos.
The ongoing debate about the impact of online gambling on traditional casinos reflects a broader uncertainty in the industry. As states grapple with the implications of online casino expansion, the future of this segment remains uncertain, caught between the promise of revenue and the potential social costs.