That study concluded that the PA market for regulated online gambling (casino and poker) was worth some $184 million in first year revenue, and $307 million in ongoing revenues.
Since, two of Pennsylvania’s neighbors – New Jersey and Delaware – have wrapped up their first year in the industry, and are deep enough into their second that meaningful year-over-year comparisons can be drawn.
What follows are updated revenue projections for Pennsylvania’s iGaming market, utilizing data from Econsult and other reputable sources, and taking into account existing US regulated market performance.
Source Econsult Academicon Eilers Research Simple NJ model Penn National OPR
Poker Year 1 $77 $45 $38.9 $42.7 n/a $42.5
Poker Mature $129 $61 $52.5 n/a n/a $48.1
Casino Year 1 $107 n/a $125.7 $128.2 n/a $121
Casino Mature $178 n/a $161.3 n/a n/a $175.6
Total Year 1 $184 n/a $164.6 n/a $250 $165
Total Mature $307 n/a $213.8 n/a $350 $223
Payne, who also acts as the Chairman of the House Gaming Oversight Committee, is arguably the strongest champion of online gaming in Pennsylvania.
Key talking points of Payne’s bill:
There is a wealth of data available to analysts now that wasn’t present when Econsult released its findings: 16 months worth of revenue data from New Jersey and Delaware, and approximately a year’s worth of poker-only data from Nevada’s regulated market.
Given that Delaware and New Jersey are the only two US regulated markets to offer both poker and casino gambling, and because they border the Keystone State on at least one side, they seem the most obvious starting point of comparison.
New Jersey is the better candidate of the two, for the following:
Also worth mentioning is that land-based casinos in New Jersey and Pennsylvania put up similar revenue numbers last year:
However, not too much stock can be attributed to this similarity, as a significant portion of Pennsylvania’s land-based casino revenue is generated from New Jersey residents. Also, industry experts have already debunked the myth that regulated online gambling has a cannibalization effect on land-based casino revenue.
What is worth taking away from this statistic is that Pennsylvania boasts an involved and enthusiastic gambling community.
This all being said, there are key differences between the two markets that lead me to believe that utilizing the simple New Jersey model to forecast Pennsylvania iGaming revenue will prove somewhat inaccurate.
With this in mind, the simple New Jersey model will be tweaked based on changes to the regulated climate, the differences between the average PA and NJ resident, and findings recorded by Econsult, Eilers Research and Academicon/PokerScout.com.
Worth noting is that Academicon/PokerScout produced the most accurate forecasts of the New Jersey market, and offered its own take on Pennsylvania’s online poker industry – a summary of which was posted in PokerScout’s subscription-based Scouting Report.
Generally speaking, casino revenue is a bit easier to predict than poker revenue, as the average casino player’s experience is not dependent on overall liquidity.
New Jersey’s casino market generated $89.64 million in its first full 12 months (December 2013 – November 13).
Applying a population multiplier of 1.43x reveals that according to the simple NJ model, Pennsylvania online casinos can expect to generate $128.24 million in first year revenue.
As implied earlier, the simple New Jersey model is a worthy, yet imperfect, indicator of Pennsylvania iGaming revenues.
Other factors that weigh into our equation:
GDP %: According to the Econsult report, “Pennsylvania had a GDP of $601 billion,” or 3.86% of total US GDP in 2012. New Jersey’s for 2013 was 3.05%.
Based on this variable alone, PA’s first year online casino revenue would only be $113.44 million (1.27x multiplier).
While I’m inclined to believe that this comparison of Pennsylvania to New Jersey is the more telling, it’s still not the say-all-end-all.
Economic and demographic differences: As per Econsult, iGamers “are younger, more likely to be male, have a higher income, more education, and more likely to be employed.” It’s in some of these areas that the differences between the average New Jersey and Pennsylvania resident really begin to present themselves.
The median age in Pennsylvania is 1.2 years higher than in New Jersey (40.6 vs. 39.4). Furthermore, New Jersey residents earn significantly more income ($61.8k vs. $53.9k) and are more likely to receive advanced degrees.
Pennsylvania’s low unemployment rate (5.3% as of March 2013) is the only variable to suggest that the prevalence of iGamers will be higher in the Keystone State than in New Jersey. But that’s hardly enough to offset the statistics that point to the contrary.
The absence of Sands: In fiscal 2013/14 Sands Bethlehem generated the second most slot revenue ($280.4 million) and by far the most table game revenue ($543.6 million) of any Pennsylvania casino.
I don’t see Sands lack of participation as having a dramatic impact on Pennsylvania’s online casino revenue, if only because there are several other top-shelf casinos located in the state’s major cities (Rivers, Parx, Harrah’s Philadelphia etc.). And in New Jersey, land-based casino success did not translate perfectly to online gaming success.
As to the latter point, in March 2015, Tropicana / Virgin generated more revenue than Borgata / Party, despite the Borgata’s dominance on the b&m front. The Golden Nugget, which currently ranks 5th in revenue among Atlantic City’s eight casinos, is also pulling in more than respectable iGaming numbers.
To sum up, Sands will be missed, but not so much that its absence causes the market to fall more than a few percentage points off its potential.
Technological advances: Since New Jersey’s regulated market went live, great strides have been made in the areas of payment processing , technology and geo-location, with more on the way.
Pennsylvania’s industry will undoubtedly suffer from fewer technological gaffes than New Jersey’s. That’s not necessarily to say that the launch will go exactly as planned, but given that many of same iGaming operators from New Jersey will be participating in PA, I presume that they’ll carry over valuable lessons.
Geo-location is a bit trickier. Yes, the technology has improved, but Pennsylvania may suffer from more border issues than any other state presently offering regulated iGaming services. This is a consequence of it being land-locked, bordered by six different states and featuring some of its largest population clusters near state lines.
Regarding payment processing, with the addition of third-party vendors and at least the prospect of improved credit/debit card success rates, it’s safe to say that a significantly higher percentage of Pennsylvania players will be able to load funds online during the market’s first few months relative to New Jersey.
Although that’s not saying much.
After assigning weights to the two New Jersey models (simple and GDP %), and either docking or appending points for the other considerations as listed above, I derived at a base figure of $121.9 million.
I then attributed an equal weight to the first-year casino numbers provided by Eilers ($125.756 million) and a lesser weight to Econsult’s estimate of $107 million to derive final estimates:
The bull case is driven by the assumptions that PokerStars will be present in the market on Day One, Pennsylvania regulators will enjoy the same fluid path they did in New Jersey (which given the setup of Pennsylvania’s gambling operation and the language of Payne’s bill, they should), as well as a higher credit/debit card acceptance rate and the entry of other third-party processors, such as Paypal.
While I see PokerStars having a greater impact on poker revenues, its brand recognition and marketing power are undeniable. That being said, indicators suggest that Amaya will be launching its US casino brand under the Full Tilt moniker, which in my estimation, will negatively impact bull case estimates – but not by much.
The bear case assumes that none of the aforementioned happens, a lackluster marketing effort on the part of the state’s major iGaming operators, and in-person registration for online properties at an affiliated land-based casino.
As to the latter point, in-person registration is a positive in the sense that it effectively bridges the gap between the average online and live consumer, which as evidence suggests, are from two widely different demographic sectors.
However, outside of the cluster of casinos in Philadelphia, most PA gambling facilities aren’t exactly within a stone’s throw of one another. This hinders the ability of some patrons to sign up for multiple accounts, thereby diminishing revenues – at least initially.
There is no mention of in-person registration in Payne’s bill, but Representative Robert “Tommy” Tomlinson has gone on record as in support of the idea.
From Q1 2014 to Q1 2015, New Jersey’s casino industry grew by 37.5%. I do not expect this type of year-over-year growth in Pennsylvania, for the following:
The latter point is worth expounding upon. New Jersey casino operators experienced a myriad of growing pains, not to mention delayed entries.
What resulted was a prolonged ramp-up period where industry revenues started low and grew significantly from month to month, finally stabilizing at around the six-month point (April 2014).
Because market stabilization was mostly achieved by Q2 2014, I don’t see the same year-over-year growth for the remaining quarters of 2015.
Instead, I expect second year growth in New Jersey to be less than what it was in March 2015 (26%), and for reasons listed above, lower still in Pennsylvania. Subsequent year growth will likely be even smaller.
Eilers employs the five-year mark for maturity, and I’ll do the same:
Poker is a slightly more complicated beast than casino. Operators rely heavily on present liquidity to attract more players. Entire marketing campaigns are centered around the number of available game offerings and the size of Sunday and nightly tournament guarantees. And there is often a huge disparity in market share between the top 1 – 2 operators and the rest of the pack.
Thus, while the adjusted New Jersey model remains a strong basis of comparison, additional variables must be considered.
In its first 12 months of operation, New Jersey’s online poker business generated $29.89 million. After applying the same 1.43x population modifier that we did for casino, that equates to $42.74 million first year online poker revenue for Pennsylvania.
One additional variable worth factoring in is the prevalence of online poker in Pennsylvania prior to Black Friday. Econsult refers to a study conducted by Fielder and Philander in 2011, using data extrapolated from the Online Poker Database of the University of Hamburg, which revealed that “Pennsylvania accounted for 3.36% of the U.S. online poker market, which placed the state 8th overall.”
Interestingly, both Pennsylvania’s population and GDP % rank are 6th. As discussed earlier, Pennsylvania’s GDP’s accounts for 3.86% of total US GDP. PA comprises just over 4% of the United States population.
Together these statistics suggest that Pennsylvania residents spent less on online poker than the average US citizen.
Then again, the poker playing climate in Pennsylvania is vastly different now than it was five years ago, largely due to the introduction of live poker at many of the state’s brick and mortar casinos. Last year, non-banked table games grossed over $228 million.
Whether this increased exposure to live poker will have a profound impact on online play is difficult to say, but I do expect it to have at least a token influence.
Out-of-state registrations account for approximately 15% of all signups on PartyPoker NJ.
That doesn’t necessary mean that non-NJ residents are responsible for 15% of online poker revenue, but it’s reasonable to assume that on weekends and during live tournament series at the Borgata, out-of-state do comprise a significant portion of NJ’s player pool.
Why is this significant? Two reasons:
My gut tells me that these two variables will have a slight net negative effect, as New Jersey sites draw traffic from both Philadelphia and New York City. The only major city within 50 miles of Pennsylvania’s border is Baltimore.
At the same time, Pennsylvania’s borders cover a significantly greater area, and could attract players from a variety of connecting states.
I’m inclined to say no. In its early days, average cash game traffic on the New Jersey market peaked at around 600 players, the top performing network (Party / Borgata in January 2014) accounting nearly 60% of that figure. This, as per data gathered from Poker Industry Pro via PokerScout.
Since, cash game liquidity has hovered largely in the 280 – 420 range. Applying a population multiplier to the high end of that range, and accounting for other variables independent to Pennsylvania, as well as the out-of-state player issue discussed above, and our bull case for cash game averages during Pennsylvania’s first year in the market comes out to roughly 575.
Assuming that the PA market can sustain one to two poker operators (more on that later), individual network liquidity will resemble that of second tier networks in the ring-fenced markets of France, Italy and Spain. Specifically, sites like iPoker.fr, 888poker.es, Georgian site Europe-Bet and iPoker.it.
Much like the case in New Jersey, not a single one of these operators boasts a sustainable fast-fold segment, nor do alternative game formats – defined as any game expect Hold’em and Omaha variants – run with any consistency.
It’s difficult to envision the Pennsylvania market functioning any differently, with perhaps the only added benefit being that operators will have a slightly easier time filling seats for its tournament guarantees, provided they’re not more aggressive than those found in New Jersey.
Thus, in the most likely scenario, liquidity in the PA market will beget additional liquidity at about the same rate that it does in the Garden State.
Worth noting, is that if PokerStars manages to achieve total dominance over the PA market, then it just might have enough liquidity to sustain a fast-fold playing environment during peak hours. The odds of this happening and its potential impact on revenue are small enough that this caveat will only carry a little weight.
Most indicators point to two. In every ring-fenced market, and both .com (US and ROW) markets, the top two operators comprise over 63% of cash game traffic.
Every single one of these markets has access to a significantly larger segment of the population than Pennsylvania will.
The only question is, will one operator dominate the rest, as is the case in Spain, Italy and the ROW .com markets, or will two leaders emerge, as in New Jersey and France?
That may hinge heavily on whether PokerStars is an early entrant into the market.
In either case, expect anywhere between three and eight poker operators out of the gate, and for the market to consolidate to two sustainable rooms by maturity.
Early fragmentation of the market may have a net negative impact on gross revenue, although this may be partially offset by increased marketing efforts, as operators vie for one of the top two spots.
Starting with our base analysis and readjusting for the additional considerations independent for poker, I settled upon baseline first year online poker revenues of $40.24 million.
Weights were then attributed to the projections from Eilers Research ($38.92 million), Academicon/PokerScout.com (~$45 million) and to a significantly lesser extent Econsult ($77 million).
The bull case assumes that PokerStars PA is part of the first wave of regulated online poker sites. Our high end estimates for poker are a bit more optimistic than for casino due to the immediate impact PokerStars’ presence will have on the state’s poker playing community.
Improvements in the areas of payment processing, as well as a desire among more than two operators to vie for significant market share via aggressive upfront marketing expenditures also factors into the bull case equation.
The bear case is realized in the absence of PokerStars, a continued decrease in online poker popularity, early technological hurdles and low iGaming transaction approval rates.
Eilers Research sees Pennsylvania’s online poker market reaching maturity in five years, at which time it will generate $52.55 million in revenue. PokerScout/Academicon employs the 10-year mark, and predicts approximately $61 million at maturity; significantly more if Pennsylvania forges a liquidity sharing compact with other states.
Both see the industry reaping more revenue in its third year than Year One, and more in its fifth year than third.
Makes sense. Yet there are indicators that PA’s iPoker industry may have trouble growing in the absence of a liquidity sharing arrangement.
To wit: In Q1 2015, online poker operators in New Jersey generated $6.57 million in revenue, a -32.7% falloff from the year prior.
Granted, much of this has to do with the novelty of regulated online poker being at an all time high in early-2014, not to mention player’s misconceptions regarding liquidity. Given this, I do expect the differential between Q2 2014 and Q2 2015 to be smaller. However, traffic comparisons suggest that a negative differential will still exist.
In short, there’s little reason to believe that New Jersey poker sites, and by extension rooms in Pennsylvania, will generate more revenue in Year Two than in Year One.
We’ve witnessed similar patterns in other ring-fenced markets, such as Italy, where online poker has been mired in a multi-year decline.
Part of this decline can be attributed to an overall decrease in online poker popularity. The rest? A few theories come to mind:
While market consolidation and global industry stabilization are likely to occur, a dearth of depositing players and waning operator motivation are potentially multi-year problems.
Thus, in the absence of a liquidity compact, I have the industry growing only slightly over the course of its first five years:
My analysis tells me that Pennsylvania’s intrastate iGaming industry will generate somewhere between $145 – $198 million in its first year, with the highest level of confidence at $165 million.
At five years, expect revenues to be somewhere in the range of $192 – $271 million. Highest confidence at $223 million annually.
During its first year, online casino revenue should comprise approximately three-quarters of total iGaming revenue, shifting up to nearly four-fifths by maturity.