The future of gaming: The digital generation

By C.J. Fisher and Harry Jackson, Fox Rothschild

At one time, the only way to gamble was to walk into a casino, withdraw cash from an ATM and sit down at a slot machine or table game to place a bet, or place a wager at the casino’s sportsbook. 

Those days are long gone, and the Covid-19 pandemic has accelerated the digital transformation of every part of our lives. 

From ordering groceries to attending meetings, from making payments to calling a cab, from shopping to cashing a check, our lives are increasingly digital, and the gaming industry has not been spared this digital transformation. 

While the rapid spread of mobile sports betting across the US is perhaps the most well-known and publicised aspect of this evolution, it is also evident in other areas. These include internet gaming, cashless wagering, esports betting and wagering activities involving blockchain and cryptocurrency technologies. 

Mobile sports betting

Following the Supreme Court’s 2018 decision striking down the Professional and Amateur Sports Protection Act (PASPA), states were free to legalise and regulate sports betting, and it is no secret that many have rushed to do so. 

Further, most states legalising and regulating sports betting have permitted mobile sports betting. Importantly, in the states that allow mobile sports betting, the vast majority of sports wagering is occurring via mobile devices, as opposed to at brick-and-mortar sports books. 

For example, New Jersey tallied $1.3bn of sports betting handle in October 2021, and over 90% of that amount was wagered online. This translated to approximately $10m in mobile sports betting tax revenue for the State of New Jersey. 

These trends support the ongoing digital transformation in that customers are accustomed to having instantaneous access to goods and services via their mobile devices, and sports betting is no exception. States opting to forgo legalising mobile sports betting risk missing out on tax revenue from residents who are unwilling to travel to retail locations and/or continue to wager via unregulated channels (such as bookies and offshore websites). 

This can also frustrate the legislative purposes behind legalising sports betting to begin with, such as combating unregulated wagering, ensuring consumer and responsible gambling protections are in place protect residents, and generating tax revenue. In short, while some states will not include mobile sports betting in their legislation, the majority that legalise sports betting in 2022 and beyond will. 

Internet gaming

While the market for sports betting expansion in the US since 2018 has been red hot, the market for internet gaming expansion in the US can only be described as lukewarm. 

Internet gaming or igaming generally refers to internet casino games, such as blackjack, roulette, poker and slots. While a few states allow full scale igaming, such as New Jersey, Pennsylvania and Michigan, most jurisdictions in the US do not currently allow it, including many that have legalised and regulated mobile sports betting. 

There may be a number of reasons for this discrepancy, such as more widespread public support and familiarity with sports betting as opposed to igaming. But it is only a matter of time until additional states allow full-scale igaming, primarily due to its revenue potential. 

For example, despite significantly less igaming handle in October 2021 (as compared to sports betting), New Jersey received approximately $19m of tax revenue from the vertical during the month. 

Simply, as the hold or win from igaming is significantly higher than the historical 5-6% hold for sports betting, operators generate higher revenue, which in turn translates into more tax revenue. 

Further, igaming has paid dividends during the pandemic as casino gamers could continue to wager despite widespread casino closures. For example, igaming win in New Jersey from March to October 2019 (prior to the pandemic) totaled $384m, compared to $779m from March to October 2020 at the height of the pandemic. 

In short, the revenue potential, in light of the continued impact of the pandemic, will likely drive additional states to legalise and regulate igaming in 2022 and beyond. Some jurisdictions, such as Indiana, have continued to focus on the vertical as a legislative priority. 

Cashless

With the rise of PayPal, Venmo and Apple Pay, along with good old-fashioned debit and credit cards, many of us now go weeks or months without visiting an ATM or even seeing cash. This trend was accelerated by the pandemic as individuals sought to minimise direct interactions and contact, and extends to the gaming industry. 

The industry is deploying a variety of cashless technologies such as devices allowing table game customers to obtain chips using their debit cards, wireless wallets that allow patrons to scan their phones with dealers to obtain chips, and systems allowing winnings to be disbursed directly to bank accounts. 

Regardless of the ongoing effects of the pandemic, this trend will likely continue and even accelerate as customers increasingly seek frictionless, seamless and efficient payment and gaming experiences, similar to what they are now accustomed to in other areas.

Esports betting

As additional jurisdictions continue to legalise and regulate sports betting in 2022, esports or video game wagering should continue to expand. 

The past year featured many states such as Arizona, Wyoming, and Nebraska including esports under the definition of permissible wagers in underlying legislation allowing sports betting, while Ohio recently included esports wagering in its sports betting legislation. 

Other jurisdictions that are finalising sports betting, such as New York, may also add esports betting to the list of available offerings. In addition, jurisdictions that have already enacted esports wagering legislation may make changes to open the market to encourage further investment by esports companies. 

For example, New Jersey amended its sports wagering law in 2021 to clarify the types of permissible esports competitions that could feature wagering. As more esports wagering platforms and service providers obtain licensure in the US, the number of esports offerings should continue to increase, along with the level of investment in this growing industry.

NFTs, blockchain and cryptocurrency

While the term Non-Fungible Token, or NFT, is rarely spoken in the gaming industry, that will not be the case for long. For those unfamiliar with NFTs, these digital assets can range from original artwork, skins for video game characters, virtual clothing that can only be viewed with special glasses or headsets and virtual homes. 

Each asset contains a unique identifier that is stored on a digital ledger secured by blockchain technology so it cannot be copied, hacked or duplicated. While NFTs sound like science fiction, they are being utilised for real-world transactions, such as music artists releasing albums as NFTs, allowing customers to acquire an animated album cover, limited-edition vinyl, and an entry into a lottery for VIP concert seats. 

The entry of NFTs and blockchain-based offerings into the gaming industry appears to be inevitable. For example, professional sports league player associations have already agreed to licensing deals with sports betting operators, including to create digital collectible files featuring the names, likenesses and images of active professional players which can be bought, sold and traded among collectors. 

Platforms may also pursue allowing their users to risk NFTs or other cryptocurrencies as a means of entry for a chance to win rarer NFTs of higher value, or simply to participate in other forms of gaming. 

Wyoming’s sports betting legislation and regulations expressly allow users to fund their sports wagering accounts with digital, crypto or virtual currencies.

Widespread adoption of NFTs, blockchain and cryptocurrencies in the gaming industry, however, will not be without obstacles, given technical challenges and perceived regulatory concerns, particularly in the areas of responsible gambling, KYC, AML and geolocation. 

Outlook for 2022 and beyond

The digital transformation of the gaming industry is readily apparent in the rapid expansion of mobile sports betting in the US, as well as the steady growth in igaming and cashless wagering, and esports betting and the adoption of blockchain and cryptocurrency technologies in the gaming industry are waiting in the wings. 

Many of you are probably reading this article on a cell phone — one more indication that this transformation will continue in 2022 and beyond.

C.J. Fisher and Harry Jackson are partners in the Gaming Practice Group of Fox Rothschild LLP. They concentrate their practice on all aspects of gaming law, including licensing, regulatory and compliance matters, and have been at the forefront of the expansion of legalised and regulated igaming and sports betting in the US.