Professional Documents
Culture Documents
PA Online Gambling: A Billion-Dollar Opportunity
PA Online Gambling: A Billion-Dollar Opportunity
A Billion-Dollar Opportunity
For Pennsylvania
Projecting the shape and size of Pennsylvanias regulated
online gambling market through 2022.
Contents Author
Key numbers 3 Robert DellaFave acts as an analyst
and consultant within the land-based
and online gambling spheres, with
a strong emphasis on the emergent
Executive summary 4 regulated U.S. market. As an avid poker
enthusiast, DellaFave offers unique
perspectives that blend the vantage
How much revenue will points of both the player and the
Pennsylvania generate from industry professional.
regulated online gambling? 5
$364
Our analysis shows that regulated
online gambling in Pennsylvania will
generate $230 million in revenue
for casinos in year one, growing to
million $364million by year five.
$426.3
regulated online gambling in
Pennsylvania will pay $46 million in
taxes to the state in its first year.
After five full years, operators will
million have contributed $426.3 million in
taxes and fees to state coffers.
Source: PlayPennsylvania.com
For online casino, a 25 percent rate would likely By contrast, table game revenue (taxed at just 16
result in decreased marketing spend, tighter slots, percent) continues to thrive, up 24.1 percent over
and less than favorable rulesets for table games. the same time span.
In turn, acquisition and retention rates will almost
undoubtedly suffer. For online poker operators, who already rely
on razor thin margins, the tax rate may prove
Backing this theory, note that land-based slot untenable. In a bear case scenario, not a single
machine revenue in Pennsylvania, which is taxed online poker operator enters the market, costing the
at an oppressive 54 percent rate, is down 4.5 state tens of millions in tax revenue over time.
Tax generated (at 20% rate) $46000000 $51800000 $59000000 $66200000 $72800000
Thus, Pennsylvania online casinos will presumably The likelihood of Sands participating in online
launch with much stronger payment processing gambling in Pennsylvania is near to nil. Going
vehicles. This is a critical component of industry further, its plausible that Adelson would dedicate
success, as it will enable Pennsylvania online casinos funds to deterring players from participating in
to establish strong relationships with customers Pennsylvania online gambling.
when acquisition rates are at their highest.
Category 3 casinos
Furthermore, cash at the cage is a more viable Two of the states 12 land-based casinos are
cashiering vehicle in PA, as more of the customer base Category 3: Valley Forge and Lady Luck Nemacolin.
is likely to be within reasonable distance of a casino. Even if theyre permitted to apply for an online
gambling license, will they want to spend $8 million
The disparity between New Jerseys adjusted year or more on it? Both generate well under $100 million
one online casino revenue and our projections for annually, with Lady Luck coming in at just $29.9
Pennsylvania would be even wider if not for a few million last fiscal year.
negative comps between New Jersey and PA.
Demographics
Absence/pushback of Sands Bethlehem New Jersey residents have a higher GDP per capita,
In fiscal 2015/16, Sands Bethlehem accounted for and higher median income than their Pennsylvania
12.8 percent of PAs land-based casino revenue (only counterparts. Despite Atlantic City supporting higher
Parx Casino generated more). Owner Sheldon Adelson return slots, land-based casino revenue per capita is
has been a vocal opponent of online gambling for the marginally higher in New Jersey than in Pennsylvania.
past several years, and is the driving force behind an Internet penetration is significantly higher in New
attempt to institute a federal ban on the activity. Jersey (87.8 percent vs. 77.8 percent in PA).
Because of this, we believe Pennsylvania will get off to The situation stands to be similar in Pennsylvania,
a rocket fire start, but experience more incremental where industry latecomers will attract locals and
annual growth than New Jersey. Our analysis shows players who spread their gambling dollars across
annual gains of approximately 1617 percent in years multiple sites. Its worth noting that if too many
two ($220 million) and three ($259 million), followed brands launch late, then Pennsylvania will more likely
by progressively smaller spikes each year thereafter. resemble New Jersey, with a lower starting point and
pronounced upticks in years two and three.
By year five, our estimates have the industry
generating $329 million in gross gaming revenue, a Improvements in payment processing
cumulative uptick of 74.1 percent. By year five, Pennsylvania should expect some
improvement in payments, either via banks relaxing
By the time market maturity is reached in year five, or operators innovating out of necessity. By year five,
Pennsylvania online casino revenue will parallel PayPal, which to date is only available on a handful of
that of the year five performance of the New Jersey New Jersey sites, should see widespread integration.
market, after adjusting for population.
Increased awareness
This suggests that any advantage Pennsylvania Consumer awareness and confidence are cumulative
gains over New Jersey from targeted marketing gains that at this juncture are essentially uncapped.
efforts will be offset by negative demographic By year five, U.S. regulated gaming sites will probably
comps. On a revenue generated per capita basis, we have successfully lobbied Google and/or Twitter to
believe the two industries to be nearly identical. allow for pay-per-click ads, accelerating growth.
Y1 Y2 Y3 Y4 Y5
Source: PlayPennsylvania.com
only needs to restart the game. Whereas in online Diminished local marketing effect
poker, disconnects are severely disruptive to game Interest in online poker is too sparse for land-based
flow. And because liquidity begets liquidity in online operators to only target unique databases. Instead,
poker, just a smattering of disconnects can have a theyll have to reach out to the broader Pennsylvania
compounding effect. market, resulting in a less focused marketing
relationship.
By supporting what will presumably be more stable
platforms at launch, Pennsylvania online poker Economic and demographic variables
operators are virtually guaranteed higher retention On balance, Pennsylvania residents make less
rates in year one. income, are slightly older, and spend less annually
on gambling than in NJ. All these variables could
But we believe the advantages Pennsylvania will have have a negative impact on online poker revenue.
over New Jersey will be offset, or more than offset,
by several negative comps. General decline of online poker
The global online poker industry is in the midst
Weaker marketing push of a multi-year decline, one that has forced
Having learned a valuable lesson from NJ, most operators to radically adjust their business
Pennsylvania operators will throw the bulk of their models. The hemorrhaging slowed in 2016, but the
marketing spend behind online casino. Expect online industry has yet to find its floor. Simply put, the
poker launch promotions to be solid, but were unlikely online poker climate is more hostile now than it
to see the type of promotional fire sales like 888 was when New Jersey online poker launched in late
Pokers 80 percent rakeback offer that we did in NJ. 2013.
$41m
$39m
$36m $35m $35m
Y1 Y2 Y3 Y4 Y5
Source: PlayPennsylvania.com
Key themes that will drive the decline follow. The broader decline for online poker
Although there are some indicators that online
Weak marketing spend pokers now six-year downtrend is losing steam, it
The drop-off probably wont be as dramatic as in may be years before it pulls an about face, if ever.
NJ, since Pennsylvania operators will likely cap their One or two clever innovations may save the day, but
launch spend at a lower point. Regardless, over until that happens, we see the online poker industry
time we do expect brands to shift their marketing in general continuing to decline.
52.1m
19.7m
12.8m
8.9m
6.8m
3.9m
PA NY NJ MA NV/DE Total
Source: Wikipedia
Robert DellaFave
robert@onlinepokerreport.com
PlayPennsylvania.com
OnlinePokerReport.com
March 2017