Delaware Online Gambling A Test Case For Smaller US States

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Monday, February 3rd, 2014 | Written by Adam Brown

The state of Nevada launched online poker in spring, 2013, and by November was joined by Delaware and then New Jersey. Unfortunately, while its fellow pioneers have been busily carving out a slice of the online gambling pie for themselves, up until now internet games in the ‘Diamond State’ have generated just a few crumbs of interest from its 917,000 residents.

According to the latest statistics, whereas New Jersey managed to rake in $8.4 million in revenue for the six weeks until the end of last year, the Delaware market could only muster a mere $250,000 over roughly the same period. Meanwhile, the Nevada Gaming Control Board has said it will only release its online gambling results when its two operators, ultimatepoker and wsop.com, are joined by at least another website.

Slow start to Delaware online gambling

Last year, Delaware’s land based casinos reported their lowest revenue totals since 2000, with the 406 million generated in 2013 down from 2012’s figure of $526 million. Online gambling was subsequently touted as a panacea for the state’s casino woes, although due to Delaware’s small population a modest $5 million in revenues was projected for its first year of business. However, whereas by mid-January 155,000 accounts had been created at New Jersey gambling sites, in Delaware (1/13th the population of New Jersey) that figure was a paltry 4,000 accounts, with an average of around 20 people playing cash games at any time over a week period.

If its current pace continues, then the state would generate a little over $1.5 million for its first 12 months of operations, which is not only far below estimates, but would be especially hard for Delaware’s three casinos to swallow as the first $3.75 million in revenues collected go directly towards state coffers.

Overcoming the liquidity problem is a key challenge facing the state, as a limited numbers of online gamblers will prevent online poker growing big enough to attract yet more players, while in terms of casino games, progressive slot jackpots are likely to stay smaller and therefore less appealing. As KeyBanc Capital Markets investment banker Jay Masurekar, explains:

“When you are doing online gaming in a state like Delaware, there is just not enough population to bring in much revenue. Unless you have bigger states involved, it’s not going to work. In summary, Delaware may just be too small to fully take advantage of online gambling on its own.”

Hope for other sparsely populated states

Whereas Nevada’s internet gambling industry has been receiving a fair amount of attention since launching, and New Jersey has been hailed as a potential test case for the whole of the USA, Delaware has been working away in relative obscurity while its more celebrated cousins hog all the US online gambling lime light.

Nevertheless, the Diamond State’s biggest contribution to the future of the US internet gambling industry will likely be its role as a lynchpin for the country’s interstate online poker market. Just like Delaware, other states with smaller populations will also find it necessary to pool their players in order to survive, and so Delaware could ultimately play a pivotal role in seeking out and sparking interstate cooperation amongst the different US online poker markets. As Delaware Lottery Director Vernon Kirk said before launching its online gambling industry last year:

“We have had conversations with both states [Nevada, New Jersey], and it’s a little bit too early in the process to project how that is going to work out. My guess is that, certainly with Nevada, they are definitely anxious to compact with us, and us to them likewise.. Once we get up and running we will be pursuing that more aggressively..that will be one of the very first steps we take after launch.”

However, when dealing with these bigger states, Delaware may be compelled to accept less preferential deals as it seeks to get the interstate online gambling ball rolling.

Delaware’s state-run games model

Another way Delaware can persuade other sparsely populated states to join the online gambling bandwagon is by showing them just how lucrative a well run online gambling market could be worth to the state. Consequently, operators will have to help expand demand for their products by providing quality products, alongside better marketing and educational campaigns.

Finally, unlike Nevada or New Jersey, Delaware’s state lottery exclusively runs the online gaming industry, which then outsources the work to Scientific Games, Williams Interactive and 888 Holdings. This is the type of model which is used across numerous regulated European countries, and so it will be interesting to see whether Delaware’s model will eventually be adopted by other US states or if the ones used in Nevada and New Jersey will eventually become the more favoured approach in the USA.