Land-based and online: A rising tide lifts all ships
The growth of igaming has been turbocharged by the Covid-19 pandemic. The performance of igaming in states such as Pennsylvania and New Jersey has proved to be a lifeline to these states and the operators, providing some revenue while land-based casinos have been closed or severely restricted in their operations.
The recent addition of Michigan, where tribes are engaged in igaming, has also brought to the fore the often-voiced concern, especially notable among tribal casino operators, that online has the potential to negatively impact brick-and-mortar revenue.
Given the reliance of tribes on land-based gaming revenue to fund for many of the tribal programs that have done so much to improve the lot of tribal communities this is understandable. But what does the early evidence from these states say about this concern?
Much of the data in this report has been widely reported and is not “breaking news”. We are, however, looking at this data through a wider lens, and in doing so we attempt to highlight the inherent implications for states and commercial and tribal casino operators.
The two charts below present data on gross gaming revenue for online and land-based casinos in Pennsylvania. Prior to the pandemic, online gaming had been undergoing a slow but steady growth reaching a high of $32m – or 10.5% of total gaming revenue – in January 2020.
With land-based casinos closed in April, online gaming revenue shot up to over $60m in May. Thereafter land-based casinos reopened, albeit with severe restrictions and limitations on operations.
Between July and October land-based revenue recovered, but under operating restrictions averaged only 81% of the same period in 2019. At the same time igaming revenue doubled from its pre-pandemic high to an average of more than $61m between July to September 2020, accounting for 21% of total gaming revenues.
With intensified operating restrictions imposed in December, land-based revenue collapsed to little more than $60m. iGaming revenue increased to $90m in October 2020, increasing further to $115m by December.
The first quarter of 2021 saw land-based revenue rebound as Covid-19 restrictions were eased. By March 2021, they were at 97% of their February 2020 (pre-pandemic) numbers, even with some Covid-19 measures still in place. Online revenue increased more than fivefold over the same period, exceeding $123m in March 2021.
As a result, total gaming revenue exceeded February 2020 by over 30%, even with some restrictions still in place. By March of 2021, online revenue accounted for over 30% of the state’s total, up from 10% or less pre pandemic.
Taxes to the state of Pennsylvania follow a similar pattern given similar tax rates in both sectors. In March 2021, 32% of taxes realised by the state were from online gaming, with all that increase attributable to online gaming.
New Jersey’s land-based gaming revenue rebounded after the shutdown of April, May and June of 2020, even with Covid-19 restrictions in place. This continued through October 2020. The winter months of November through February saw a decline but not markedly less than is typical, before an increase was recorded in March this year.
Online revenue, which had hovered around 20% of the state’s total prior to the Covid-19 lockdown ,increased dramatically during the April-June lockdown, rising from an average of $53m per month in January and February, to $84m when brick-and-mortar gaming was shuttered – a 56% increase.
As land-based casinos reopened, online gaming revenue continued to increase, achieving an average monthly total of more than $95m in the period July 2020 to March this year. Online, which had accounted for approximately 20% of total gaming revenue prior to lockdown, is now hovering between 38% and 40% of New Jersey’s total.
Taxes have followed a similar pattern, but because online tax rates are greater than those for land-based, igaming now contributes more tax revenue to New Jersey than the brick-and-mortar industry.
|8% Landbased Gaming Tax||15% Internet Tax||8.5% Retail Sports Book Tax||13% Internet Sports Betting Tax|
Prior to lockdown, online casinos accounted for approximately 30% of total gaming taxes. Over the last six months, these offerings have contributed on average over 50% of the state’s gaming tax take.
Add mobile sports betting, and the online sector has grown to account for over 60% of New Jersey gaming taxes.
The following table presents the relative contribution of each segment of the gaming industry to gaming taxes in New Jersey. It is notable for those looking at the recent wave of sports betting legalisation across the US that retail sports betting is a very minor generator of taxes compared to online sportsbooks.
Retail betting contributes less than 1% of total gaming taxes, compared to between 10% and 12% for online wagering.
Michigan launched online gaming in late January 2021. By March, total online GGR increased to $88.7m, with 42% of that originating from tribal operators concentrated primarily in the northern tier of the state.
Tribal revenue started slower, but since January has begun to close the gap with the three commercial casinos in Detroit, even with most of the larger downstate tribal casinos still to launch their online offerings.
Tribal land-based gaming revenue is not published, so the focus is on the Detroit casinos when it comes to the relationship between land-based and online.
As chart below shows, online has increased over the last three months even at a time when Detroit’s three casinos have seen revenue tick upwards.
Of the Detroit casinos, MGM Grand is the clear leader, followed by MotorCity, with Greektown a distant third.
Looking exclusively at online tribal performance, Bay Mills (and its partner DraftKings) is the clear leader of the pack in the first quarter of the year.
Michigan Active Online Gaming Ventures
|Grand Traverse Band||William Hill||22-Jan|
|Keweenaw Bay||Golden Nugget||22-Jan|
|Little River Band||BetRivers||22-Jan|
|Little Traverse Bay||PokerStars||29-Jan|
|Four Winds||Four Winds||15-Feb|
|Sault Ste. Marie||Wynn||22-Jan|
While the online gaming markets are still developing, especially so in the case of Michigan, some early conclusions can be reached.
- Online gaming can provide a significant source of gaming revenue for operators, and significantly, for states in terms of taxes.
- Retail sports betting is not a significant source of revenue either for the operator or for the state. What retail sports betting does is it “activates” the casino floor, bringing people to the casino that otherwise may not have visited. It is likely that a casino would see more revenue from casino play from these sports betting customers than it does from actual sports betting. Therefore in-person sportsbooks are more akin to a casino amenity than a major generator of revenue.
- Online sports betting generates substantially more revenue for both the operator and the state. In the case of New Jersey, online generates at least 16 times more tax revenue than retail wagering. This is partly due to the higher tax rate that can be sustained by online sports betting versus retail, but also to the volume of revenue.
- These early numbers strongly suggests that online gaming, at least at the macro level of a state, does not negatively impact on land-based gaming revenue. In fact, the limited evidence available suggests that land-based revenue continue to grow with the advent of online gaming.
- For operators of land-based casinos the implications are clear:
- Brick-and-mortar revenue appears to be largely unaffected negatively by online gaming.
- Programs and promotions that help to encourage online players (both casino and sports betting) to visit land-based casinos are of immense value. These will help grow land-based revenue, and will likely determine the future success of properties, by converting online customers into in-person players. The world will continue its relentless march towards digital interactions and land-based operators must adapt to remain relevant.
- While retail sports betting is a viable and valued casino “amenity” it is not a major revenue stream. Online sports betting, on the other hand, is.
- Online gaming offers operators a hedge against major market disruptions such as Covid-19.
- For states looking to replenish tax coffers after the Covid-19 pandemic online gaming is a viable and additive source of tax revenue that will not negatively impact land-based tax receipts – this applies equally to online sports betting. The recent rush to legalise retail sports betting, while providing a welcome additional amenity to existing casinos, is not likely to generate significant tax revenue.
Paul Girvan is chief executive of PKC Gaming & Leisure Consultancy. He has been involved in the US gaming industry since its development beyond Atlantic City and Las Vegas, conducting project-specific and statewide analyses for governments, tribes and commercial casino operators. Girvan has conducted numerous nationwide and state level analyses on igaming and its legislative development. He is also the author of the ICE 365 Tribal Gaming Report.