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The Saturated Market and Implications for Online Gambling

Posted on by John Lathram

GamblingAccording to the Boston Globe, casino revenues are failing to meet expectations due to market saturation. How might this affect online gambling regulation?

It´s no secret casino revenues are failing to meet expectations. The failure of New York´s commercial casinos to generate tax dollars is one of the reasons behind the Empire State failing to regulate online poker, and now that Michigan´s revised online gambling bill places a larger tax burden on commercial casinos, Detroit´s brick-and-mortar venues are not supporting the bill so enthusiastically as before.

The problem is not necessarily the tax burden – although soon-to-open online casinos in Pennsylvania might disagree with that – but that there are too many gambling operations chasing a limited amount of money. According to an article in the Boston Globe, the crowded market and lower-than-projected revenues should serve as a red light warning against further expanding gambling in the Northeast.

Catskills Resort is a Cautionary Tale

The article “Is the Northeast´s Casino Market Saturated?” focuses on the Resorts World Catskills Casino in Monticello, New York. The casino – which opened in February 2018 – reported a $138 million loss last year, generating nothing for the state and raising concerns about its long-term viability. A second New York casino – the Del Lago Casino in Waterloo – has also warned it may not be able to support its debt.

Casinos in neighboring Connecticut are currently generating lower revenues than last year, while the impending opening of the Encore Boston Harbor is undoubtedly going to cannibalize some of Connecticut´s business as well as casinos further west in Massachusetts. And it´s much the same story throughout the Northeast, as a growth in casinos has resulted in each getting a smaller share of the pot.

Where the Math Has Gone Wrong

The math started going wrong in 2011 when there was a huge explosion in casino-related legislation. At the time the Northeastern states based their projected revenues on Atlantic City and along the lines of we have a population 50% bigger than New Jersey, so we should generate 50% more revenue – ignoring the fact Atlantic City revenues would be diluted once the neighboring states opened their brick-and-mortar facilities.

Nonetheless, Massachusetts, Rhode Island, New York, Maine, and Pennsylvania all expanded brick-and-mortar casino gambling in one form or another (Pennsylvania already had casinos, but started allowing table games in 2010). All are failing to meet their expected revenue targets, while the decline in New Jersey´s tax revenues from brick-and-mortar casinos is well-chronicled.

How Might this Affect Online Gambling?

Despite evidence proving the cannibalization of casino revenues does not affect online gambling, many legislators are apprehensive about expanding gambling operations. They may talk about converting an existing unregulated market into a tax-generating regulated market, but having invested so much time and effort into regulating brick-and-mortar casinos, they are acting cautiously with regard to online.

Furthermore, a study published by Pew Charitable Trusts has warned taxes on gambling are an unreliable source of state income. Although suitable for short term cash injections, income from gambling has historically been volatile and can result in structural deficits in state budgets. This might further dissuade legislators from moving ahead with online gambling legislation.

A Light at the End of the Tunnel?

There may be some hope for proponents of online gambling regulation in the form of a survey conducted by the National Council on Problem Gambling. The survey investigated gambling habits nationwide and on a state-by-state basis and found that gamblers in many Northeastern states are more likely to bet online than the national average.

This could help strengthen the argument in favor of converting an existing unregulated market into a tax-generating regulated market – but unfortunately not in New York; where a constitutional requirement would be required for casinos to offer their games online, while Governor Andrew Cuomo has expressed opposition to any form of online gambling. It looks like New York´s brick-and-mortar casino industry will continue to struggle for the foreseeable future.

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