Lost in all the hoopla surrounding the rapid spread of legal US sports betting, and to a lesser degree online gambling, is the proliferation of the online lottery.
In late May, Pennsylvania joined a handful of other states in offering the vertical. The launch itself was subdued, and the initial rollout of games underwhelming. However, it did mark the first real fulfillment of Pennsylvania’s promise to vastly expand its gaming menu, made last October when Gov. Tom Wolf penned HB 271 into law.
It also may pay greater dividends to the state than any of the more glamorous and hyped expansion vehicles in the Keystone State.
A proven moneymaker, if done correctly
There’s enough data available to conclude that a well-run iLotto can be a boon for state reinvestment programs. In Michigan, which launched an online lottery in 2014, win has ballooned from a paltry $18.5 million in 2015 to $77.9 million last year, and that’s just on instant win tickets alone. The state’s iLottery also enables players to purchase draw tickets, such as PowerBall and Mega Millions, from the comfort of their own home.
Given this trajectory, it wouldn’t surprise if the MI iLotto cracked the $100 million revenue mark in 2018, which is more than a third of what online casino and poker games in equivalently populated New Jersey stand to generate. Solid.
The Michigan iLotto attributes much of its success to the popularity of multi-ticket games, especially ones featuring bonus games reminiscent of those found on slot terminals. Improved game selection, a solid mobile product, and the rollout of an affiliate program have also played their role in facilitating growth.
Pennsylvania, admittedly, has a way to go before it reaches the same heights as Michigan. A platform provided by SG Digital, which also powers Resorts Casino and Mohegan Sun Casino in New Jersey, is a solid start, as is the launch of games with recognizable brand names such as Ca$hBuster and Slingo. But early adopters have been dissatisfied with the mobile product and tiny game selection.
The PA iLotto is hard-pressed to get their act together in a hurry, before the hype associated with launch begins to fade. Reason being, the opportunity here is enormous, with PA boasting several built-in advantages over any other state with an iLottery.
- Pennsylvania boasts a resident population of nearly 13 million, compared to just under 10 million for Michigan.
- Pennsylvania players spend more on lotto tickets, $277.42 per capita in PA v. $254.40 in Michigan.
- Then there’s the fact that out-of-state residents can sign up for and play real-money games at the PA iLotto, in so long as they’re geolocated in the state. By contrast only Michigan residents can play MI iLotto games.
Tally it all up, and you’re easily looking at an industry that could win over $150 million annually at maturity, with the bulk of those funds going to programs that benefit the state’s elderly.
Uncertainty surrounds other online gaming expansion vehicles
Gambling Compliance projects that sports betting in Pennsylvania will be a $381.3 million industry, with the bulk of that revenue coming from online play.
Online gambling stands to be somewhat smaller, but still large, with the general consensus being that the industry generates between $250 – $300 million per year at maturity.
Compared to what we project for the online lottery, these are big numbers. But they’re also potentially skewed figures, dependent on operators going along with the oppressive licensing fees needed to get the ball rolling.
How oppressive? $10 million for sports betting and another $10 million for a collective slots, table games, and poker license. If that weren’t enough, PA sports book operators are going to be slapped with a 41% effective tax rate, and iGaming ops a 54% tax on slots. Given this dubious path to profitability, operators, especially smaller casinos, may rethink their willingness to enter the market.
Compounding matters further, regulations demand that iGaming skins (individually branded websites) be intimately tied to the license holder, so much so, that it may further taint an already muddied outlook for online casino sites.
The iLottery faces no such burdens, as revenue is directed to the state. Not to mention, the cost of operating an iLotto is comparatively low, and the state’s iLottery site is marketed through the state’s main (and popular) lottery portal.
It may not boast the highest cap of the new expanded gambling verticals in Pennsylvania, but the iLotto is the most likely of PA’s new gaming formats to hit its potential.
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