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Saturday, January 21, 2017

Where Are We With Legalized Online Gambling In The United States?

In a recent previous blog I wrote about the explosive growth of social casino relative to the apparent slow growth of the legal US online gambling market. There are obvious reasons why social casino has been so popular relative to legal online gambling. 

The most obvious one is that social casino is not regulated  and available  to all. Legal online gambling is relatively restrictive when compared with the social casino. Currently,  only  New Jersey and Delaware have legal and regulated online gambling regimes. Online gambling is not legal on a federal level or across state lines. Regulated online gambling  also has age restrictions that  constrain  the total number of "legal" online gambling players.  

The Europeans have had  legal regulated online gaming for a decade and have demonstrated that a legal regulated online gambling can work. The United Kingdom, in particular,  has a  long history with legal online gambling and a well documented  legal framework that supports online gambling. Other countries such as France, Italy and Germany allow online gambling as well leveraging the British experience with legal online gambling.

Europe started its legal online gambling regime placing regulated gambling sites  on "offshore" hosted  gambling  regimes such as Gibraltar, Alderney, Isle Of Man, Malta, etc.  that  are British protectorates subject to British laws and regulation. This helped to avoid localized regulation and certain taxes that could impact the profitability of  online gambling business.

The US has taken a different approach setting up online gambling on a state by state basis. New Jersey and Delaware are currently hosting  legal online gambling. However, a number of other US states (Michigan, New York and Indiana) are floating legislation to also host legal online ambling for residents of their states.  This could lead to state compacts that combine players from several states to participate in multiplayer games such as poker.

So, if social casino is so much more popular then "real" online gambling why are many US states considering online gambling as a legal activity? The obvious reason is that online gambling generates much more revenue per player then social casino resulting in higher tax revenue from online casinos.

The Average Revenue Per Unit(ARPU) of a social game is  between .25 and 1.25 with no cash out. The ARPU for an online gambling player is $500!! and proceeds from "online gambling" can be redeemed and subject to taxation.  This means that gambling licensing fees can be levied by the individual states that are interested in setting up a licensing regime within there states. Also taxation can apply to gross revenue and profitability of online gaming. 

It has only been in the last year that we have seen meaningful legislative interest in legalizing online in states other then New Jersey and Delaware. The reason for this is that New Jersey and Delaware are demonstrating that legal online gambling can be successfully administrated. More importantly both New Jersey and Delaware have proven that  online gambling businesses  can be profitable resulting in the ability for states to garner licensing revenue and  taxes on profits of online gambling business operating in their states. Also online gambling businesses do employ residents resulting in wages for these residents and additional tax receipts for the states hosting online gaming businesses.

New Jersey - New Jersey has a population closing in on 9 million residents .  Revenue from online gambling operations came in at close to 18 million USD for 2016. 

Delaware - Delaware has a population of 900,000 closing in on 1 million residents. Gambling revenues for 2016 are still not available for Delaware. However in 2015 the state raked in 1.8 million in revenue from gambling operations.

UK Gambling Revenue - In 2015 the UK raked in 4.5 billion pounds (1 pound = 1.2 USD) in online gambling revenue!! Granted the UK has a robust online sports betting regime and has been hosting online gambling for a decade or more. However, these numbers do point out that if properly organized and regulated online gambling can become a very big money maker and source of licensing and tax revenue  in the US over the coming years.

More States Considering Legal Online Gambling - With the numbers coming in from Delaware and New Jersey we are seeing renewed interest in other US states such as Michigan, Rhode Island , Hawaii, etc. considering online gambling legislation. 

The US is in the infancy of regulated online gambling. However, as the UK and other European countries and protectorates  have proven  regulated online gambling can be a safe  lucrative business and a source of tax revenue for  US state governments interested in regulating online gambling. The popularity of social casino gaming has proven that the US population enjoys playing gambling style games online. It is only a matter of time before US state legislators recognize that online gambling is a safe and  great source of tax revenue. If you have legal land based casinos why not online casinos? In point of fact illegal online casinos are making a fortune on US players. It is time we give the US population a safe and secure place to wager and have fun!!

Kevin Flood is the CEO of Gameinlane, Inc. Kevin spent time at the Machine/Learning Lab at MIT as a technology transfer fellow engaged in model based reasoning, case based reasoning and rule based systems to enhance diagnostics systems.    Kevin has worked for and with US land based casino operators helping them evaluate social casino and iGaming platforms for the purpose of joint ventures and acquisitions in addition to launching online gambling operations in Europe. Gameinlane is also startup "friendly" understanding the unique value new gaming companies bring to the marketplace.  Kevin frequently speaks at gaming conferences around the world providing him with a unique perspective on this very interesting business sector. Kevin can be reached at kflood@gameinlane.com  and or twitter  at @kflow1776.

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