- US Online Poker
- US Online Casinos
- US Online Sports Betting
That’s the latest upshot from a new revenue report by The Innovation Group, which surfaced at Tuesday’s joint Pennsylvania House and Senate Committee hearing.
Innovation’s projections are based on the performance of the New Jersey online gambling market, which after a sluggish start, has grown at a torrid pace. In 2016, the NJ industry generated nearly $197 million, most of that from the online casino vertical.
That represents a 32.1 percent uptick over 2015. And as we approach the quarter-year point of 2017, the industry has shown no obvious signs of fatigue.
As part of its methodology, Innovation laid out projections for NJ through 2019. The group sees the market growing at a more tempered, but still impressive, pace over the next three years, ultimately capping out at $284.3 million in 2019.
This figure was used as a baseline for the larger state of Pennsylvania, which the report concludes will generate $413.8 million at maturity (2019).
This top-line number is based on a composite average of three different models:
Other broad conclusions as indicated in the report:
In its report, The Innovation Group — which also provided verbal testimony at Tuesday’s hearing via company associate Paul Irvin — indicates that online gambling does not cannibalize brick and mortar casino traffic. If anything, it has a complementary impact.
It reached the following conclusion based on a conducted survey:
“Overall, more survey participants stated their spend and frequency to land based casinos would increase with the ability to play online than those who said they would spend and visit less.”
Innovation also cites real world examples, one of which was provided by VP of online gaming at Golden Nugget Casino Thomas Winter, who has said that “80 percent to 85 percent of their online customers” are not casino regulars. More here.
Caesars’ SVP of Government Relations David Satz further debunked the cannibalization myth at Tuesday’s hearing, when he stated that 80 percent of Caesars’ online casino signups were not existing Total Rewards members. Many of these online-only players would eventually visit Caesars’ physical properties.
More on Caesars’ testimony here.
One notable takeaway from the report is that Innovation sees great value in eventual interstate compacts between Pennsylvania, New York, and New Jersey.
It projects that a liquidity sharing compact with New Jersey alone will increase revenue 2.5 percent, with the “vast majority of added value” coming from online poker pacts.
Sharing liquidity with New York will result in a 7.4 percent uptick. And should all three states merge their player pools, revenue will rise by 9.9 percent, or based on the report’s projections, roughly $41 million.
In 2019, we estimate that the prospective Pennsylvania online gambling industry will generate $259 million in gross gaming revenue, nearly $155 million less than what Innovation foresees.
We do however, see revenue spiking to $364 million by 2022. But this presumes that the industry will be in its fifth year of operation.
So why the vast discrepancy?
Innovation bases its projections off the performance of the New Jersey market in 2019, which will be the state’s sixth full year in the industry. Should legislation pass this session, 2019 will only be PA’s second year in the industry, at best.
In our estimation, using the mature NJ market as a starting point to project what could presumably be first full calendar year results in Pennsylvania led to inflated results.
Now that’s not to say Pennsylvania won’t get off to a much hotter start than New Jersey, but New Jersey has more than since compensated for its pedestrian launch.
Like The Innovation Group, we also believe that Pennsylvania online gambling revenue could eventually cross the $400 million barrier, as at this juncture, the market’s potential is essentially uncapped.
But that won’t likely occur until a few years down the road; the “when” being somewhat dependent on how swiftly we see improvements in areas like payment processing and mobile technology.
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Innovation’s projection that PA online gambling revenue will spike over $40 million if PA forges an interstate liquidity compact with NY and NJ also feels ambitious.
To wit, we estimate that the entire intrastate PA online poker industry will struggle to make $40 million per annum.
Admittedly, in online poker liquidity begets liquidity, so it’s likely that PA online poker revenue will benefit from interstate. But it seems implausible that any amount of compacting would result in revenue effectively doubling.
All this said, there is one thing we can both agree on: Pennsylvania online gambling is a valuable economic opportunity for both operators and the state, that will provide a substantial and reliable source of revenue for years to come.