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Early in the COVID pandemic, casinos around the country closed for months as governments scrambled to stop the spread of the disease.
Isolated at home and hungry for entertainment, more people turned online and to mobile devices for activities, gambling among them.
But New Jersey, Pennsylvania and Delaware were the only states in position to capitalize. While other states saw gaming revenues plummet, these few with the foresight to offer a regulated online casino market thrived. West Virginia launched online casino a few months into the pandemic and Michigan joined in 2021.
Coming out of the pandemic, many figured changes in consumer behavior would launch a wave of online casino legalization from the states that had already regulated online sports betting.
“I think during the pandemic, people were on their computers more than ever and all sorts of online gaming types had a huge bump in growth and customers,” gaming attorney Jeff Ifrah, founder of iDEA Growth, told PlayUSA. “And I think most people thought that was here to stay and would serve as a springboard for legalization of online gaming.”
But the only states to legalize online casino since the pandemic are Connecticut in 2021 and Rhode Island this year. Seven states — New York, Indiana, Illinois, Iowa, Maryland, New Hampshire and Kentucky — introduced online casino legislation this year that did not pass.
PlayUSA spoke to experienced industry analysts and legislators to find out why online casino legislation has moved slower than expected coming out of the pandemic.
Legislative priorities elsewhere coming out of pandemic
In recovery mode from the pandemic, state legislatures understandably had more pressing focuses than gaming.
Chief among them was getting people back to work. While there are local jobs in online gaming, particularly around live dealers, it wouldn’t do much to lower the unemployment rate.
“After the pandemic, the priority for most legislatures was jobs,” Ifrah said. “There is an impression that getting people back to retail and brick-and-mortar jobs is better for employment than online gaming.”
States tend to focus on one area in an industry before moving on to another. Coming out of the pandemic, the gaming priority for states was to get casinos back open and rehiring employees.
“I don’t think that was the right time for legislators to discuss online casino legislation,” Ifrah said.
States haven’t needed additional revenue
The pandemic was not the economic crippler one might have thought for states. An influx in federal funding created budget windfalls.
“While the pandemic did significantly boost iGaming activity and demonstrated that the model worked, at the same time you didn’t have a decrease in state revenues that one might have expected during and after the pandemic for state revenues broadly,” said Howard Glaser, global head of government affairs at Light & Wonder. “These states received $293 billion in federal stimulus funds that are still working their way through state budgets.”
New Hampshire Sen. Tim Lang filed an online casino bill in 2023. He got the bill through the Senate before it stalled in the House. Rather than revenue, Lang focused his pitch more on providing consumer protections for an activity already occurring in the state.
Lang explained this at last month’s National Council of Legislators from Gaming States (NCLGS) conference in Denver.
“The revenue is not the conversation anymore. Most states, New Hampshire being one of them, we have a significant surplus — 28% above our planned projected revenue. So in states that are having significant surplus in their revenues, trying to use a revenue argument is falling on deaf ears.”
With the federal funds dissipating, states will seek added revenue in coming years. That’s where online casino legalization could fill a hole.
“Very often when we’ve seen casino expansions take place in different states, it has been at a time when state budgets needed a revenue injection,” Glaser said. “And we haven’t needed it until now. That’s something we think will change.”
Fatigue from sports betting legalization
In overturning the Professional and Amateur Sports Protection Act (PASPA) in 2018, the US Supreme Court sparked the largest wave of gaming expansion across the country. In the following years, a majority of states legalized sports betting with an online component.
“You had a rapid expansion of gaming in many states,” Glaser said. “Legislators were saying, ‘We just did sports betting for the industry. Now you come back the next year and want iGaming. We still don’t know how sports betting works.'”
Indiana Sen. Jon Ford, president of NCLGS, has backed online casino legislation in the Hoosier State for the past three years. He spoke at NCLGS about the difficulty following up the sports betting legislation with online casino.
“I think 2019 was a big bill. Two new casinos, one still being built, and then sports wagering. So there was a big lift that I think left a little fatigue with gaming. And I think people still want to see if we did the right changes.”
Iowa Rep. Jacob Bossman said he’s witnessed the same issue in his state.
“There’s still a lot of hesitation to do something else because there’s a perception that we just expanded in some people’s minds,” Bossman said. “There’s some hesitancy to expand that again.”
For the most part, it’s the same industry people lobbying for online casino as sports betting. And some states haven’t received the revenues they expected from sports betting.
West Virginia totaled just $5.3 million in tax revenue from sports betting the last fiscal year. But it got $20.8 million from online casino.
“I don’t know if there’s fatigue but I do think in some states where sports betting passed really quickly, they were disappointed in the revenue they saw,” Ifrah said. “So I think that created a problem. When we advocate for online gaming, and the numbers don’t lie, it can be very beneficial for casinos and the state from a revenue perspective. But state lawmakers say we heard this story before.”
Rapid spread of sports betting an outlier
With more than 30 states legalizing sports betting over the past five years, it’s easy to forget that’s not how legislation usually works.
Sports betting had a catalyst in the Supreme Court decision and a major push from professional sports leagues. It created a wave where states wanted to keep up with their neighbors.
Lawmakers didn’t need as much education about sports betting because many had placed bets themselves at one point or another.
“I think people were a little surprised that we got to as many states as we did in sports wagering in less than five years,” Ford said. “I think the success of sports betting sped up the movement to iGaming.”
There is a sense that online casino is behind schedule because it hasn’t burst through statehouses at the speed of sports betting. But this is the slow pace at which passing laws typically occurs.
“I think the industry assumption was that we would introduce sports betting and, almost immediately, online gaming would be adopted by all these states,” Glaser said. “Why didn’t it happen? I think there was a misunderstanding from the start.”
In hindsight, Ford said he should have followed Michigan’s lead and pushed for online casino legislation simultaneously with sports betting.
Without sports betting as an accelerator, it’s normal that online casino legislation has sat around in states for the past few years with little movement. It’s the educational phase.
“The introduction of a bill acts as a catalyst for real discussion and negotiation,” Glaser said. “You put the bill in, people have to respond. Maybe the bill doesn’t go anywhere this year, but now there’s a discussion of how will this work for us.”
Sports leagues/teams aren’t involved
Even though gambling is pretty widespread across the country at this point, gambling expansions can be difficult in some states. It helps when sports leagues and teams are involved in the push.
“iGaming is just received differently than sports betting, certainly by lawmakers,” Glaser said. “Sports betting is more about sports than about betting. Sports betting is an amenity to a sporting event. And once the leagues and teams jumped on, it became really part of the sports environment and less so about the gambling environment even though at its core perhaps that’s what it is.”
The online casino push just doesn’t have the same star power as sports betting.
When a casino lobbyist walks into a legislator’s office, perhaps that legislator takes the meeting but isn’t enthused. When the owner or executive of a lawmaker’s favorite sports team has an appointment, he’s looking forward to that meeting all week.
Glaser explained:
“You don’t have the same stakeholders in iCasino as you have in sports betting. The leagues and the sports teams, that was a very important element in socializing the concept of sports betting to legislators. You saw sports figures and celebrities walking up there to statehouses and making their case. iGaming just doesn’t have that same kind of affiliate arrangement to it. It’s basically a casino industry activity.”
Sports betting advertising caused concerns
With the proliferation of regulated sports betting across the US, advertising for legal sportsbooks in mainstream media took off. That’s not necessarily a bad or unexpected result.
Advertising helps bring bettors from unregulated offshore sites to legal sportsbooks with better protections. And advertising boosts the economy for media outlets.
But when advertising goes from 0 to 60 overnight, people tend to take notice.
“I did hear from several legislators that they have some buyer’s remorse on sports wagering,” said Indiana Rep. Ethan Manning, who introduced online casino legislation the past two years. “They don’t like some of the advertising. I think that’s pretty soft opposition. They weren’t saying they were necessarily against iGaming. They were just hesitant because they don’t like some of the sports betting stuff that they didn’t envision.”
It’s not even as much advertising as it seems. Glaser pointed out in a NCLGS presentation that sports betting companies aren’t among the top 10 advertisers for NFL games. You’ll see more advertisements for alcohol than gambling while watching a sporting event.
It’s not just the amount of advertising but the types of marketing that have irked regulators. Particularly in Ohio, regulators levied hefty fines on sportsbooks for marketing violations. Gov. Mike DeWine apparently was so mad he doubled the sports betting tax rate to curb advertising.
Regulators dealing with increase in problem gaming
Increased marketing and access to legal sports betting also brought more problem gambling issues to light. Again, that’s not necessarily a negative. When regulators require that sports betting advertisements list a problem gaming hotline, more people with issues seek help.
But advertising and excitement around a newly accepted activity brings more people to try sports betting. And if 3-to-4% of people tend to have problem gambling issues, an increase in bettors will raise the number of people experiencing problems.
Sports betting advertising and problem gaming figures will normalize over time. Regulators are working with the industry to address these issues. And they should help create a blueprint for how to address similar concerns with online casino.
But it’s not a good look for legislators to authorize a new online gaming activity while still trying to work out the kinks in the last expansion.
“State regulators from states that passed sports betting are very focused on problem gambling and responsible gambling right now,” Ifrah said. “And they’re also concerned with the impact sports marketing and promotions had on problem gambling. So when you try to come into that environment and talk about another gambling vertical, legislators want to know how to make sure it doesn’t cause further issues.”
Some casinos still worried about cannibalization
The pandemic raised tensions about online businesses putting local retail operations out of business. State legislators came out of the pandemic wary of those concerns.
Glaser elaborated:
“We sort of instinctively know that the local hardware store, the local retail store, is being driven out of business by Amazon and is fearful of it, and so you have this mainstream versus online paradigm. The assumption is that it must carry over to the casino world, and if we go online with gaming then the investments that we’ve made in these grand facilities with all their jobs driving economic development in the region will be at risk. But the exact opposite tends to happen in online gaming.”
Most casino companies have come around on online gaming from the examples set in New Jersey and Pennsylvania.
“In my prior life, I spent 15 years in Pennsylvania,” Bryan Schroeder, senior vice president of compliance and legal for Tipico, said at NCLGS. “When iGaming was first brought up, there were discussions about cannibalization and worrying about jobs. Since it was legalized in 2017 in Pennsylvania, it did not cannibalize jobs or revenue. It exponentially increased revenue at both the retail and iGaming side. It is a great asset for both retail casinos and permanent online operators.”
Schroeder added that Tipico chooses to enter sports betting markets that also have potential to legalize online casino in the future, such as Colorado, Iowa and Ohio.
Still, not everyone in the casino industry is on board with the push for online casino. Churchill Downs, which owns casinos in Indiana and Iowa, has expressed cannibalization concerns. Other locally run Iowa casinos also have not come to terms with internet gaming.
“They’re not necessarily opposed but they’re not comfortable with it yet,” Glaser said. “They’re doing very well, thank you, with their existing brick-and-mortar locations. And if they’re going to enter into iGaming, they want to understand what the impact is going to be.”
And it’s not just brick-and-mortar casinos that have concerns with online casino. In Illinois, a large video gaming terminal industry lobbies against internet gaming. People being able to play slot machines on their phones may take away from them doing so at local bars. State lotteries also may be concerned with how online casino affects lottery sales.
Tide slowly turning for online casino efforts
When you add up the aforementioned issues, it’s unsurprising that online casino legislative progress has been more deliberate than sports betting.
But many issues coming out of the pandemic will soon turn into opportunities. As economic needs change, states and casino operators will be looking for revenue.
“I do think that time has arrived now,” Ifrah said. “Casinos are doing well again and reporting on land-based revenues are up post-pandemic. So I do think that now opens up an opportunity to lobby and advocate for online gaming. As federal funding dries up and states no longer are in a state of surplus, certainly those states could be looking elsewhere for revenue. Online gaming fills that opportunity.”
Glaser sees online casino expansion across the US as inevitable.
“You as a state made substantial investments in this industry. Jobs rely on it, revenues rely on it, and it has a dramatic effect on the local economic infrastructure. If you do not move to the digital market, you are putting that investment at risk. Forget today. Think of yourself 10 years from now in the state of Iowa not having iGaming where the black market has grown and other digital forms are competing with it. The casinos will not be able to compete in 10 years without that marketplace.”
Michael Pollock, who recently announced his retirement as co-managing director of Spectrum Gaming Group, recalls one of the organization’s earliest studies on internet gaming 20 years ago.
Spectrum stated that online gaming would be the equivalent of radio to baseball 100 years ago. Baseball officials back then feared that no one would go to a ballgame when they could listen to it on the radio.
But baseball broadcasts went from rejection to acceptance to embrace. Now MLB has games on radio, television, streaming on the internet and anywhere else it can connect with its fanbase. League attendance is doing just fine.
Pollock sees online casino approaching acceptance and soon moving to embrace.
“I think we’re going to have a very different conversation about the progress of internet gaming in two years and 180 degrees different in five years.”
