Published on 2 March 2017 by Adam
The US online gambling market has always been a tough nut to crack. Complex legislation and varying attitudes have made legalising this form of entertainment incredibly difficult over the years, with only a handful of states (partially) on board.
One thing that’s always been clear, however, is the huge, lucrative potential. A recently published Play Pennsylvania report on the impact of legalising online gaming in this city has never made this so apparent, with a billion-dollar industry seemingly waiting in the wings.
Here at Netent Casino, we welcome any progress that’s made with online gambling in the US, so this conclusive report, entitled “Regulated Online Gambling: A Billion-Dollar Opportunity For Pennsylvania”, naturally caught our eye. Let’s delve into the details to analyse exactly how legalising this activity could create a billion-dollar market within 5 years.
New Jersey the Framework for Pennsylvania Success
The author of this report, Robert DellaFave, has used the success of New Jersey as the model for Pennsylvania’s prospective online gambling future. Despite a slow initial start within this pioneering state (possibly due to excessive projections), it is clear that the market is thriving. Revenue increased by a whopping 60.1% to top just under $200m when analysing figures between 2014 -2016, with no signs that this will begin to slow anytime soon.
Mr DellaFave, a respected analyst and consultant within online gambling platforms, has used New Jersey as his model for this report due to certain similarities that he notes between the two cities. Factors such as location, population size and brick-and-mortar casino popularity led to this conclusion, yet he feels that Pennsylvania would stand in even greater stead on launch day due to certain crucial advantages.
Appropriate Tax Rates and Licensing Fees Projected to Generate $426.3m
One of the key aspects of this report is that the numbers suggest Pennsylvania would begin to feel the positive effects almost immediately after ratification. Around a third of the total revenue through tax and licensing fees would be created within the first year by the latter, as operators rush to seize upon this massive opportunity. Renewals would also kick in again in 2022 after a 5-year lease, taking the total amount of money from licensing alone to $130.5m.
The rest of the money ($295.8m) would come from tax, although this is based on a 20% rate. The report states that taxing online gambling in Pennsylvania at a reasonable rate is fundamental to the industry’s success. Anything above this rate could well see interest levels drop due to less marketing and stricter rules for table games and slot payouts.
For poker, selecting a reasonable tax rate is even more imperative, as doing otherwise could well result in no operators joining the market which would eat into the potential revenues.
Online Casino Would Be the Key Driver of Revenue
On the subject of online casino and online poker, Play Pennsylvania’s report is clear in its assessment that the former would be the most critical. Out of the $1.4bn estimated total revenue that this entire new market would create, over 90% would come from online casino. Furthermore, the data suggests that the bulk of this revenue would be newly generated rather than simply eating into land-based earnings, so any concerns that online gambling would merely be funds originating from a different source can be alleviated.
While New Jersey’s online casino industry suffered from a few faults at the beginning, Pennsylvania’s should have enough infrastructure in place to prevent similar occurrences from happening. Mobile casino platforms in their infancy, poor payment services, and industry latecomers all contributed to New Jersey’s slow start – but these are all aspects that should be of limited concern to Pennsylvanian operators due to the many advancements in recent years.
While Play Pennsylvania calculate that online poker would generate less than 10% of the city’s overall online gambling income, it can certainly be a viable option with proper management. As we mentioned above, tax is of great concern due to poker’s sensitivity to this issue, but too many poker operators, the older Pennsylvanian population, and a few other factors are also problematic. The report suggests that poker revenues would suffer near year-on-year revenue losses, despite a relatively good start, unless states interconnect.
To curb the decline of online poker, it may be prudent for other legalised states to join forces with Pennsylvania and expand the overall player count. New Jersey seems to be the perfect partner to begin with, followed by Nevada and Delaware’s established network, while New York and Massachusetts are also prospective additions entering the year 2019.
This poker network would serve a population the size of Italy and France, with markets that could support a number of poker variations. Furthermore, large scale events held in Nevada, such as the World Series of Poker (WSOP), could impact positively as tourists would be able to access this online poker network to play.
Play Pennsylvania’s Report – A Catalyst for Future Studies?
While online gambling in the US continues to face opposition from those within government, it’s this kind of opportunity that led President Trump to once be quoted as saying that “this [online gambling] has to happen because many other countries are doing it and, like usual, the US is just missing out”.
We’re optimistic that Play Pennsylvania’s review will spark similar outlooks on US online gambling’s potential, possibly resulting in laws finally being relaxed and regulated on a nationwide scale.
If you want to take a look at the comprehensive Play Pennsylvania report in full, please access this pdf.