Will the repeal of PASPA lead to an egaming boom?
The demise of PASPA was expected to fire the starting gun on the spread of egaming as well as betting, but the expected boom hasn’t yet materialized. EGR NA examines whether this boom is just delayed, or simply never going to come
PASPA’s repeal in May was hailed not just as a watershed moment for legal sports betting, but for the proliferation of online gaming too. As legislators took up betting legislation, they would be inclined to tackle casino and poker at the same time to further boost revenues, or so the theory went. However, in the three months since PASPA’s demise, upwards of 20 states have some sort of sports betting legislation either enacted or waiting in the wings, while any online gambling efforts have remained largely subdued.
To get specific, 22 states have at least discussed sports betting over the past two years, with six having legalized it at the time of writing. Daily fantasy has come up in 41 legislatures since 2016, with 18 states passing DFS bills. Conversely, just 11 states have considered online gambling legislation, and just one state, Pennsylvania, has passed a bill. So is the current inaction just a by-product of the time of year with many legislators in summer recess or was the initial optimism for online gaming somewhat misplaced?
The dark ages
It may sound pessimistic, but recent history suggests that lawmakers simply care (and know) little about egaming. Online gaming analyst Steve Ruddock argued at the recent National Council of Legislators from Gaming States conference that legislators were “stuck in the dark ages” on the topic. “While sports betting panels discuss the different models available, setting the proper tax rates, and migrating players from illegal to legal markets, online gaming panels are discussing the same issues they were a decade ago,” Ruddock said. “Instead of asking what’s the best way to do this, online gaming is stuck on ‘should we do this?’
“Even though we’re past the theoretical with online gambling’s impact on land-based gambling, and even though it is the best revenue generator of the three, and even though it uses the same technology to geolocate and verify players’ ages as DFS or online sports betting, online gambling just can’t move past these hypothetical what-ifs that have been refuted a hundred times over.”
Gaming lobbyist Dan Mauer is also somewhat downbeat on the prospect for legislative movement, saying that state lawmakers view online gaming and sports betting as separate issues. “The betting side gets more legitimacy because of the Supreme Court ruling, and in general, gaming feels like a heavier lift,” he notes.
“It is a heavier lift because everyone here is already betting, whether it’s fantasy football, a trip to Vegas or a corner bookie – it’s so ingrained that it’s easier. Trying to push poker and casino gets bogged down, and it doesn’t help that the revenues from online poker have always come in short of projections. Then there’s concerns about liquidity sharing and it’s just seen as a more complex issue.”
The flip side
However, there are plenty of industry analysts who would argue these are historical issues that will ultimately be swept aside with the help of sports betting and full legislative sessions. Jeff Ifrah, founder of trade group iDEA,
forecasts a big push for online gaming in 2019. “The Supreme Court case literally came out a month before most state legislators retired for the year,” he tells EGR NA. “Come January 2019, things will get moving. We have even drafted a model bill that we are discussing with a few states right now.”
The bill will bundle egaming verticals together in a bid to convince legislators of the revenue opportunities afforded by a wider offering. Lobbyist Michelle Minton is also optimistic for 2019, suggesting lawmakers do indeed see gambling as one big revenue opportunity. She also points out that big casino companies are also more likely to be supportive once they have online betting platforms up and running.
“The casinos recognize the more products they can offer consumers, the better it is for them and the more revenue they will generate,” Minton says. “That equates to tax revenue, and plus they have the ear of most lawmakers. I think they’ll be able to convince a lot of states in the next year or two.”
Indeed, it’s arguable the real revenue opportunity for existing operators is not sports betting itself but the chance to acquire customers that can be sold into online casino. There’s a reason why The Stars Group, one of the largest online operators in the world, refers to its sports betting and poker arms as “low-cost acquisition tools” for its casino arm – that’s where the real money is made.
US operators are already trying to bundle the verticals together where possible, with Caesars announcing plans to combine betting and casino/poker into one app.
“We want to offer our players a full casino experience,” Melanie Gross, Caesars’ vice president of online casino, told PlayNJ.com. “And give them the opportunity to play their favorite casino games and also place wagers on sports within the same application, and have it be a seamless experience.”
Beacon or warning?
How does Pennsylvania figure into this puzzle? And is it likely to be seen as an example to follow on gambling expansion, or a cautionary tale? The Keystone State has indeed seen its fair share of controversy thanks to massive tax rates and fees, and an impending legal battle between the lottery and local casinos, but one thing is likely to stand out to any observing lawmakers: the money. Pennsylvania raised more than $200m from its massive gambling expansion last year (this included offline), which has gone a big way to solving the state’s budget crisis.
That’s likely to be a strong pull for other cash-strapped states, and for the next most likely candidate look no further than Illinois, which reportedly owes $16bn in unpaid bills and has the lowest credit rating in the US. The state has confirmed it will hold two subcommittee hearings this fall on a comprehensive gaming expansion bill which would legalize sports betting, egaming and DFS.
Representative Bob Rita, head of the Illinois house subcommittee on gaming, sales and other taxes, said expansion of gaming “presents many tremendous opportunities to create revenue, jobs and economic growth in Illinois.” He added: “The gaming landscape has changed significantly since I took on this issue five years ago, and I want to use these hearings to understand how those changes present new opportunities for us to put the right package together as we look to meet budget needs and provide a spark for our economy.”
It’s a good analogue for Pennsylvania’s situation last year and will provide plenty of optimism for the likes of iDEA. Beyond Illinois, analysts Eilers & Krejcik Gaming were optimistic about further egaming expansion, saying in a recent note: “We see the potential for online gambling to ride along with sports betting in some, but not most, states now that PASPA has been repealed. We also believe the industry has some momentum thanks to Pennsylvania and may make concerted pushes during lame duck sessions in a small handful of states.” So, watch this space.
Picture credit: iStock