Igaming is a little-understood emerging phenomenon

February 19, 2024 4:29 PM
Photo: A composite created by CDC Gaming Reports from Shutterstock images
  • Ken Adams, CDC Gaming Reports
February 19, 2024 4:29 PM
  • Ken Adams, CDC Gaming Reports

In the few past years, the gambling landscape has changed dramatically.

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For most of its history, the industry consisted primarily of casino games and racetracks. However, beginning in 2014, two other forms of gambling emerged. First, New Jersey legalized online casinos games, commonly called igaming. Then, the Supreme Court opened the door to sports betting. Both have grown exponentially and each has had an impact on the rest of the industry. The exact impact is still being defined, measured, and discussed.

A new report from Eilers & Krejcik Gaming concludes that igaming does not hurt brick-and-mortar casinos. It states that the introduction of igaming causes brick-and-mortar casino revenue to go up 2.4 percent per quarter. “This study offers compelling evidence that online gambling is a catalyst for growth, not a competitor to land-based casinos,” iDEA founder Jeff Ifrah said. iDEA, (iDevelopment and Economic Association) sponsored the research and describes itself as a non-profit association seeking to grow jobs and expand online interactive entertainment in the United States through advocacy and education.

The conclusion, though interesting, is not a conclusion that I wish to contend. However, I would propose using two other filters: competition and disposable income.

The six states with igaming are Connecticut, Delaware, Michigan, New Jersey, Pennsylvania, and West Virginia; Rhode Island has legalized it and it will be launched there soon. In 2023, those six states generated $6.2 billion in gross gaming revenue, an increase of 26 percent over 2022. The three largest present an insight into the impact of igaming. New Jersey has the longest history and will serve to illustrate the trends for the others.

Casino revenue in Atlantic City has been declining since 2006.  Until that year, New Jersey was second only to Las Vegas in gaming revenues. In 2006, the Las Vegas Strip generated $6.0 billion in gaming revenue, while Atlantic City produced $5.2 billion. At that time, it did not seem impossible that Atlantic City would one day surpass Las Vegas. 

Atlantic City had a decided advantage: Its core market area had over 50 million people. In the early years of gambling in Atlantic City, that advantage was obvious, as casino revenue grew year after year seemingly without limit. But there was a limit and competition defined it; in 2005, Pennsylvania legalized slot machines and the limit became obvious.

In just five years, Atlantic City casino revenue had dropped to $3.6 billion. In another five years, it had fallen to $2.5 billion. Slot machines in Pennsylvania took the lion’s share of the disappearing revenue, but other factors impacted Atlantic City. The Great Recession, for example, hit Atlantic City and the rest of the industry; Las Vegas revenues dropped from $6.4 billion in 2007 to $5.1 billion in 2010 and did not recover to the $6 billion threshold until 2017.

New Jersey, Nevada, and the rest of the nation took another hit from the pandemic in 2020 and 2021, when Las Vegas revenues bottomed out at $4.8 billion. New Jersey suffered through both of those events. However, beginning in 2014, Atlantic City was getting help from igaming. The number was small in the first couple of years; it started at $122.8 million in 2014 and didn’t exceed $1 billion until 2021. Still, combined with sports betting, igaming helped New Jersey gaming revenues recover. In 2023, total gaming revenues in New Jersey reached $5.2 billion. Atlantic City was back.

Or was it? The devil is in the detail. In 2023, igaming revenue reached $1.92 billion, sports betting generated $1.0 billion, and casino revenue was $2.8 billion. In other words, casino revenue was still half of what it was in 2006. January 2024 offers another glimpse into life on the Boardwalk. Casinos in Atlantic City generated $205 million. In January 2006, that number was $406 million. It is safe to say that while New Jersey is back, the jury is still out on the on the Atlantic City casinos.

Atlantic City depends on tourism and there are fewer gambling tourists now. That is a problem. By comparison, gaming revenues in Pennsylvania have grown from zero in 2005 to $4.7 billion in 2023. Certainly not all, but 40 percent or so of that revenue might once have gone to Atlantic City.

The Northeast region that once belonged to Atlantic City now belongs to many others. The total revenue from that region has grown from the $5 billion generated by Atlantic City in 2006 to something closer to $30 billion. Pennsylvania, Maine, Vermont, Rhode Island, West Virgina, Virginia, New York, Maryland, Massachusetts, and Connecticut have casinos. And of course, that revenue is a mixture of igaming and sports betting, primarily mobile betting.

Throughout that region, the only revenue streams still growing at double-digit rates are sports betting and igaming. Casinos have seemingly peaked — saturated the market, as the saying goes. Remote gaming, on the other hand, does not appear to be close to a peak, not in terms of bettors or the amounts wagered.

And one final point. Disposable income, the money people spend on dining out, movies, and gambling is not infinite. It is limited. In any given day, month, or year, that fixed amount will be divided between among the forms of gaming available, including lotteries (think Powerball and Mega Millions), horse racing and historic horse racing machines, video lottery terminals, sports betting, casinos, and igaming. At some point, a bet made in one form is a bet not made in another.

That is not to say we have reached market saturation or total penetration; we have not. Certainly, mobile sports betting advertising has proven there are more customers out there. Igaming and sports betting are growing in Michigan, Pennsylvania, and New Jersey, thanks to an untapped market. As the results from those three states show, there is not much of an untapped casino market. That means the industry is approaching a tipping point: Growth in one segment will soon mean decline in the others. That trend is already visible in New Jersey.