State tax revenues fell on average by half in April, according to the Urban Institute, and that was just the start of a long journey of cruel comps that won’t be reversed until a cure or a vaccine is widely implemented. In the meantime, states will inevitably look for fiscal remedies that will mitigate some of the damage and offer a measure of predictable relief for the long term.  

Enter online gaming, which Howard Glaser, head of global government affairs and special initiatives, Scientific Games, called “the single source of tax revenue growth in the U.S. right now. Everything else is going down; online options are growing and going up.”

Glaser was among the presenters in a webinar produced last month by the National Council of Legislators from Gaming States and Spectrum Gaming Group, entitled, “Leveraging Online Channels as a Policy Goal and Potential Revenue Stream.” The pandemic, Glaser said, may be a catalyst for facilitating the adoption of regulated i-lottery and i-casino markets across the country. It’s getting harder to argue otherwise.  

One need only look at the most recent figures: i-lottery revenues in Pennsylvania jumped over 100 percent in four weeks prior to the end of June compared to pre-COVID. There was a 200 percent increase in new registrants compared to last year at the same time. On the i-gaming side during the same period, Pennsylvania and New Jersey registered 73 percent and 123 percent revenue increases respectively.

Meanwhile, the case for expanded online gaming was already being made. “COVID is just accelerating the trend and putting a spotlight on what were already successful programs,” Glaser said. “Pennsylvania generated $1 billion in online i-lottery revenues in under 24 months. In New Jersey, before COVID, in the first two months of this year, one out of every four gaming dollars was spent online.

“Put it in this context: You’ve had a couple of big casinos open in the last couple of years; Encore in Massachusetts and MGM in Maryland. Neither one of those, since they’ve opened, has produced as much revenue as New Jersey’s i-gaming program in just the last year. States with mature lotteries and mature casinos have leveraged those businesses to generate hundreds of millions of dollars in online programs.”

At the very least, the pandemic has certainly fast-forwarded the broader online discussion, which had taken a back seat to sports betting. Glaser and another presenter, Thomas Winter, senior vice president and general manager for online gaming, Golden Nugget Casinos, both stressed that states will be leaving money on the table if they limit their online horizons to sports betting.

“No state sports betting program has produced even half the revenue of the most successful i-lottery program,” Glaser said. Noting that the most successful sports betting jurisdiction in the country, New Jersey, has produced about $60 million for the state during the history of its program while Pennsylvania’s i-lottery business generated $120 million during the same period of time.

“Online gaming is not all about sports betting,” added Winter. “Online gamers are older and have more disposable income.”

Winter has been in charge of Golden Nugget’s online business since its inception seven years ago. Online gaming consists of video slots, video poker, electronic table games and dealer-assisted table games broadcast from a studio. Golden Nugget projects that its online gaming revenue will more than double next year to around $120 million, and last month spun off its online gaming operation into a publicly-traded company.

Cannibalization fears have been proven false over Golden Nugget’s seven-year experience in New Jersey. “In fact the opposite has happened,” Winter said. “The competition for online gaming is not land-based casino gaming; it’s any other form of on-screen entertainment, at-home or on-the-go. Our competition is more along the lines of Netflix and Candy Crush, not casinos.”

As a matter of fact, online gaming introduces casino gaming to a new generation of players. What we’ve seen in New Jersey is a return to growth for land-based casino revenues along with growth in online gaming. Online gaming revenue has grown from 9 percent of land-based gaming in 2017 to a projected 25 percent this year and over 30 percent in 2021.

How much money is potentially on the table? Commercial and tribal land-based casinos add up to about $75 billion in annual revenue. Applying New Jersey’s projected 30 percent penetration rate of online gaming to the U.S. generally, Winter places the online gaming market’s worth at $22 billion. “Another way to look at it is that online gaming will generate about $780 million in revenue this year and New Jersey accounts for about 3.5 percent of U.S. household income, which gives you the same number,” he said.

Glaser said if states adopted i-lottery and i-gaming it would generate another $5.8 billion in revenue for state governments. His figures are based on additional sales of $28 billion in i-lottery and $13 billion additional in i-gaming. The revenue breakout for states would be $3.3 billion from i-lottery and $2.5 billion from i-gaming. Those numbers are based on the performance of existing online programs in Pennsylvania, New Jersey and Michigan for i-lottery and projecting an average per capita spend to each state’s population. He called those numbers “quite conservative.”