On Jan. 22 of this year, Michigan launched both online sports betting and online casinos. It was, as these things go, one of the more orderly launches in American gaming history. There was plenty of lead-up to the event, and as such, the vast majority of sportsbooks were able to go live with both their sportsbooks and casinos on day one, and most others within the first month.
Today, there are 14 active sportsbooks and casinos in the state, making for an easy apples-to-apples comparison of how well each segment is doing.
On the sports betting front, the 14 operators have made a little over $99.6 million in adjusted gross sports betting receipts through November. Simply put, that’s profit after free promotional play is accounted for. And on that $99.6 million, the sportsbooks have paid the state of Michigan and the city of Detroit a little over $10.2 million in taxes.
The online casino side? Hold on to your (lucky) hats: Adjusted gross receipts stand at $893.7 million, with nearly $250 million being paid in taxes.
It doesn’t take a math major — or even a foolhardy Martingale devotee — to realize the obvious: Online casinos are a much more lucrative operation for both the operators and the state than online sports betting.
Some color from Rush Street Interactive 3Q21 call and presentation…
— Alfonso Straffon 🇨🇷🇺🇸🇲🇽 (@astraffon) November 11, 2021
The same results, to varying degrees, play out in the other states (including the just-legalized Connecticut, along with New Jersey, Pennsylvania, West Virginia, and Delaware) where online casinos are legal. But any way you slice it (and dice it), comparatively speaking, online casinos are a cash cow, whereas online sports betting is a coin chihuahua.
Makes one wonder: Why have states been increasingly keen on legalizing sports betting — and crowing about the tax revenue — whereas the same states have been, at least thus far, loathe to get the much more profitable online casinos up and running?
Three main reasons
“There’s a few big reasons,” said Becca Giden, the director of policy of Eilers & Krejcik Gaming, a gaming research firm. “One is economic need — the state of state budgets. When states are in a deficit or coming close to needing money, both sports betting and online casinos become incremental revenue sources that proponents of that legislation can sell as new revenue sources.”
And for a minute there, this seemed to be the path of least resistance for the online casino proponents.
Then came COVID.
“COVID did a few things,” Giden notes. “When people stayed home, and retail casinos were hemorrhaging cash, then there was a huge conversation last April, May, June when everyone saw New Jersey was still making money because they had online casinos. But now, most states are flush with cash (as a result of special federal assistance) and so this urgency for new revenue sources just isn’t there, and we don’t see it coming back for at least a year or two.”
Another reason? Online casino proponents are few and far between, especially compared to sports betting proponents.
“Sports betting will often pull together a lot of lobbying forces,” Giden said. “Not only casinos, but also sports entities, facilities, and teams, independently owned businesses that are sports related like sports bars, and sometimes even the actual government itself in cases where the lottery is going to be an operator or regulator. Sports betting pulls together this big tent of people, whereas casinos, in contrast, it’s usually just the casinos and the gambling entities, and the government – except in Delaware – isn’t involved in that at all.”
Furthermore, as Giden points out, the smaller, regional casinos are often wholly against online casinos, worried it will decrease foot traffic into their brick-and-mortar operations.
And the final big reason Giden cites? Online casino gambling is seen as more distasteful than sports betting.
“Sports betting … people think of it as, ‘Yeah, it’s gambling, but it’s an entertainment event, it’s a social thing, people are doing it anyway in offices, March Madness, things like that,’” Giden said. “Whereas online casino is seen as — as Chris Grove (a partner at Eilers & Krejcik) says — ‘Big G Gambling,’ where it inspires a lot of ire from culturally conservative states and even in pockets of even more liberal states.”
A path forward?
“One of my tests with any lawmaker is I pull out my computer and I type ‘Can I play online slot in XYZ state?’ and invariably you’re directed to numerous websites offering huge promo bonuses, real money slots, roulette, blackjack, everything, and it’s telling the consumer they are completely legal and legitimate,” said John Pappas, the state advocacy director for iDEA Growth, an advocacy group for the iGaming industry. “There is a huge black market out there for iGaming, it’s just not as publicized or researched as much as the black market for sports betting. We need to lead with consumer protections.”
As such, Pappas believes proponents of online casinos need to make this point clear to lawmakers — especially with, as Giden pointed out, revenue not being the top issue right now for the states.
“Just look at what’s happened in New Jersey, Pennsylvania and Michigan,” Pappas notes. “There’s not billions of dollars being spent in those states in online casinos because it’s all of sudden legal — those players have been playing somewhere else and now are coming to a legal market. This would replicate itself across the entire country.”
Amen! Smart choice for any state is to have mobile sports, iGaming and iPoker. Consumer protection shouldn't just be for sports bettors, but all online betting consumers. Plus there is much, much more tax revenues when all three are regulated. https://t.co/ITynET81sv
— iDEA Growth (@iDEA_Growth) November 17, 2021
Another point Pappas makes? The importance of getting land-based operators on board for any legislative push.
“Having land-based guys stand with the online operators, and say this is good for land-based operations, that this is a good way to extend our brand and meet customers where they are rather than just hoping they come to my casino, is very important,” he said. “This is critical, because the knee-jerk reaction from lawmakers is, ‘What’s this going to do to the bricks-and-sticks casino in my district?’”
And, of course, Pappas notes the presumed gulf between sports betting and casino gambling has to be minimized.
“I think sports is something really relatable to lawmakers, something they see on television all the time,” Pappas said. “Everyone has participated in some level of sports betting, especially on a very impromptu basis. You could be on the golf course and bet on the next shot, you could be watching the game and betting with your buddy. But people aren’t impromptu playing blackjack or spinning a slot machine. There’s a clear disconnect on the activities, and why one seems to be more acceptable from a lawmaker’s perspective.”
Just a little patience
“Over time, just like with online sports betting, the stigma against online gambling is going to decrease,” Giden said. “But for now, the public treats someone who plays online slots somewhat differently than they treat people who bet on sports. People are certainly playing casino games online, but are not given that cultural pass, unfortunately.”
And as a result, Giden isn’t especially bullish on the near-term prospects of additional online casino gaming.
“Legislators will eventually catch up, but in the short and medium term, we see states legalizing online casinos at about a quarter of the rate as sports betting being legalized. Next year we are pretty bearish, but for 2023 we’re looking at states that already have online sports betting, and are looking to resolve some of the stakeholder issues, as the next casino states. Possibly Iowa and Indiana would be next, and maybe Virginia and Massachusetts in the longer, three-to-five-year term.”
Pappas agrees, conceding getting online casinos up and running across the country is a long game.
“I think patience is the virtue and education is the pathway forward,” Pappas said. “We’re not going to see the rapid growth we saw in sports betting. If we get three states in two years, I think it would be a success.”