Online gambling is still a fledgling industry in the U.S., but now Morgan Stanley expects it to take longer to fly.
The investment firm has cut its estimate of the potential U.S. online gambling market revenue by 2020 to $2.7 billion, down from its previous estimate of $5 billion.
The firm predicts no additional states will approve Internet gambling in 2015, but expects California, Pennsylvania, New York and Illinois to approve online betting within a few years.
Three states—Nevada, New Jersey and Delaware—already have legalized internet gambling, but revenue in those states has been lower than expected. The states took in $135 million last year, but Morgan Stanley initially forecast $678 million.
“We continue to believe that there is a material runway for growth, but results have been disappointing,” the firm wrote. “Legislative processes continue to be slow as lawmakers remain unconvinced that online gaming is currently worth the hassle for limited tax revenue.”
The report also points to problems with payment processing, a lack of effective advertising, difficulties with geolocation technology and the continued presence of illegal offshore gambling sites as holding back the industry.
The firm also believes a federal ban on Internet gambling remains unlikely, but is a growing risk.
“We believe a federal ban of online gaming is unlikely given legislators’ split views,” the company wrote. “However, a recent hearing in a House Judiciary subcommittee on Rep. Jason Chaffetz’s proposal for a ban suggests it could be gaining momentum. While the bill may advance out of committee, we believe it faces long odds of passing, especially without carve-outs for online lotteries and existing online gaming states.”
