People in the online gambling industry have been saying it for years: If just one state, especially Pennsylvania, were to legalize online poker, several others would follow quickly.
Heck, I’ve been one of the people saying it at times.
Well, now that Pennsylvania has in fact legalized online poker and casino games, it’s about time to see if that prediction will hold up. What follows are my own thoughts on how the legalization of online poker in Pennsylvania will impact action in other states.
Let the next round of predictions begin!
Domino effect probably oversold
There are a lot of folks around the gaming industry who believe legislators in several states would like to legalize online gambling but are afraid to pull the trigger. The theory goes that once a big state like Pennsylvania does it, other states will have cover to follow suit.
I don’t hate this theory, but it does ignore and/or oversimplify some realities on the ground. Each state has its own issues to deal with, whether those issues are budgetary, as was the case in Pennsylvania, constitutional, cultural or something else entirely. In California, the holy grail of gaming markets, it’s the incumbent gambling industry that keeps getting in the way. Various factions within can’t agree on what the rules should be, how the spoils should be divided.
In New York, iGaming legislation passed the Senate in June for the second straight year, but once again died in the General Assembly. Assemblyman J. Gary Pretlow, who chairs the Committee on Racing and Wagering and is the primary gatekeeper for progress on this legislation, didn’t take long to weigh in on whether Pennsylvania’s legislation would affect things in Albany.
— Chris Krafcik (@CKrafcik) October 30, 2017
Plenty of states are interested, in theory, in licensing and regulating online gambling. But each new state presents a different set of issues.
But there are signs
Long before Pennsylvania passed its law, there were plenty of signs that the nearly five year hiatus on new state markets could soon be coming to an end. More state legislators around the country have been talking about and/or introducing legislation each year, and a diverse set of states, primarily in the northeast and midwest, have shown less resistance to the idea than ever before.
The single biggest reason for this sea change is almost certainly the success of the New Jersey market and, to a lesser extent, Nevada and Delaware. New Jersey, which got a lot of negative press in its early years for underperforming expectations, is going to finish right around $250 million in revenue this year, and has provided more than $100 million in taxes to state coffers since the market launched.
Meanwhile, an agreement has been reached between New Jersey, Nevada and Delaware to pool online gambling liquidity between the three states. This agreement makes online poker, in particular, a substantially more attractive option for new states, which can now count on an entirely different situation than before for poker players if and when they legalize. In New Jersey, poker sites launched with no existing player base, but future states can be expected to latch onto this existing interstate compact.
The fact that Chairman Pretlow is asserting independence is likely more an example of political positioning than actual reality. No doubt New York has its own issues to resolve, which are substantially different than Pennsylvania’s, but the outlook is certainly more attractive today than it was a month ago.
Meanwhile, the Illinois Senate basically came out of nowhere in May to pass comprehensive online gambling legislation, and while time is running out for the General Assembly to finish the job in 2017, this was yet another sign that times are changing for the US-facing online gambling industry.
How the map changes in 2017
Mostly for the last few years the narrative has focused around big states like California, Pennsylvania, Illinois, Michigan, Massachusetts and New York. One of the biggest changes I’m expecting as a result of the interstate deal between Nevada, New Jersey and Delaware, is that we’ll start hearing a lot more about smaller states getting serious about passing online gambling legislation.
While online poker hasn’t been the primary driver of revenue in New Jersey, it’s a more broadly accepted product than online casinos and has many advocates. And online poker just doesn’t appear viable in markets that don’t have a substantial population to service.
Assuming PA online poker pools liquidity with the other three states, we’ll now have poker sites facing a population north of 25 million. While this is still not ideal, market size is likely no longer an impediment for any state that wants to latch onto this existing player base.
There are still, most unfortunately, numerous states around the country that are highly unlikely to legalize online poker or any other form of online gambling anytime soon. Quite a few states, particularly in the southeastern and western US, have no gambling options whatsoever outside of state-run lotteries. These states will be the last adopters, or simply never be in play for the industry.
Which states might be next?
New York, for all the reasons mentioned above, is still a favorite to pass online poker legislation in 2018. And while there are still obstacles including issues with the State Constitution, it’s a state that has fewer and fewer reasons not to get in the game.
Then there’s my home state, West Virginia, which made the news last week when one legislator made it clear how he feels about the issue:
With PA passing sports betting, online poker and daily fantasy legislation today, WV must act this session or be left in the dust. #wvpol
— Shawn Fluharty (@WVUFLU) October 26, 2017
While WV has yet to make much progress toward legalizing online gambling, the state has the right kind of profile to make it happen: namely perpetual budget issues and existing land-based casinos that appear to be on board.
Massachusetts and Connecticut are always in consideration as well, and Michigan legislators have made some positive statements each of the last couple years.
The most likely state, though, is Illinois, which is bogged down in a massive, multi-year political and budgetary mess that’s even worse than the one we’ve been witnessing in Pennsylvania. Online gambling, and gambling expansion in general, appears likely to be one of the ways they’ll try to dig their way out.
I don’t agree with anyone who thinks a bunch of states will all of a sudden pass legislation in the next year, but it’s equally foolish to think it will be another years-long delay before a fifth state passes.
Pennsylvania passed its law, in part, because a lot had already changed. Evidence is abundant that regulators are fully capable of keeping games safe and secure and protecting against issues like problem gambling, underage play and access from prohibited locations.
We’re moving into a new era for online gambling in the US. People may disagree on how quickly we’ll see more progress, but it’s going to happen.
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