As we start thinking about what the New Year will bring, we have one item high on our wish list: that some clarity be brought to the future of online gaming and its impact on the brick-and-mortar segment of the gaming industry.
Right now, online sports betting and iGaming are subject to a variety of cross currents. There is the threat – actually likelihood – that governments will crack down in various ways. We see that happening internationally, and suspect the U.S. is to follow.
As examples, the United Kingdom is about to levy a tax of 0.1 to 1.1 percent of gaming revenues to support programs intended to mitigate gambling harms on susceptible individuals. That is on top of the current 21 percent revenue tax. Further, online wagers may be capped at £2 for persons 18 to 24 years of age and £5 for those older.
In Australia, the government of New South Wales is slashing allowed daily losses by 90 percent to US$323. Victoria may follow with a US$64 funding limit.
These are among many efforts in many nations to limit online gambling losses. And, what happens in one nation will happen in others as legislators look for ways to rein in iGaming. Another example of legislators and regulators copying counterparts is in restrictions on sports betting advertising that are popping up throughout the world.
We’ve already seen numerous proposals in various states in the U.S. to implement these kinds of controls. Obviously, these types of restrictions widely adopted would have a negative impact on some companies, especially those that have been in the business for a while and have business models and profit expectations based on earlier tax and regulatory regimes.
Of course, there’s a more positive reason from the industry’s perspective for why legislators and regulators want to contain iGaming – it’s growing rapidly.
The poster child in the U.S. for growth is New Jersey. Its brick-and-mortar casino industry is well established and well known, but it also has recently been surpassed in gaming revenues by iGaming and online sports betting.
New Jersey is not alone. Online gaming revenues are growing by double-digits throughout the country; and while 2024 disappointed many industry advocates because of the dearth of new jurisdictions that have come online, you can bet more will open in the next several years. In short, iGaming is a rapidly growing industry.
Of course, growth in revenues doesn’t automatically mean growth in profits. As we’ve seen, despite their promises to rein in player acquisition costs (which they euphemistically call reinvestment) most operators continue to throw money into marketing. Deutsche Bank analyst Carlo Santarelli recently reported that in five major iGaming states, promotional costs chewed up 36.2 percent of gross gaming revenues in October. That’s not much of an improvement on last year’s 36.8 percent.
Caesars CEO Tom Reeg has likened this era of iGaming to the early years of riverboat gambling. That sounds like a good analogy. As then, there were numerous operators with siren-call investment theses, but eventually, only a few survived and prospered. But those few made a lot of money for investors.
In the coming weeks and months, we’ll look at individual companies that we think will be this era’s prosperous survivors.
