What Will the US Online Gaming Industry Be Recapping a Year From Now?

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2017 was a big year for the US-facing online gambling industry, mainly due to three stories:

  1. Pennsylvania legalized online gambling.
  2. New Jersey agreed to merge online gambling liquidity with Nevada and Delaware.
  3. New Jersey online casinos approached $250 million in annual revenue.

These stories added up to the most meaningful and exciting year for the industry since at least 2014, the first full year for any of the US states to offer legal real money gambling on the internet.

With 2017 fading, let’s speculate a bit on what we’ll be recapping a year from now.

Pennsylvania goes online…

The new Pennsylvania gambling law that includes authorization of online poker and casino games passed in late October, but many details are yet to be revealed.

Among other things, we still don’t have even a tentative timeline for launch. I assumed when the law passed we’d see at least a soft launch by around the end of June, but if regulatory news continues to be static, we could quickly be looking at a Fall launch date. I don’t think it’s going to go quite that deep into the year, but I’m now predicting a late August launch.

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That said, expect the first month to go much more smoothly for the Keystone State than it did in neighboring New Jersey. Many of the biggest issues from 2013-2014, including location verification and payment processing, have been largely smoothed out during the last few years.

…and pools liquidity with the other states

I’ve heard a wide variety of opinions from industry followers regarding whether or not (and how quickly) Pennsylvania will join fellow legal gaming states New Jersey, Delaware and Nevada in pooling online poker traffic. My personal belief is that this transition will happen sooner, rather than later. If Nevada and New Jersey, of all places, could figure out how to work together, Pennsylvania should be able to get on board.

I don’t think it’s a coincidence that New Jersey joined the interstate compact right before Pennsylvania legalized online gambling. With 888 and its license partners controlling a virtual monopoly in both Nevada and Delaware – a situation that’s unlikely to change any time soon – there was no incentive for most NJ stakeholders to support coming to terms. This changes entirely if Pennsylvania is in the picture.

Shared interstate liquidity has implications beyond poker. It could effect progressive jackpots, live dealer games and much more. It’s a game changer for the entire US market, but especially for online poker.

Heavy competition in PA, despite fees

Another area where industry opinions have varied greatly is the question of how many operators will want to participate in Pennsylvania, given extraordinarily high licensing fees and effective tax rates. Operators who do choose to obtain a license will likely pursue a different product strategy than they do in lower-tax markets like New Jersey.

Now more than ever, though, operators are seeing the bigger picture. With legal sports betting quite possibly on the horizon and the increased possibility of additional states passing online gambling legislation, it feels like now or never for these companies to establish their foothold, even if it likely means operating at significant loss for the foreseeable future in this particular state. This applies even more considering Pennsylvania is the most populous state to join the party.

2-3 new states pass legislation

Maybe I’m overly optimistic after years of pessimism, but I think the era of waiting years at a time for progress is over, at least for now. There have been several states seemingly on the cusp of legalization for years now, and in Illinois and New York, bills have passed one of the two state chambers in each state.

With Pennsylvania having broken the years-long legislative stalemate, I have to believe both Illinois and New York have a good chance to get it together and finish the job. There are more reasons than ever to say yes, and fewer to say no.

Michigan, despite substantial obstacles, is also making real progress, and I’m now taking its chances seriously as well in 2018.

The above are all big states, each in the top 10 in population in fact, and a regulated online gambling market can add head-turning tax revenues to state coffers. Several smaller states, including West Virginia and New Hampshire, have also shown interest in legalization as well, and while the opportunity is smaller in terms of raw numbers, it’s relevant in each state given its own population and budget.

While setting up a regulated online gambling market is a daunting and potentially cost-prohibitive task for states without the benefits of scale, interstate compacting will make it more feasible. This is probably where I’m furthest out on a limb, but I’m predicting at least one state outside the top 15 in population passes online gambling legislation in 2018, in addition to the bigger ones I mentioned.

I probably won’t go 4/4 here, getting Michigan, New York, Illinois AND a small state – it’s an extremely optimistic viewpoint that requires both some suspension of reality and ignoring all recent history. But it feels like the iron is hot right now, and I think it’s quite likely that a year from now we’ll be looking back at multiple state legislative victories.

International pooling will have to wait

Despite my optimism about state legislative movement, I’m skeptical there will be movement NJ State Senator Ray Lesniak’s attempt to expand NJ (and potentially US) online gambling outside national borders. I do believe this is coming at some point, but NJ will have enough on its plate with the new interstate compact and potential addition to said compact of more US states, not to mention all the hoopla surrounding Christie v. NCAA.

No, 2018 won’t be the year we take this step.

But if you’ve read this far, you know I’m bullish on where this industry is headed, and think we’ll have a lot to celebrate at the end of the coming year.

Happy New Year!

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Adam Small has been an entrepreneur in the online gambling space since 2004. He is a cofounder of PocketFives.com and owner of several businesses in the industry.

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