Envisioning a Second Wave of US iGambling Expansion

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Tuesday, April 12th, 2016 | Written by Shane Larson

The US online gambling industry is currently into its third year of operations, but while the regulatory frameworks adopted by the country’s three regulated states has exceeded expectations, the tax revenues they were forecast to produce pre-regulation have not. As a result, the gaming industry has remained divided on whether to endorse an iGaming expansion, with powerful groups such as the American Gaming Association doing their utmost to ensure there is no positive movement on the issue. As Chris Grove from Narus Advisors explains:

“The bright spot is certainly the performance of online casinos in New Jersey, where double-digit growth was the norm throughout 2015, driven by product improvements and a surge in consumer interest. The road for online poker has been a rougher one, with limited player pools severely hampering the ability of sites to generate growth.”

Different Paths to Legislation

Each of the country’s three states offering online gambling have gone about legislation in different ways. Nevada, for instance, only allows legalized online poker, while both online poker and online casino games are permitted in New Jersey and Delaware. In addition, Nevada and New Jersey allows just land-based casinos to apply for online gaming license together with acceptable online gaming partners, while Delaware’s three racinos must offer their products on the state’s sole online platform run by 888 Holdings.

Nevertheless, the regulatory structures that the three states have set up have given rise to online poker and casino sites with a commendable level of consumer protection, helping to offset some of the damage done by unregulated sites in the US. Furthermore, a number of states have since started selling lottery tickets online using the same regulatory oversights as these regulated markets, including Illinois, Georgia, Minnesota and Michigan.

New Jersey a Testing Ground

While Nevada and Delaware’s small populations have made it difficult to glean too much information as to how a functioning online gaming market should operate, New Jersey with almost 9 million people, on the other hand, provides analysts with an example of a self-sustaining market. This in turn enables them to devise important iGaming models for states considering legislation to study. As David Rebuck, Director of the New Jersey Division of Gaming Enforcement explains:

“We are now almost two and half years into authorized internet gaming in New Jersey and most in the industry are familiar with the main challenges we faced, such as regulating the development of strong KYC, geolocation and payment processing protocols. I believe we have shown the industry can be successfully regulated and, of course, those areas remain critical as the industry evolves.”

Plenty To Do

Amongst the many challenges still facing online gambling is the need to ensure all jurisdictions are on the same page as far as licensing, and customer protection are concerned. In addition, the industry must be encouraged to continually innovate its products to stay relevant for a new generation of gamers, such as creating skill-based games in both the live and online arena. Yet another challenge is the need for the online gambling industry to gain wider acceptance by banks and credit card companies in order for them to provide online payment processing options.

Gaining Modest Momentum

The improvement in New Jersey’s financial results for 2015 has acted as a catalyst for other US states to come off the fence and consider online gambling options of their own. Previously, high industry costs mitigated any movement towards establishing regulated online gambling markets, but potential iGaming candidates such as Pennsylvania could be swayed by cost saving measures achieved by adopting the regulatory model already established by New Jersey. Commenting on the issue, Rebuck states:

“New Jersey has clearly laid the groundwork for a well-regulated internet gaming industry. Any state that utilizes our regulations, which we continue to hone as the industry evolves, will absolutely save a tremendous amount of time and effort.”

Cost Still A Major Barrier

All the same, online gambling carried out on a state-by-state basis still represents an inefficient and expensive way of going about legalization. Of particular concern is the costs associated with licensing and vetting new companies, with the CEO of CAMS, Matthew Katz, suggesting the industry could be helped by speeding up the vetting process by recognizing operators already licensed in the USA’s other regulated states.

Pennsylvania Could Ignite Wave of Expansion

Experts agree that Pennsylvania adopting legislation has the potential to spark a second wave of expansion across the US. Firstly, Pennsylvania’s almost 13 million population would instantly more than double the size of the country’s online gambling market, while being next door to New Jersey could also pave the way towards establishing a successful interstate liquidity compact. In addition, New York with its population of 20 million people could subsequently feel compelled to pass legislation of its own in order to ensure its gambling market remains competitive.