How Does the Legalization of Online Gaming Affect Local Revenue?

By Stan Rogers on October 25, 2017

How Does the Legalization of Online Gaming Affect Local Revenue

In the United States, online gaming became legal in Delaware in 2012 (with the first licenses being issued for online gaming one year later), Nevada in 2011 and New Jersey in 2013. Gaming analysts have determined that these states are particularly interested in targeting millennials who often prefer online gaming activities rather than patronizing brick-and-mortar venues. These developments have created an interesting social experiment whereby we can evaluate how online gaming can boost local economies.

Nevada

As of June 2017, there were only two casinos in Nevada that provided online poker. Mike Lawton, the senior research analyst at the Nevada Gaming Control Board, stated that the calculation of online poker revenue is complicated by the fact that the numbers are incorporated into the state’s overall poker statistics. Having said that, Mr. Lawton also indicated that internet sports betting, which is also offered by casinos, has “really taken off,” as evidenced by a 5% increase in the first quarter of 2017 as compared to the same period last year. Mr. Lawton also indicated that a significant reason for the growth of sports betting in Nevada was due to the ability of people to do so using their mobile phones.

It’s possible that Nevada officials aren’t very concerned about online gaming revenue since these profits pale in comparison to Nevada’s live-action gaming proceeds. The Las Vegas Review-Journal has referred to online poker as a “mere rounding error” when compared to gaming revenue in general.

New Jersey

New Jersey has been a clear success story for the online gaming market. In recent years, traditional Jersey casinos had generally been in the red. But 2017 emerged with a reversal of fortune for Atlantic City’s gaming establishments; much to the delight of both their owners and New Jersey tax officials.

As of July of this year, online casino games had generated nearly $600 million in additional gross revenues for the state of New Jersey since its law was passed and implemented in November 2013. The New Jersey Division of Gaming Enforcement has also stated that compared to the same period last year, aggregate gaming revenue for live casinos increased 1.7% through April of this year (i.e., to $763.5 million). However, online gaming revenue was up a whopping 29.5% (up to $80.1 million) from the same period last year. Furthermore, New Jersey collected $3.1 million in taxes from internet gaming in April, reflecting a 23% increase from the $2.5 million collected during the same month in 2016. According to Kerry Langan, the spokeswoman for the New Jersey Division of Gaming Enforcement, a New Jersey online gaming site generally generates as much revenue as a small, free-standing casino does. Langan further stated, “Most of the projections I’ve seen from gaming analysts are that it’s doing well and will continue to do well.”

Delaware

In March of this year, online gaming in Delaware was putting up some abysmal revenue numbers. In fact, during that month, the state’s three online gaming operators, Delaware Park, Dover Downs and Harrington Raceway, collectively made only $151,811 in revenues; this was 42% less than in March of 2016 when these establishments earned aggregate net profits of $260,539. Dover Downs appears to be the hardest hit, having its online gaming revenue drop by 76% from the same time last year. Delaware Park, which is the largest iGaming provider in the state, also saw its revenue drop in March by 49%; although the aggregate dollar amount of wagers made through its site had increased to almost $5.6 million. Harrington Raceway seemed to be the only entity that could boast any positive news. Although it’s the smallest of the three entities, its revenue from online gaming almost doubled in March.

The steep decline in March revenue caused great consternation for Delaware officials because the state’s online gaming during the prior year (2016) had seen an impressive 62% increase in proceeds. What is the explanation for the lower numbers when compared to 2016? Occam’s razor would posit that players didn’t log in to their online betting terminals as often in the early months of 2017 because of the weather. March in Delaware was unseasonably warm while New Jersey and parts of Pennsylvania were affected by winter snowstorms. The theory is that the better the weather, the fewer people that will stay indoors to engage in online activity in general.

The New Tri-State Liquidity Compact

Earlier this month, New Jersey agreed to join Delaware and Nevada in sharing player pools (also referred to as player “liquidity”); meaning that online gamers will be able to cross state lines to share tables with participants from the other states. New Jersey Governor Chris Christie believes that permitting poker players in each of the three states to play with each other can have a positive effect for all jurisdictions. In a statement, Christie asserted, “Pooling players … will enhance annual revenue growth, attract new consumers and create opportunities for players and internet gaming operators.” The hope is that the new liquidity compact will be a win-win for all three markets by increasing the chances that online poker tables fill up on a more regular basis. This could be a helpful stimulus for ameliorating Nevada’s and Delaware’s online gaming challenges.