A big week for state-sponsored online gambling

By Cate Long
February 25, 2013

“Around the world, people are shifting their gambling from traditional slot machines and tables to online and mobile devices,”  David G. Schwartz, director of the Center for Gaming Research at the University of Nevada, Las Vegas. (via Philadelphia Inquirer)

States are battling to get control of gambling via the Internet. Nevada, which has the largest casino-based gambling business, passed legislation this week that allows it to grant licenses for online gambling and to enter multi-state pacts to extend the reach of its licensees. Meanwhile, New Jersey is queuing up legislation to jump into the online gambling race. Delaware was the first state to allow online gambling, but it has a more restrictive approach that requires that players reside in the state.

Online gaming is being built on a broad foundation of national gambling. The Rockefeller Institute laid it out in a 2010 report:

Currently, 43 states operate lotteries, 15 allow commercial casinos, 12 have racinos [a combined race track and casino], and over 40 states allow pari-mutuel wagering [a group bets against each other, rather than the house or race track]. Lotteries and casinos generate the bulk of gambling-related revenues. While traditional casinos experienced dramatic growth during the 1990s, much of that growth has shifted to racinos in recent years as more states have approved such facilities. Pari-mutuel betting, once the major source of gambling revenue for states, now represents less than 1 percent of the total.

Gambling revenues for states was about $24 billion in 2010, with lotteries earning about 73 percent of over-all proceeds. Casino revenues have been flat. A new luxury casino, Revel, declared bankruptcy this week after garnering minimal business in the saturated Atlantic City market.

Overall gambling revenues represent about 1.5 percent of state revenues. States see gambling as a way to supplement other revenue sources (Rockefeller Report):

When tax revenue weakens during economic downturns, states often consider expanded gambling among other options for balancing budgets. Such has clearly been the case during the Great Recession and its aftermath, as states have searched for ways to offset sharp declines in tax revenues. In fiscal 2010, at least 10 states enacted measures to expand gambling. Pennsylvania legalized poker and other table games at its casinos and racinos. New York joined nine other states in multi-state lottery games and expects to generate some $19 million in additional revenue as a result. New Hampshire imposed a 10 percent tax on gambling winnings greater than $600 annually.

The continued expansion of both online and non-internet gambling means that either more people will take up gambling, or those who gamble will increase how often they wager. Online gambling has the potential to do both; broaden the gambling audience and become more addictive to those who already gamble. But overall the revenue gains for states are bound to be modest.

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