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The markets were supposed to start relatively slow and steadily build to saturation and full revenue potential.
But something unexpected happened on the way to market maturity: The markets in all three U.S. states with legal online gaming reached revenue peaks within six months of launch and have been declining ever since.
There are a few explanations worth entertaining:
If it was merely a case of early forecasts misjudging the market size, one would expect to have seen revenue numbers plateau at some point.
Instead, all three states have experienced declining revenue following their early peaks, which seems to indicate that the culprit is a combination of factors 2 and 3 mentioned above.
Unless these factors are resolved this could also mean that market maturity has already been effectively achieved – a conclusion buoyed by the current data we have from Nevada, Delaware, and New Jersey.
New Jersey started off strong, and over its first four months the industry looked to be heading towards the numbers conservative analysts forecasted for Year 1.
A steady decline during the spring and summer months dashed those hopes.
As seen in the chart below, generated from the New Jersey Division of Gaming Enforcement’s monthly revenue reports, the industry rebounded slightly in July and August (but never approached the previous high water mark) before falling into a deeper decline during the fall.
The expected seasonal bump has not materialized, and by the end of 2014 monthly revenue hit an all time low (a giant jackpot win didn’t help, but also didn’t change the larger story).
New Jersey’s graph is the most linear of the three states, but the state was also the quickest to peak.
As you’ll soon see, New Jersey’s peak was also less pronounced than both Nevada and Delaware, as both of those states saw peaks far exceeding any other month.
New Jersey’s peak in March of 2014 is only 4% higher than April’s tally.
On the other hand, Delaware’s peak in April was 17% larger than the state’s next best month (March), and Nevada’s peak in October of 2013 is more than 20% higher than any other month.
Based on the chart below, created from the Delaware Lottery’s revenue numbers, Delaware peaked in its sixth month before suffering a pronounced decline, followed by several months of relative stagnation.
The industry then dipped further, before rebounding in November, but the uptick only managed to return revenue to around the falloff point.
The size of the Delaware market, and the lack of a vibrant poker economy may explain why the state was able to avoid the continued declines seen in New Jersey and Nevada.
Removing September and October 2014, Delaware revenue remained relatively consistent, generating between 172k and $184k each month.
Nevada is the oldest legal online gaming industry in the U.S., but because the state only started releasing revenue numbers in February of 2014 when a third operator (Real Gaming) went online, it has been one of the most difficult to track.
Fortunately, the NGC releases year-over-year comparisons in their monthly revenue reports allowing us to calculate the revenue projections from the unmeasured months of 2013. However, it won’t be until early February that all the gaps are filled in.
This shouldn’t be too surprising since the state is poker-only, and subject to the seasonal trends and volatility of that industry, whereas Delaware’s and New Jersey’s revenue is dominated by the more consistent earnings of online casinos.
Even with its inconsistency, Nevada still fell in line with Delaware and New Jersey’s trend of peaking early before steadily declining.
The chart below* (which contains some guesswork for December 2013 and January 2014) indicates Nevada’s iPoker revenue peaked six months after launch (roughly corresponding with WSOP’s launch in Nevada), but didn’t follow the same pattern of continued ascension as New Jersey or Delaware.
As noted above, Nevada is an outlier. The state is poker-only, and will see a unique two month surge during June and July thanks to the convergence of online poker players on Las Vegas for the World Series of Poker.
These factors are the key reasons the state’s graph appears so wonky compared to New Jersey and Delaware.
If we remove the pronounced bump from the World Series of Poker tournament series in June and July of 2013 and 2014 (as seen in the chart below), Nevada’s graph is far more linear than it currently appears, and the trend is actually quite similar to New Jersey and Delaware, with an early steady ascension followed by a slow, steady drop-off.
This not only demonstrates poker is a more volatile industry, it also confirms Uptake #2, that poker has high attrition rates.
In all three markets the revenue high water mark was achieved after just 4-6 months.
Again, in all three locales, this buildup was followed by a sharp drop-off and then a slow regression, with the occasional but mostly explainable (seasonal or WSOP) uptick.
If this trend continues in 2015 we may have to reconsider when market maturity is reached and find solutions to prolong the initial ascent.
For instance, is there a way to slow the rate of player attrition to better maintain player bases and revenues? Possible solutions include: lessening casual players’ losses by implementing loss-back programs, or instituting exclusive tables, such as disallowing multi-tabling at certain tables.
Or perhaps it’s the previously mentioned outside forces at work? Perhaps the markets could surpass their early peaks (or at the very least bounce back to those levels) if and when the product improves and hurdles such as payment processing are removed.
Then again there is always the possibility that poker’s popularity is waning, and the availability of other options such as DFS or social gaming are fundamentally eroding the potential of the online casino and poker industries.
*NOTE on Nevada revenue chart #1: Revenue from April 2013-January 2014 is based on the NGCB’s year-over-year revenue changes, and data from UNLV, and may not be 100% accurate.
*NOTE on Nevada revenue chart #2: December 2013 and January 2014 are estimated based on NGCB reports indicating $7.7 million in revenue was generated between launch and January 31, 2014. After removing the data available based on year-over-year changes there was roughly $2.1 million in revenue outstanding that can be attributed to December of 2013 and January of 2014.