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Maryland Online Casino Study Briefing Raises Concerns Over Cannibalization

A briefing of the Maryland online casino study presented Thursday in front of the House Ways and Means Committee brought up some of the challenges that lie ahead on the road to legalization.

Maryland Online Casino Study
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Matthew Kredell Avatar
5 mins read

A briefing of the Maryland online casino study presented Thursday in front of the House Ways and Means Committee brought up some of the challenges that lie ahead on the road to legalization.

A major focus of the discussion was the study’s contention that iGaming could decrease Maryland’s brick-and-mortar casino revenues by 10%.

Maryland legislators ordered the Maryland Lottery & Gaming Control Agency to oversee the study last year. John Martin, director of the agency, introduced Brian Wyman from The Innovation Group to discuss the study.

Wyman’s presentation and questions from committee members lasted an hour and a half. It was followed by a presentation from the Maryland Center of Excellence on Problem Gambling, housed at the University of Maryland School of Medicine.

Potential for job loss concerns legislators

Wyman said the Innovation Group came upon the 10% reduction in brick-and-mortar revenue by adding up an 8% decrease in casino revenue in the six iGaming states with a 2% increase in states without online casinos.

In terms of the Maryland market, he said that would equal a loss of $98.3 million annually from casino revenue. He added that this was just gaming revenue, and non-gaming revenue also would be reduced at these casino resort hotels.

Given that the casinos would be the licensees for iGaming under discussed Maryland legislation, online casino would more than make up for any possible loss in brick-and-mortar revenue.

However, the study projects that loss in revenue will lead to a 4% to 8% reduction in labor. Wyman said adding live dealers would mitigate some of the job loss, assuming that legislators mandate those jobs to happen within the state.

Legislators aren’t likely to support a bill they believe could cost constituents jobs.

“I’m concerned that other than the 10% reduction in revenue, there’s not a concrete awareness in your study of the other impacts when we have a serious reduction in the people who are entering casinos,” said Del. Jheanelle Wilkins. “And I also wonder, with the fact that the casinos would probably still see an overall increase in revenue, how much incentive there is to continue with infrastructure building.”

Del. Jason Buckel countered that he thought gaming revenues had already peaked in the state and were on the decline. He said this was particularly the case at Rocky Gap Casino in his district. This, he believed, showed that online casino could only help the industry.

Participation of minority-owned businesses a priority

As chair of the Maryland Legislative Black Caucus, Wilkins questioned where are the opportunities for minority-owned businesses if Maryland were to legalize online casino.

That was also an issue when Maryland legalized sports betting, and legislators haven’t been happy with the results. Few minority-owned companies are in the position to partner with an online sports betting company, and if they do they aren’t likely to work out an advantageous deal.

Wyman said that it could be even more difficult with online casino.

“In iGaming, it’s a little different than sports given that casino gaming is considerably more complex,” Wyman said. “What might happen if non-casino businesses are granted a sub-license, almost certainly that business would take that license and contract with a national provider to create an online brand, but it tends to favor the only company they contract with.”

Sen. Ron Watson has said his bill will start with two online skins for each of the six Maryland casinos. He told PlayUSA he would consider a third skin with a minority component or adding minority requirements to live dealer jobs.

Tax rate a topic

Watson told PlayUSA he filed his Maryland online casino bill Jan. 12. He expects it to post on the Maryland legislative site any day.

The bill will include a 46% tax rate, including 1% for a problem gaming fund. That’s significantly higher than the 15% in his original iGaming bill introduced last year.

Wyman said The Innovation Group projected $407 million in total Maryland online casino revenue with a 45% tax rate, as opposed to $135 million at 15%.

But he did admit that a higher tax rate could diminish the market size.

“If the tax rate is 10%, online operators are going to operate their businesses differently than if they’re in an environment with a 45% tax rate. Some of the first things to be cut when you have 35 additional points of margin taking out at the initial stages are advertising, so that will have a negative impact on the market size.”

He responded to industry feedback that the tax rate on table games should be lower than slot machines. For brick-and-mortar casinos, slots rates vary by casino in Maryland from 39% to 60%. But table games are lower at 20%.

Watson asked Wyman if Maryland could offer table games at the same high flat tax rate as slots. Wyman responded that was a viable tax structure offered in several states.

Sponsors push back on some study points

Del. Vanessa Atterbeary, the House Ways and Means chair, invited Watson to participate in the briefing. Watson previously told PlayUSA Atterbeary would join him in filing Maryland iGaming legislation this year.

Atterbeary and Watson pushed back on several study points brought up by Wyman.

Watson pointed out that if the pandemic occurred again tomorrow to the same extent it did previously, Maryland casinos would close and generate no revenue. But under his iGaming legislation, casinos would continue to generate more than $300 million in annual revenue.

He added his belief that the addition of casinos in Virginia already will cannibalize the Maryland casino industry. So adding online casino as an additional revenue source could help mitigate that loss.

Atterbeary asked Wyman if illegal online gaming currently exists in Maryland, if there are promotions casinos can offer to drive people into brick-and-mortar casinos and if New Jersey has opened additional casinos since launching iGaming in 2023.

“Casinos, if they’re the operators of the online casino, one of the most valuable pieces to them is the integration of the loyalty programs. There is an awful lot of back and forth. You’re using the online platform to advertise the brick-and-mortar offerings. You’re also using your online presence and your brand. The idea you can leverage this omni-channel approach for your brand I think is something appealing to casinos, and I think it helps in both directions.”

Matthew Kredell Avatar
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Matthew Kredell serves as senior lead writer of legislative affairs involving online gambling at PlayUSA. He began covering efforts to legalize and regulate online gambling in 2007 and his since interviewed over 300 lawmakers around the country.

View all posts by Matthew Kredell

Matthew Kredell serves as senior lead writer of legislative affairs involving online gambling at PlayUSA. He began covering efforts to legalize and regulate online gambling in 2007 and his since interviewed over 300 lawmakers around the country.

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