It’s been just a few short years since the fall of the Professional and Amateur Sports Protection Act (PASPA), and sports betting is legal in more than half the country. Compare that to online casino and poker, which are below the Mendoza line when it comes to legalization, with just seven out of 50 states (14%) having legalized online casino, online poker, or both.
- Connecticut (only two operators permitted)
- Delaware (lottery-run)
- Michigan
- Nevada – Poker-only
- New Jersey
- Pennsylvania
- West Virginia
With sports betting’s fast march across the nation (similar to daily fantasy sports a few years earlier), there was some hope that online casino and poker might follow in the wake. Those hopes don’t look like they will materialize.
2022 began with a couple of strong candidates, the most prominent being Indiana and New York. Unfortunately, these efforts have already fizzled, and the number of new online casino or poker states will likely be zero at the end of 2022.
Indiana’s Hopes are Dashed Early
With an early deadline to move bills, Indiana’s hopes of passing online gambling legislation in 2022 came to an unofficial end in January, when SB 417 failed to pass the Committee on Rules and Legislative Procedure by the state-imposed deadline.
There is still a slim possibility the Indiana legislature could tackle online gambling this session through a nonstandard legislative path, but the likely next step is almost assuredly Indiana trying again in 2023.
New York Trending Negative
New York’s quick pivot from online sports betting to online casino gambling caught many by surprise. That said, the idea of legalizing online casinos in New York disappeared as quickly as it appeared on the radar.
“At this point, it seems unlikely that Sen. Joe Addabbo’s bill to authorize online casino and online poker in the Empire State will make its way into the one-house budget, let alone pass through as a standalone bill.
“With NY politics, things can take crazy twists and turns. And the final budget isn’t due until April 1. But in this particular case, the consensus, industry sources told PlayNY, is that it may be too much, too soon on the New York gaming front.”
The Opportunity Online Casino Presents
In a column earlier this week, Wagers.com noted that based on the combined performance of the six states with legal online casino gambling (accounting for just 11% of the total US population), legalized online casino gambling in all 50 states would produce monthly revenue of $3.5 billion.
Interestingly, the current online casino states all possess online sports betting industries, which allows us to compare the performance of online casinos vis-à-vis online sports betting.
Homing in on the three major commercial markets (New Jersey, Pennsylvania, and Michigan) shows that online casinos are the more significant revenue generator.
That raises the question, why is sports betting seen as a savior, while online casinos play the pariah’s role?
There are three main reasons.
Reason #1: It’s Easier to Legalize Something That Doesn’t Exist
There are many reasons DFS and sports betting legalization went from zero to sixty faster than an Aston Martin Valkyrie.
With DFS, the debate hinged around whether it was gambling (illegal) or a game of skill (legal). That gave lawmakers the easy path of, “we didn’t legalize anything, we just clarified the legal status of this thing that already exists.”
And let’s face it, it’s easier to clarify the legality of something than it is to legalize something already illegal. That brings us to sports betting.
States looking at legalizing sports betting were adding a form of gambling the federal government previously blocked and didn’t exist in any form outside of Nevada. Legal questions aside, the addition of sports betting posed no cannibalization risk.
On the flip side, states would add something existing in another form with online casino gambling. That’s important because cannibalization concerns still exist in certain pockets of the industry. Not to mention, online gambling has been mired in legal controversy thanks to machinations that connected the Wire Act to online gambling.
Reason #2: Perception Is Reality
Online casino also has a perception issue, as sports betting often falls into a gambling adjacent category.
For whatever reason, there is a blurry line of demarcation between casino gambling (e.g., slot machines, roulette, and other house-advantage games) and sports betting or poker or daily fantasy sports. It’s similar to Justice Potter Stewart’s “I know it when I see it” opinion on obscenity.
States should be wary of online casino. It's a super dangerous product. Sports/DFS far more palatable.
— Captain Jack Andrews (@capjack2000) March 10, 2022
That blurry line and public perception have made legalizing casino gambling very difficult.
Reason #3: A Unified Voice Is Missing
A third reason is the lack of a unified voice. Unlike sports betting, the American Gaming Association (AGA) has taken a hands-off approach to online gambling since 2014, when one high-profile member (Sheldon Adelson and Las Vegas Sands) decided to oppose online gambling – Adelson passed away in 2021, and LVS’s U.S. assets have been sold to Apollo Funds.
The internal rift forced the AGA to take a “we don’t have a position on that” position towards online casino and poker, eliminating the industry’s top trade group from legalization discussions.
The good news is the AGA is slowly melting on the issue. The AGA now includes, and touts, online gambling numbers in its monthly Commercial Gaming Revenue Tracker, and doesn’t dance around the topic altogether. Still, it hasn’t waded into the fray the way it has with sports betting.
The Five Factors That Lead to Legal Online Casinos
Considering all of the above, what will it take for legalized online casino gambling to take off in the U.S?
Whenever someone asks why legalizing online casino gambling is so hard, I point to the following five factors that help determine if a state is positioned to legalize online gambling.
They are:
- Is the culture in the state pro- or anti-gambling?
- Does the state need money?
- Are the existing gambling industries struggling?
- Are the key stakeholders on the same page?
- Is a key lawmaker championing the issue?
Each of the above considerations is straightforward and filled with nuance, depending on the state.
And of course, a state can pass legislation without answering yes to all five questions, but the more “yes” answers, the smoother the path.
The Zeitgeist
Local attitudes towards gambling will determine if gambling expansions see the light of day. Furthermore, those attitudes can vary based on the specific gambling product and might change over time.
Utah is a clear-cut case, but Massachusetts provides a more realistic example of culture in action. On paper, the state is the perfect sports betting candidate. But a closer inspection reveals a state that has long resisted gambling expansions. And even when it does, it’s a heavy, multi-year lift, evidenced by the state finally legalizing casino gambling in 2011, after several failed attempts.
And the mess didn’t stop there. Three years after the legislation’s passage, a referendum repealing the law was on the ballot but failed 60/40. The Plainridge Park slot parlor opened in 2015, while the two resort casinos didn’t open their doors until 2018 and 2019. Suffice it to say, Massachusetts wasn’t exactly in a rush to get its casino industry up and running.
Unsurprising to no one from Massachusetts, the Massachusetts legislature has struggled to pass a sports betting law (or legalize online lottery, a topic in the Bay State for nearly a decade). It’s just not part of the overall state culture.
Zooming out from Massachusetts, states can have copious amounts of legal gambling but have a culture that opposes additional gambling. It’s not uncommon for enough residents accustomed to “X” form of gambling to oppose expansion into “Y” and derail any attempts at legalization. These same residents would likely oppose “X” if it weren’t already legal.
It’s the Money, Stupid
States (typically) turn to gambling when they need money.
If you started following gambling legislation after the DFS scandal in late 2015, or in 2018, after the Supreme Court’s PASPA ruling, you can be forgiven for thinking there is a hearty appetite for gambling expansion in state legislatures. The current period feels like the outlier for those who’ve been around a bit longer. The slow slog of online poker and online casinos better represent how states approach gambling expansions.
The one constant in the lean years was a need for money. Unlike the federal government, most states need to have a balanced budget, requiring lawmakers to find new wells to pump to create new revenue streams. The bottom line is nothing will propel gambling expansion quite like a budget deficit.
But as you’ll see in the following header, new gaming revenue can also be sold as a way to bolster existing, declining gaming revenues.
And to put a final point on this section, it all comes down to time. Once states’ sports betting revenues stabilize or begin to decline, lawmakers will look for the next, next thing.
Protecting What We’ve Already Built
Casinos, the lottery and other brick-and-mortar gambling establishments are major local economic drivers. Casinos and other brick-and-mortar gambling facilities send large amounts of money to the state. States have grown dependent on that money, typically earmarked for education and other essential services. They also employ lots of people.
When existing gambling revenues decline, the state and the local economy suffer. As such, it’s not surprising to see a state try to bolster its existing gambling industries by legalizing new forms of gambling. As such, if a state’s gambling revenues dip (and it relies on those revenues), you can expect that state to consider gambling expansions.
Too Many Cooks Spoil the Soup
Bolstering existing gambling revenues can help spur legalization, but the stakeholders need to be on the same page. This is not a case of the more, the merrier. As the number of stakeholders increases, so does the potential for problems.
Each stakeholder has its own motivations and set of goals, and these motivations and goals rarely align.
Obvious conflicts exist among direct competitors. Less obvious and harder to solve issues present themselves when there are different factions in the mix like the lottery, commercial casinos, tribal casinos, racing, and any other group looking to grow their potential a piece of the pie. Since their interests are less aligned, the rifts can be harder to bridge.
Additionally, existing gambling entities left out of the new expansion will likely try to derail the effort.
Getting a group of stakeholders to agree to a bill can be extremely complicated. Look no further than the decade-long effort to bring online poker to California, which resulted in shifting alliances and constantly moving goalposts. California has nothing to show for a decade of legislative efforts at the end of the day.
And California isn’t an outlier.
Michigan’s attempt to pass online gambling legislation in 2018 (after working on a bill for three years) was blown up by the Lottery. Fortunately, the state managed to pass a similar bill in 2019, but just barely.
And sometimes, these fights cause massive delays and lead to highly flawed legislation, like the following two examples.
Protectionist efforts by some Pennsylvania operators led to the ridiculous tax burdens imposed on online casino and sports betting operators.
In-fighting in Illinois between entrenched casino operators and daily fantasy sports turned sports betting companies resulted in the in-person registration requirement.
A Movement Without a Leader
The final factor that plays a significant role in a state’s ability to legalize online gambling is having the right person in the right place at the right time.
Legalizing online casino gambling is anathema to a fair share of lawmakers, but for most, it’s a topic they have little to no interest in. As such, it’s vital to have a lawmaker that chairs the right committee, or the governor, or Senate President/Speaker of the House, take the lead and schedule public hearings and backroom educational sessions.
Conversely, having the wrong person in one of these critical roles can torpedo a bill before it even gets off the ground.
