Why You Should Take Gambling Revenue Projections With A Grain Of Salt

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That didn’t take long. Less than a year after the Supreme Court decision on PASPA, sports betting is already coming under fire for its failure to meet revenue projections.

A recent AP article on the topic notes that four of the six states that have legalized sports betting since the decision have grossly missed their sports betting revenue projections:

Rhode Island … expected to generate more than $1 million a month. The actual revenue? About $50,000 a month …

West Virginia is taking in just a quarter of the monthly tax revenue it had projected. Tax revenue is half the estimate in Mississippi and Pennsylvania.

Anyone surprised by this hasn’t been paying attention.

Gambling projections miss the mark more often than not

Case in point, here’s a glimpse of the search results from a Google search for the terms “gambling + revenue + projections:”

There’s quite a bit of irony in the last headline. Fitch ridicules the state’s ridiculous estimate of $1.2 billion, but it’s own New Jersey online casino Year 1 estimate of $300 million was off by nearly 250%. The industry generated $123 million in its first full calendar year.

Revenue success stories aren’t always as they appear, and need to be carefully examined.

As a 2015 CBS News article notes, “Even in Pennsylvania, the casino boom’s success story, it took the addition of table games in 2010 to bring revenue beyond levels projected by a state task force that assumed they would offer only slot machines.”

Don’t believe the hype on projections

Projections are both necessary and useful. But given their historical inaccuracies, lawmakers need to stop blindly accepting whatever numbers are presented.

Worse yet is when lawmakers cherry-pick the best of the bunch in an effort to steer legislation across the finish line.

A 2016 article published by Pioneer Institute for Public Policy Research explains the underlying issue with casino projections:

“Overly optimistic gaming projections are not unique to Massachusetts. Across the US, overall revenue for new casinos almost always falls below projections. Even with Massachusetts’ use of consulting firms to vet revenue projections, guarantees don’t exist. Projections are often made through “gravity models.” These models are based on the notion that the larger a casino, the farther away it can draw its consumers. Over and over again, this model’s margin of error has been too big for comfort.”

Beyond the issue of using a “gravity model,” the CBS News article cited earlier pointed to research from Cummings Institute that calls into question the motives behind some projections:

“With access to the same data, developers regularly come back with higher projections than regulators who run the numbers themselves, especially when companies are competing for bids… projections done for the same project were, on average, 20% apart and, in cases where the casinos were actually built, almost always were proved too high.”

Why bad gaming projections matter

The problem with bad projections goes beyond the possibility of budget shortfalls.

Faulty predictions can lead to a false narrative about an industry, as was the case with online gambling in New Jersey.

New Jersey’s online casino industry has been a rousing success. But the industry was saddled with ridiculous revenue projections, that led to many calling it an utter disaster in Year 1.

Labeled a failure, states that were considering following New Jersey’s lead backed off, and online gambling expansion stalled across the country.

This same sentiment is now threatening to slow down sports betting legislation.

An article from local Connecticut news outlet indicates the disappointing numbers in Rhode Island are causing Connecticut lawmakers to take their time and reconsider their numbers:

“But the latest numbers have not been good for Rhode Island. Last month, the casinos there lost nearly $900,000 on sports betting. Leaving the state only $150,000 in revenue since the launch in November.”

“Sen. Osten said, “I think we have to be conservative in the numbers that we would expect to get in, and that’s what we’re going to do and that’s why we are taking our time getting the legislation done and getting it done correctly. “

That’s unfortunate. The problem isn’t Rhode Island’s performance. Instead, sports betting operators were saddled with fantastical expectations.

The problem is twofold

There are two interconnected reasons revenue projections get overstated:

  1. Lawmakers need to sell expansions of gambling to the non-gambling public, and they think the only way to do that is to point to revenue and how it will be used.
  2. Knowing this, potential operators and lobbyists trot out big, generalized numbers to pique the interest of lawmakers.

Unfortunately, until states start taking a big picture of gambling expansions (curtailing the black market, providing consumer protections, strengthening existing gaming), the gaming revenue they receive will continue to fall short of the pie-in-the-sky projections.

That means more negative press, and otherwise successful industries being prematurely labeled as a failure.

Steve Ruddock

About

Steve Ruddock is an avid poker player and a veteran member of the gaming media. His primary focus is on the regulated US online casino and poker markets. He writes for numerous online and print publications, including OnlinePokerReport.com, USPoker.com, and USA Today.

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