38 Global Gaming Business FEBRUARY 2019W
hen iGaming was legalized in Nevada (poker only) and then
New Jersey and Delaware in 2013 (poker and casino), it was
expected that other states would soon follow. But the rela-
tively small markets in each of those states, combined with the technical and
legal challenges of geolocation, payment processing, know-your-customer
and more didn’t offer lots of guidance for other states to follow suit.
However, the legalization of iGaming in Pennsylvania in 2018, followed
by its near-legalization in Michigan (see sidebar with Dave Waddell), now
portends a bright future for online gaming and poker.
While the veto of the iGaming bill in Michigan might be only tempo-
rary, iGaming is on the upswing. There are now five years of scandal-free
operations in the three states. It’s fairly clear what works and what doesn’t as
pertains to technology regulations and taxation. Pennsylvania’s much higher
tax rate might provide more data about whether the industry can be prof-
itable with that rate.
And many believe the catalyst for quicker growth of iGaming is the le-
galization of sports betting. It’s quickly been proven that mobile wagering is
the main driver of sports betting revenue. In Nevada, it accounts for more
than 50 percent of sports wagers. In New Jersey, fully 72 percent of sports
bets were taken from mobile or online sources.
iGaming pioneer Sue Schneider believes that the legalization effort in
Michigan was a result of the legalization of sports betting.
“There’s been some speculation that the overturning of PASPA may
have a positive effect on iGaming in general,” she says. “Michigan’s experi-
ence shows that this may, indeed, be the case. As more states realize that on-
line and mobile gaming is a product that people want (and that the controls
for concerns like underage gaming and other issues are often more easily
achieved than in a terrestrial environment, in most cases), I expect a comfort
level to set in. And as revenues come to the states, it will finally catch on...
something many of us have been awaiting for well over 20 years.”
Steve Ruddock, an iGaming analyst for several websites, including
LegalSportsReport.com, says the next year will be interesting.
“How sports betting and online gambling will intersect in statehouses is
the question of 2019,” he says. “It could go so many different ways, and
precisely how the two issues mix will vary by jurisdiction. Sports betting
could push online gaming to the side, which seems to be the case in New
York. Online gaming could ride sports betting coattails in states looking to
maximize tax revenue. Or, either issue could be used as a bargaining chip to
gain support in states where neither measure could pass on its own accord.”States Looking
The legal iGaming industry in Pennsylvania is still not up and running. Ten
casinos have been conditionally approved by the state for iGaming and twoout-of-state casinos—MGM and Golden Nugget—have applications
pending.
But Pennsylvania’s high licensing fees—$10 million—and even higher
tax rate on iGaming—an effective rate of 42 percent—make observers
question whether the industry will be successful. A sports betting tax rate
of 36 percent didn’t deter operators from setting up sports books, but it
has yet to be determined if those operations will be profitable.
Ruddock says the unfavorable aspects of the law will make it difficult
to make money in Pennsylvania.
“Those burdens have also turned off platform providers and outside
entities that would have jumped at the opportunity to enter what is cur-
rently the largest legal online gambling market in the U.S., if its law was
structured more like New Jersey or Michigan,” he says.
The vetoed Michigan bill had a much more reasonable tax rate and li-
censing fees, with a $200,000 application fee and an 8 percent tax rate
(even lower than the tax rate for land-based gaming at 24 percent). Propo-
nents of the bill said they set the tax rate low in order to allow the state’s
online casinos to make a decent profit.
“At first blush, Michigan’s legislation looked to be well-crafted and
ticks off three boxes every gambling expansion/reform measure should
possess: provide strong regulations and consumer protections; support the
state’s existing land-based gaming industry; and send revenue to the state,”
says Schneider.Will the legalization of sports betting spur states
to also legalize iGaming?
By Roger Gros
Cause
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With sports books opening across the country, most
states are also legalizing mobile sports betting that
may translate later to full online casino gamingGolden Nugget is
the market leader in
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