Legalized Online Gambling: Is It a Fantasy or Reality?

Two years ago the Department of Justice decided that online gambling was not against federal law. In the opinion of the feds only sports betting violated federal law. However, that prohibition did not extend to fantasy sports. The decision opened the door for legalized online gambling on a state by state basis. It is now the end of the first full year of online gaming and to say that legalized online gambling in the United States has been disappointing is an understatement.

Only three states, Delaware, New Jersey and Nevada, took advantage of the decision and legalized online gambling. There was a great deal of speculation about the revenue online gaming would generate in each state. In retrospect, the predictions were acts of fantasy, not fact based projections. In New Jersey, supporters were predicting hundreds of millions of dollars a year. They said it would be enough to save the faltering casinos in Atlantic City. After a full year, it is clear that online gaming will not save Atlantic City. It is only generating about $10 million a month in gaming revenue, leaving lawmakers and politicians with no choice but to search someplace else for the magic pill that will cure the city’s ills.

Atlantic City casinos and their Web partners took in about $120 million in revenue during the first year of Internet gambling, far short of the billion-dollar market Gov. Chris Christie had predicted. When Internet gambling was launched in November 2013, there was hope it would be a “game-changer” to help pull the casino industry out of its prolonged slump. However, November revenue figures released Friday by the New Jersey Division of Gaming Enforcement show that online wagering was not a blockbuster in its first 12 months, coming in at $119.5 million. Donald Wittkowski, Press of Atlantic City, 12-12-14

Nevada and Delaware were less enthusiastic, but enthusiastic nevertheless. Supporters realized that the population of those states is too small to produce as much revenue as New Jersey. After all, Nevada does generate billions of dollars of casino revenue each year. However, the majority of Nevada’s gaming revenue comes from Las Vegas and Las Vegas’ numbers are driven by over 35 million visitors each year. Supporters hoped online poker would prove to be more popular than it did. Online gaming in Delaware and Nevada has not been a success and less of a success each month. Like New Jersey, online gaming in Delaware and Nevada started off with what might have sounded like a bang, but turned out to be a thud. The results were modest, but in the beginning everyone believed it would get better each month. That is the way most businesses start. However, in this case, instead of growing, online gaming has declined.

The state of Delaware’s three online gambling operators won $130,468.65 from gamblers during the month of October. That’s the lowest total for overall I-gaming revenue in the state since November 2013 ($111,387.71), the first month online gaming was available in Delaware. Brian Pempus, Card Player, 12-24-14

Nevada’s online poker industry yielded $665,000 in revenue in October, the lowest figure since the state began releasing revenue data for its web poker sites in February. Brian Pempus, Card Player, 12-1-14

It sounds like a dismal future for online gaming, doesn’t it? But it only sounds dismal if you think in traditional casino terms. If you think in terms of betting online that is not defined and restricted by state and federal law, then it appears that online gambling is rushing forward at breakneck speed. The betting not covered by state or federal law is fantasy sports and horse racing. Both the Congress and Department of Justice have chosen to ignore these for reasons that escape me. However, in the spirit of capitalism, entrepreneurs are not ignoring fantasy sports or horse racing.

In Feb. 2013, Hessert and his brothers, Tom and Bill, launched the innovative online wagering site Derby Jackpot through their New York-based company Giddy Apps. Nearly two years later, Derby Jackpot is coming off a record handle in November. Its popularity is best reflected in an annual handle of $20 million and more 200,000 players. Some 80 percent of Derby Jackpot customers never bet on a horse race before visiting the site and 50 percent of them are women. ESPN, 12-16-14

Churchill Downs Inc. announced Dec. 16 it has completed the previously announced acquisition of Big Fish Games (Big Fish), one of the world’s largest producers and distributors of mobile and online games. The transaction includes an upfront purchase price of $485 million comprised of approximately $16 million in CDI stock, up-front cash of $384 million, and $85 million in cash to be paid over three years. Blood-Horse News, 12-16-14

As you probably suspected, the gambling industry has no intention of letting venture capitalists and tech startups have daily fantasy sports to themselves. FanDuel and DraftKings are dominating the fast-growing industry of short-term, real money fantasy sports, but traditional casino interests are evaluating their options to catch up quickly, seeing those startups as a potential threat to sports betting and their mobile presence. One such option is HotRoster…can be licensed to casinos under a white label. Potentially, it could be adapted to host currently outlawed sports gambling contests, or any game of chance, on mobile phones, should laws change. Ben Fischer, New York Business Journal, 12-16-14

The very existence of fantasy sports online makes it certain that online gambling will not fail. Online gambling is a world-wide phenomenon that has not failed any place it exists. What is failing in the United States is a restricted and limited version of the successful model in existence in other countries. The internet works for gambling for the same reason it works for anything. It is successful because it connects billions of people. By restricting online gaming to a single state, it is denied the very thing that makes the internet successful – a huge audience. Add to that limitation the restriction on the games and types of wagers currently allowed and you have doubly crippled the effort. In this country, legalized online gambling ignores sports and limits customers to standard casino games. Those games have a small audience even in a bricks and mortar casino. When the types of games available are combined with a restriction to the citizens of single state, the potential pool of players is too small for a viable business model.

Sports betting is the largest source of betting in the world; poker, bingo and casino games are a very distant second. That is why fantasy sports will be successful; it offers the most popular wagering options and those wagers are available to a world audience. Fantasy sports is not restricted to any one state and thus far it has been below the legal radar. It has not raised the ire of professional sports league or members of Congress. It is not below the radar of major casinos corporations. Those corporations are watching and assessing the options. None will act in direct violation of gaming regulations, but they will be lobbying for change in current regulations.

To be successful, legal online gaming will have to eliminate the state by state limitations and allow for an expanded menu of wagering options. When that will happen is anyone’s guess. It may take years. Delaware, New Jersey and Nevada will probably tinker with their regulations and they will most likely link together to create larger customer pools. All of that will only delay the process of making online gaming in this country a product suited to the interests of the gambling public. In the meantime, there are those who are taking advantage of the opportunity placed in their laps by a Congress that has yet to come to terms with the popularity of gambling on fantasy sports.


2 Responses to “Legalized Online Gambling: Is It a Fantasy or Reality?”

  1. 1 Lynne Rosner December 29, 2014 at 6:22 am

    I wonder if there will ever be a major league entity that will litigate over the purse strings of fantasy football venues to garner their star presence pot. Without the players and their venue there would be no reward for the entrepreneurs of online fantasy sport betting. The clubs and their players rights of entitlement may be sought sometime in the competitive action through the courts.

  2. 2 platinum sports betting news March 12, 2015 at 11:23 am

    Newer, shinier, fancier casinos opening up in the area are taking their toll on Atlantic
    City as properly.

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