The Real State of Online Gambling in the U.S.

Posted by Harry Kane on Tuesday, December 24, 2019

Let’s start with a basic assertion; the iGaming niche in North America remains the enigma of the world’s marketplace. After all, despite its immense size and the incredible demand that exists for online gambling stateside, moral and regulatory obstacles continue to prevent the sector from realising its true potential.

It’s also interesting to note that despite barely beginning to tap into its true potential, America’s iGaming market remains one of the most prolific sectors of its type anywhere in the world, and one that’s currently being targeted by operators in the UK as it continues to open up gradually.

In this article, we’ll provide a comprehensive overview of the North American iGaming market, whilst asking how this space is likely to evolve over the course of the next few years.

Statistics for iGaming in the U.S. – The Key Considerations

If we analyse the last three years, we see that the overall gambling market in the States has remained unusually reliant on brick-and-mortar establishments.

To put this into context, an estimated 26% of the world’s population now gamble on a regular basis, with this activity increasingly taking place online. This is particularly true in trail-blazing industries such as the UK, where iGaming now accounts for a staggering 39% of all gambling activity.

The reverse remains true in the U.S., however, with just 3% of the 4.2 billion who gambled regularly in 2016 wagering online. Whilst the GGY for online gambling in the States increased markedly to $306.5 billion by the end of 2018, brick-and-mortar establishments continue to hold sway over their virtual rivals.

Still, it’s fair to say that online gambling is finally becoming a driving economic force in the U.S., as local authorities finally begin to monetise this lucrative marketplace through taxation.

This shift is also enabling operators to leverage the demand for online gambling that exists in North America, with nationals wagering an impressive $505.44 per capita across both corporeal and virtual betting platforms.

Ultimately, the U.S. ranks third globally in this respect, trailing narrowly behind Australia and the former British colony of Singapore. Of course, it’s widely thought that bustling offline gambling hubs like Nevada dominate this spend, although although increasingly popular markets in states like New Jersey and Delaware are quickly closing the gap (we’ll have a little more on this later).

The iGaming market in America is also becoming an economic force for good as it continues to grow, and not only because it provides significant tax revenues for the states that have legalised the pastime.

Additionally, online gambling now also contributes heavily to an industry that’s home to more than 1.8 million jobs nationwide, with a growing demand for software engineers, website designers and copywriters amongst virtual operators.

These statistics are indicative of a growing and increasingly influential market, and one that’s continuing to throw off its shackles and meet the rising demand that exists Stateside.

One Step Forward, Two Steps Back – A History of iGaming Regulation in the U.S.

These relatively impressive growth statistics do little to highlight the regulatory challenges that exist in North America, as whilst there remains considerable support for online gambling there’s also vociferous opposition that remains unrelenting.

This has created something of a regulatory tug-of-war over the course of the last decade or so, with every new progressive piece of legislation undermined by the passing of an equally restrictive iGaming law.

This has been borne out over the course of the last 18 months, with the Supreme Court initially striking down a federal law that previously prohibited sports betting at a national level.

Voting in May 2018, the court ruled by a margin of 6-3 to strike down the Professional and Amateur Sports Protection Act (PASPA). This had barred all state-authorised sports gambling with the sole exception of Nevada, preventing local governments from regulating the practice and taxing the subsequent revenues.

As a result of this, the autonomy to determine the legality of sports betting was transferred directly to local authorities, with a number of states moving quickly to regulate and monetise this practice.

These included New Jersey, Delaware and Pennsylvania, who had already moved to legalise online gambling over the course of the previous seven years. New York, Mississippi and West Virginia are among several states that have trodden a similar path since, with others likely to follow suit in the coming 12 months.

Barely eight months later, however, the Department of Justice (DOJ) announced that it would revise a decision passed in 2011 which made clear provisions for cross-state gambling online.

This opinion pertained to the Wire Act of 1961, which initially restricted the practice of cross-state sports betting and was subsequently applied to online casino gambling at the turn of the century.

However, the DoJ announced in 2011 that the Wire Act only related to cross-state sports betting, paving the way for operators to offer their verticals to players from other authorities (so long as they were based in a state that had previously legalised virtual casino gameplay).

This ruling also allowed such operators to offer lotteries and online poker to players from other states, which in turn translated into a significantly higher GGY for the iGaming sector in the United States.

The most contentious aspect of this ruling was that all players in the U.S. would have access to online gambling platforms, regardless of whether or not they lived in a state that had legalised and regulated iGaming verticals.

This factor also apparently contributed to the DoJ’s further revision in January of this year, which confirmed that the Wire Act should prohibit all forms of cross-state gambling going forward.

There’s no doubt that this caught iGaming operators in the States off-guard, with many looking to embark on liquidity pacts that would provide participants with access to greater technology and larger player pools at the time.

As if this significant back-and-forth wasn’t enough, June saw a lengthy New Hampshire court ruling reaffirmed that the Wire Act and the government’s interpretation of the 1961 law should not apply to online casino games, slots and video poker.

In doing so, it all but eviscerated the DoJ’s legal argument that the wording in the arcane statute applied to all Internet-based entities, which hadn’t even been conceived when the bill was initially written nearly 60 years ago.

Whilst this largely represents good news for existing and aspiring iGaming operators in the States, it may only represent a temporary respite for a market that seems to be perennially under fire.

After all, we’ve seen the DoJ file its intent to appeal the overturned decision since the June ruling, with U.S. Attorney General William Barr having submitted the requisite paperwork ahead of the November 12th deadline.

This will create continued uncertainty for the iGaming sector and its market leading operators, with the case not expected to return to court until January 2020 at the earliest. It should also be noted that this will impact on the long-term planning of iGaming operators, who may have to shelve their expansion plans until the landscape becomes clearer.

Clearly, the battle lines are drawn in the iGaming space, with the incumbent government seemingly inclined to prohibit the legalisation of iGaming and cross-state gambling at a federal level.

However, there’s also immense support for iGaming within specific states, the majority of which are looking to regulate all online verticals and monetise these to create a viable source of taxable income.

Why are UK Operatives Looking to Crack the U.S. Marketplace?

The say that it’s the hope that kills you, but despite the regulatory challenges facing iGaming in the U.S. it’s evident that the marketplace is moving slowly in the right prediction.

This sense of optimism has been boosted by a number of independent reports, with the intelligence-led company Gambling Compliance estimating that there will be 34 states with legal gaming markets by 2024, generating up to $5.7 billion in total revenue.

It’s thought that the majority of these states will focus primarily on sports betting, following the Supreme Court’s aforementioned ruling of 2018 and the sheer popularity of disciplines such as basketball, baseball and the NFL stateside.

To provide some form of context, American’s watch approximately 2.2 trillion minutes of sport every single year (across 37 networks and around 11,000 sports events).

These figures create a clear pathway to growth, and one that’s unlikely to be obstructed by any unexpected regulatory measure in the near-term.

The Gambling Compliance has also projected that the U.S. will become the second-largest regulated gaming market in the world over the course of the next five years (behind only China), with the rise of iGaming playing a central role in this evolution.

Frighteningly, this rate of growth is forecast even without California, Texas and Florida during the marketplace, with these states accounting for 27% of the total U.S. population!

With this in mind, it’s little wonder that the market leading brands in the UK are looking to forge lucrative partnerships in the U.S., despite British betting companies having failed on two previous occasions to achieve this objective.

William Hill is leading this charge, having been one of the first UK operators to recognise the potential and direction of travel in the States.

At the heart of this drive is a bold joint venture with Eldorado Resorts, which is a Nasdaq-listed gambling group that boasts a significant presence in the U.S.

This company also boasts a market value of about $3.7 billion, with the deal enabling William Hill to gain distribution in Eldorado’s casinos in 13 U.S. states. In exchange, Eldorado will claim a 20% stake in William Hill’s burgeoning stateside business, with this equity expected to be worth up to £50 million over a period of five years.

Other prominent British betting brands have followed the trail blazed by William Hill, with Dublin-based Paddy Power and Betfair owner Flutter Entertainment having recently acquired its Canadian rival The Stars Group.

This deal, which is reputed to be worth an impressive £9.3 billion, has helped to create the world’s largest international betting brand. It has also served to turbocharge Flutter’s planned expansion into around 100 global markets, with the U.S. remaining the single biggest target for the brand.

The most recent development in this respect saw FanDuel (a subsidiary of Paddy Power Betfair) enter into an agreement with Boyd Gaming.

This collaboration will reward FanDuel with market access for its sportsbook and online gaming verticals in various U.S. states, whilst Boyd Gaming will benefit from proprietary technology and services that will enhance their own mobile and virtual products.

This agreement will cover all states where Boyd Gaming currently hold gaming licenses, with the notable exception of Nevada is Las Vegas.

In particular, this partnership highlights the viability of transatlantic collaborations in the current market, with U.S. firms looking to capitalise on the regulatory and technological expertise of UK brands’ in mutually-beneficial liquidity pacts.

For their part, British firms are looking to expand internationally at a time when the UK market is under pressure from rising taxation and the introduction of increasingly stringent legislation.

These factors have combined to hit cross-platform operators like William Hill particularly hard, creating a scenario where targeting overseas markets is increasingly profitable.

It’s also fair to say that the spectre of Brexit is complicating the scenario for British operators, who are currently unable to enter into the type of online poker liquidity pact enjoyed by France, Spain, Portugal and Italy.

However, such arrangements clearly represent the future of iGaming on a global scale, so British firms have simply focused their attention on the opportunities that exist across the Atlantic.

All things considered, the U.S. market appears to be on the cusp of realising its full potential, particularly when you consider the growing demand for iGaming verticals and the impact of lucrative partnerships with established UK brands.

So, whilst there may yet be some legislative twists and turns in the market’s future development, it surely cannot be long before iGaming in North America is established as one of the world’s biggest and fastest-growing industries.