Renowned provider of regulatory intelligence to gambling, VIXIO GamblingCompliance has recently launched its document ‘U.S. iGaming Outlook 2021-25.’ This valuable material considers current state of online gambling in the territory and anticipates future perspectives. According to VIXIO, although sports betting continues to capture most of the headlines, the U.S. casino iGaming market has also experienced phenomenal growth over the past 18 months, establishing the country among the very largest online casino markets in the world, even with a limited footprint across the 50 states.
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In 2020, total revenue from iGaming in four states (New Jersey, Pennsylvania, West Virginia and Delaware) hit US$1.55 billion, up 200% from the previous year. The rise was led by the former two states, with New Jersey revenue more than doubling to US$970.3 million and Pennsylvania online casinos recording US$565.8 million in revenue (net of promotional credits) in that market’s first full year of operation.
Meanwhile, Michigan has positioned as part of a triumvirate of major U.S. online casino markets. In the first two months of operations (February and March 2021), Michigan online casinos recorded headline gross revenue (including promotional credits) of almost US$175 million.
BASE CASE AND BULL CASE ESTIMATIONS
Looking ahead, VIXIO GamblingCompliance forecasts the U.S. iGaming market to reach US$6.4 billion in gross revenue by 2025, under a conservative “Base Case” that assumes legalization in just four additional states. The rollout of legal iGaming will be much slower than that of online sports betting, which should spread to 30-plus states within that timeframe. As of mid-April 2021, 18 states beyond Nevada had legalized mobile sports wagering since the historic U.S. Supreme Court ruling of May 2018, whereas just six states (when including regulations exclusively for online poker in Nevada) have legalized Internet gaming since 2012. VIXIO analysts expect Connecticut to become the next state to legalize, as a deal supported by the state’s Governor granting the Mohegan and Mashantucket Pequot Indian tribes exclusive authority to operate online casino games is ratified by the legislature prior to its adjournment in June.
However, despite the runaway growth of iGaming in New Jersey and other markets since the start of the pandemic (and clear evidence of the greater tax dollars on offer relative to mobile sports betting), there won’t be more than three further adopters (Illinois, Indiana and Iowa) over the next three or four years.
Under a more optimistic “Bull Case” scenario, U.S. iGaming will reach US$8.4 billion by 2025 based on accelerated adoption in the abovementioned states, expansion to online casino games in Nevada, plus later legalization in Colorado, Maryland, Massachusetts, Missouri and Ohio.
In both scenarios, it can be assumed that the current rate of revenue growth in New Jersey, Pennsylvania and (to a lesser extent) Michigan will start to plateau, as land-based casinos return to more like business-as-usual after vaccinations are fully rolled out and COVID-19 restrictions are eased.
Therefore, there is some potential upside to both base- and bull-case forecasts if current growth momentum can be sustained through the full reopenings of land-based casinos in all three states. Even under more conservative base case, the U.S. iGaming market is on pace to become the second largest in the world this year, after the UK (although Italy has also witnessed recent strong growth in online casino amid a COVID-19 lockdown environment). In fact, New Jersey and Pennsylvania alone were already established among the world’s top five regulated iGaming markets in 2020. It is conceivable that Michigan could join that exclusive club in 2021 after its explosive start since late January.
ONLINE CASINO GAMING v SPORTS BETTING
Of course, the most important question for all stakeholders is why iGaming is expanding slower than sports betting in the United States. For example, only 5 states have legalized online casino gaming as of May 2021, versus 18 states for online sports betting. Besides, there have been 8 states that saw legislation for iGaming and online poker being introduced in Q1 2021, versus two dozen for online sports betting.
Ultimately, it is expected that more states seriously consider the legalization of iGaming, driven by the impressive tax-revenue performance of Pennsylvania, New Jersey and Michigan, and an increasing comfort level with online gambling in general on the part of state regulators. It is clear that there are more people (from 25 to 45 years old) interested in betting online to sports than to casinos. In this sense, land-based casino visitors represent and older demographic (45+ years old), who is not so used to play casino online. This may explain, in part, the slower pace of online casino gaming expansion in comparison to sports betting. The U.S. regulatory trend is also a contrast to Europe, where most countries (with the very notable exceptions of France, Italy, Germany and to an extent Spain) have legalized both online sports betting and online casino simultaneously. Although different policy circumstances apply in every state, to date, only Michigan and Pennsylvania have elected to legalize iGaming via the same package of legislation as online sports wagering. There is also a political explanation. Sports betting is not always looked upon by state lawmakers in the same way as other forms of gambling, and carries with it a populist appeal that does not apply to virtual slots and table games. For some lawmakers, there is an inherent understanding that illegal sports betting is almost a societal tradition, while legalization can help connect sports fans to popular local teams. Recent evidence suggests, however, that lawmakers require a greater level of education when it comes to iGaming and that more conservative legislators are happy to vote ‘yes’ on sports wagering, but are more reluctant when it comes to online slot games. In turn, iGaming is a somewhat less appealing political cause than sports betting to legislative leadership who play a crucial role in moving bills across the goal line.