As online gaming expands in the U.S., experts worry Nevada could be left behind
In April and May combined, when Nevada’s casinos were closed to slow the spread of COVID-19, statewide gaming revenues totaled $9.44 million, a more than 99 percent decline over the same two months in 2019.
Gaming win came from mobile sports wagering on Belarusian soccer, Korean baseball, Chinese table tennis, other non-traditional games and gambling on WSOP.com – Nevada’s lone online poker site.
It was a different story in New Jersey and Pennsylvania.
Both states’ casinos were also closed, but New Jersey gaming revenues totaled $178.4 million over the two months. Pennsylvania reported $108 million.
The difference was online gaming, which accounted for more than 75 percent of the revenue.
The websites in those states are not just dedicated to poker but also include wagering on table games and slot machines with the same themes found in traditional casino settings.
New Jersey and Pennsylvania have multiple online gaming websites affiliated with gaming companies tied to Nevada, including MGM Resorts International, Golden Nugget and Caesars Entertainment, which owns the World Series of Poker-affiliated WSOP site.
“From our organization’s perspective, Nevada is missing out,” said John Pappas, spokesman for the Washington D.C.-based iDevelopment and Economic Association, which goes by iDEA Growth, a trade organization for the digital and interactive gaming community.
“We recognize that change in Nevada has to be spearheaded by the brick and mortar casinos,” Pappas said. “There can be a tremendous amount of benefit.”
Eilers and Krejcik Gaming Research analyst Chris Grove said a “healthy debate” could take place in comparisons of New Jersey’s growing online gaming market with Nevada’s online casino potential.
“It’s evident to us that the introduction of online casino would have an additive impact on the total amount of gambling revenue generated by the Nevada locals market,” Grove said.
A Caesars representative said the company wasn’t aware of momentum in Nevada for legalizing online casino games. A spokeswoman for BetMGM – MGM’s joint venture online wagering application – said it would offer online gaming once it's allowed in Nevada.
Texas casino and restaurant developer Tilman Fertitta is spinning off Golden Nugget’s online gaming business into a public company this year, looking to grow outside its market-leading presence in New Jersey. Nevada, where Fertitta owns the Golden Nugget casinos in downtown and Laughlin, could be a target.
“We look forward to expanding our operations to Pennsylvania and Michigan, where our licensing process is ongoing,” Golden Nugget Online Gaming General Manager Thomas Winter said in a statement. “We are closely monitoring the legislative momentum in other states.”
Nevada lawmakers legalized internet gaming for a brief time in 2002. The efforts were halted when the Department of Justice advised the state that federal law prohibited internet gambling.
After the Federal Wire Act was reinterpreted by the U.S. Department of Justice in December 2011, a handful of states explored online gaming legalization. Nevada lawmakers approved online poker in 2013.
Today, five states offer online gaming – Delaware, Pennsylvania, Nevada (poker only), New Jersey and West Virginia. Michigan has legalized online gaming but has not yet gone live with the activity. Seven states had online gaming legislation pending in the spring before the coronavirus outbreak caused lawmakers to suspend sessions indefinitely.
Earlier this month, the American Gaming Association said the impact COVID-19 had on second quarter gaming revenues nationwide amounted to a 79 percent decline compared to a year ago. All gaming verticals but one – online gaming – showed double-digit decreases.
Combined, the five online gaming states produced revenues of $402.7 million for the quarter, an increase of almost 254 percent.
AGA CEO Bill Miller noted the quarter was the first time that online gaming recorded higher revenues than sports betting, which was legalized in May 2018.
What about Nevada?
So why hasn’t Nevada legalized online casinos?
The simple answer is lack of consensus in the casino industry.
Las Vegas Sands Corp. has not moved from its nearly decade-long opposition to online gaming. Company Chairman and CEO Sheldon Adelson once vowed to spend millions to kill the activity.
On the other end of spectrum, billionaire media mogul Barry Diller spent more than $1 billion through IAC/Interactive Corp. this summer to acquire a 12 percent ownership stake in MGM Resorts. His primary focus is MGM’s interactive gaming business.
Diller, who is chairman and senior executive of IAC, said online gaming “currently comprises a tiny portion of its revenue. It’s so small, he said, that “it rounds down to zero.”
In 2018, MGM Resorts and United Kingdom-based sports betting conglomerate GVC Holdings partnered to form Roar Digital, which oversees the BetMGM app. The product is live in seven states and expects to be operating in 11 states by the end of 2020.
“There is a digital-first opportunity within MGM Resorts’ already impressive offline businesses, and with our experience, we hope we can strongly contribute to the growth of online gaming,” said Diller, who founded Fox Broadcasting and USA Broadcasting.
Other Nevada-based casino operators have launched online gaming outside of the Silver State. Caesars has online gaming sites in New Jersey and Pennsylvania while Boyd Gaming is a partner with FanDuel in an online casino in Pennsylvania that is tied to Boyd’s Valley Forge Casino.
Grove said Nevada’s “unique” gaming market is unlike the rest of the country in its “saturation” of casinos geared to different customer demographics.
“Nevada has a far greater variety of retail gambling outlets, a smaller population, and a greater density of total population proximate to the full range of retail gambling outlets than you'll find in any other state,” Grove said. “All of that makes precise forecasting of Nevada's online casino potential a challenging task.”
Adding online casinos in Nevada
If state gaming regulators – with casino industry backing – decide to add online casinos, there isn’t a need to go back to the Legislature.
Longtime gaming attorney Tony Cabot, now a Distinguished Fellow in Gaming Law at UNLV’s Boyd School of Law, said “the framework is clearly in place” following the passage of previous efforts.
“The gaming commission was uncomfortable doing anything beyond poker,” Cabot said. “The regulations governing internet casinos would just have to be approved.”
Gaming Control Board Chairwoman Sandra Douglass Morgan said the Gaming Policy Committee, under then-Gov. Brian Sandoval, met in 2016 and discussed online gaming and future opportunities for Nevada.
“However, there was no decision to expand interactive gaming beyond internet poker at that time,” Morgan said. Still, state gaming law allows interested parties to petition the Nevada Gaming Commission for regulation changes.
“If a policy decision is made to expand interactive gaming beyond internet poker, the Gaming Control Board will fulfill its statutory duty to ensure interactive gaming is properly regulated,” Morgan said.
Cabot, who has written extensively on internet gaming, questioned whether Nevada’s market size could support the investment casinos would need to make to launch full-scale online gaming. He believes one casualty would be the growing social gaming business, where customers play free casino games and slots online in exchange for virtual tokens.
Pappas said internet gaming would only enhance a casino’s offerings.
“Nevada has done a great job embracing mobile sports betting,” Pappas said. “The state needs to take it one step further.”
Online poker history
After launching in 2013, Nevada at its height had three poker websites: WSOP.com, South Point’s Real Gaming and Station Casinos’ Ultimate Poker, which was the first to launch in April 2013, but was closed after 19 months.
By statute, state gaming regulators only release gaming revenue figures when there are three reporting businesses. Just once in the eight months that Nevada had three poker sites did online gaming combine to produce more than $1 million in revenue — $1.037 million in June 2014.
In 2015, Nevada signed a multistate poker network agreement with Delaware where players from the two states could share poker tables and tournaments. The network still exists, and New Jersey joined a few years later.
Internet gaming has not expanded at the same pace as sports betting, which is now available in 18 states with another four states potentially able to launch before the end of 2020. In 2019, gamblers nationwide legally wagered more than $13 billion on sports, a figure that was easily on track to be crushed in 2020 until COVID-19 shut down college and professional sports and the gaming industry.
While the interest for digital gaming has picked up, Nevada could be left behind.
Boston-based DraftKings went public in April and since June, the company has launched sports betting in Colorado, an online casino in Pennsylvania, sports betting in Illinois and an online casino in West Virginia. DraftKings is working to enter the Virginia and Tennessee markets for sports betting and Michigan for sports betting and online gaming.
DraftKings does not have any operations in Nevada.
Penn National Gaming, which operates Tropicana Las Vegas, M Resort and two casinos in the northeastern Nevada town of Jackpot, is preparing to roll out a sports betting and online game app in partnership with sports media platform Barstool Sports.
Penn spent $163 million to acquire 36 percent of Barstool in February, looking to attract the platform’s 66 million-member fan base.
Penn CEO Jay Snowden recently told private investors at a meeting hosted by Truist Securities that the Barstool branded app would launch in Pennsylvania in September and in Michigan by November. New Jersey, Indiana, Iowa, West Virginia and Colorado would roll out in early 2021, he said.
Nevada was not mentioned, and no reason was given.
Some analysts suspect the IAC investment into MGM Resorts could jumpstart online gaming in many states, including Nevada.
“IAC is clearly taking a long-term view of the online opportunity within gaming,” said Deutsche Bank gaming analyst Carlo Santarelli.
James Wheatcroft, a United Kingdom-based gaming analyst for Jefferies, expressed a bright future for the U.S. online gambling market, projecting $19 billion in revenue from sports betting by 2023.
“We anticipate that (internet) gaming is the next logical step in the legislative process, with casino-oriented MGM well placed to benefit,” he said.
Disclosure: Chris Grove, mentioned in this story, has donated $2,550 to The Nevada Independent through 404 LLC.
Howard Stutz is a freelance gaming reporter for The Nevada Independent and the executive editor of CDC Gaming Reports. He has been a Nevada journalist for 30 years. He can be reached at [email protected]. On Twitter: @howardstutz