Morgan Stanley Cuts US iGaming Forecast By 50% To $2.7bn

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Friday, April 3rd, 2015 | Written by Shane Larson

In 2013, Morgan Stanley predicted the US online gambling market would be worth $9.3 billion by 2020, but the financial services corporation subsequently cut that forecast to $8 billion then $5.2 billion in 2014, and now a few months into 2015 company analysts have lowered estimates further to a US iGaming market worth just $2.7 billion by 2020. Giving an explanation as to the continuously falling estimates, Morgan Stanley wrote in its report:

“Legislative processes continue to be slow as lawmakers remain unconvinced that online gaming is currently worth the hassle for limited tax revenue. We continue to believe that there is a material runway for growth, but results have been disappointing.”

Disappointing Results

According to previous Morgan Stanley forecasts, the USA’s three regulated states were predicted to earn a combined $678 million in revenues during their first year of operations. That figure, of course, turned out to be way off base with a mere $135 million generated over that period. Consequently, Morgan Stanley has now revised downwards its estimate of an online gambling market worth $1.3 billion in 2017, to just $410 million.

However, it was not just the popularity of online gambling that was called into question, as the Morgan Stanley report also points to a number of other factors which have conspired to slow down the industry. These include geolocation and payment processing problems, as well as a lack of effective advertising inside the country’s three regulated states of Nevada, Delaware and New Jersey. Another factor mentioned which has blighted the US online gambling market since inception is a lack of support from political figures and lawmakers, such as Senators Lindsey Graham (South Carolina) and Representative Jason Chaffetz (R-Utah).

15 Regulated States By 2020

While Morgan Stanley analysts does not envision any other US states adopting iGaming regulation in 2015, the report did cite California, Pennsylvania, New York, and Illinois as most likely to legalize internet gaming over the next few years. Looking further ahead, Morgan Stanley revised its last year estimate of 20 regulated states by 2020 to now just 15 states by that date, with larger states like California acting as the catalyst for other smaller states to join the iGaming bandwagon.

iGaming Ban Unlikely

Furthermore, Morgan Stanley largely dismissed recent efforts to ban online gambling as highly improbable, including the Restoration of America’s Wire Act (RAWA) which was debated at a subcommittee hearing in Washington DC last week. As the report reads:

“We believe a federal ban of online gaming is unlikely given legislators’ split views.. While the bill [RAWA] may advance out of committee, we believe it faces long odds of passing, especially without carve-outs for online lotteries and existing online gaming states.”

In other words, more than a quarter of US states have already set-up online lottery industries of their own and the North American Association of State and Provincial Lotteries (NASPL) is not about to allow the Sheldon Adelson sponsored RAWA bill dismantle their businesses anytime soon. Furthermore, while Congressman Lindsay Graham said he might be prepared to allow a carve-out for state lotteries, the billionaire casino mogul Adelson has given no such assurances.

What About Poker?

In the regulated markets of New Jersey and Delaware online poker currently accounts for a mere 20% of total iGaming revenues, which is a far cry from the predictions made pre-regulation that poker would be the driving force behind gambling growth. In the meantime, Nevada remains an online poker only state, and its revenues have varied between $665,000 in October 2014, to as high as $1,037,000 in June when the WSOP was in full swing. However, the Nevada Gaming Control Board has stopped releasing the state iGaming results since Ultimate Gaming folded its operation at the end of 2014, citing disappointing revenue figures. As Ultimate Gaming Chairman Tom Breitling highlighted at the time:

“Moreover, the state-by-state approach to online gaming has created an extremely cost-prohibitive and challenging operating environment. These factors have combined to make the path to profitability very difficult and uncertain. Consequently, we have decided to cease operations.”

However, the country’s online poker industry received some rare good news last month after Nevada and Delaware finally enacted their interstate poker compact, with both states experiencing immediate positive results. Therefore, if player sharing across state lines becomes a major part of the iPoker industry, a more stable and liquid online poker environment could help start a domino effect with other states encouraged to join Nevada and Delaware’s online poker compact.