Internet casinos thrive in six states. So why hasn’t it caught on more widely in the US?

In the 10 years that it has been operating in New Jersey, internet casino gambling has generated nearly $7 billion in revenue for casinos and their affiliates, sent over a billion dollars in tax revenue to the state’s coffers and helped keep Atlantic City’s nine casinos afloat while they were shut down during the Covid-19 pandemic. So why hasn’t it caught on more widely across America?

Currently, only six states offer internet casino gambling: New Jersey, Connecticut, Delaware, Pennsylvania, Michigan and West Virginia. (Nevada offers internet poker but not online casino games; Rhode Island has passed an online casino bill, but it is not expected to go into effect until March 2024.)

Casino operators, online gambling companies, analysts and elected officials offer a number of reasons why they think it has yet to expand more widely: among them, including fears (unfounded, analysts say) that internet gambling will draw gamblers away from physical casinos, and a higher priority effort to approve sports betting — nearly 90% of which is done online in two-thirds of the states.

Proponents say they expect additional states to adopt online casino gambling soon, in part because a wave of federal pandemic stimulus funding from the federal government is ending, and states are once again looking for new sources of tax revenue.

Internet gambling “stands out as the most lucrative revenue source from any gaming launch in history, and New Jersey is ‘exhibit A’ for its success,” said Howard Glaser of the internet gambling technology company Light & Wonder. He predicted dozens of states will adopt it in the near future.

However, Chris Krafcik, managing director of the Eilers & Krejcik gambling analytics firm, said some states may be hesitant to forge ahead with internet casinos, which some lawmakers may view as a more serious, high-stakes form of gambling than online sports betting. Another factor is competition from online giants like DraftKings and FanDuel that control nearly half the online casino market in the U.S.

Krafcik predicted “only a very small number of states” will legalize online casinos by the end of 2027. “Online casino has always been a tough sell,” Krafcik said.

One of those states may be Indiana, where an online casino bill died in February due in large part to fears that it would hurt the state’s existing physical casinos. A report from the state’s Legislative Services Agency warned of that, citing “loss of tax revenues from displacement of gaming activities at brick-and-mortar casinos and racinos” of $134 million to $268 million a year. Lawmakers plan to try again next year.

Elaine Vallaster of New Jersey has been playing internet slots for about three years on the BetRivers.com site, where she also likes the free bingo games and a chat function that has enabled her to make several friends with whom she socializes in real life.

“There’s a lot of things to do there,” said Vallaster, who once won $14,000 online. “I’ve met people that I go to lunch with. You laugh and have a lot of fun.”

Legal internet gambling in New Jersey leads the nation in the amount of taxes paid to governments and money won by gambling companies. Collectively, internet gambling has generated $16.3 billion in revenue for the states that offer it, according to the American Gaming Association, the gambling industry’s national trade group.

Through September of this year, New Jersey generated $6.91 billion since Nov. 2013; Pennsylvania generated $4.34 billion since July 2019; Michigan generated $4.1 billion since Jan. 2021; Connecticut generated $615.3 million since Oct. 2021; West Virginia generated $294.7 million since July 2020, and Delaware generated $59.1 million since Nov. 2013.

In terms of tax revenue assessed on internet casino bets over those same time periods, Pennsylvania generated $1.83 billion; New Jersey and Michigan each generated $1.03 billion; Connecticut generated $88.4 million; West Virginia generated $44.2 million; and Delaware generated $19 million.

Internet gambling is not a total windfall for the casinos, who must share part of what they win from online casino games and sports bets with third parties including tech platforms. But that extra money came in handy in 2020, when Atlantic City’s nine casinos were closed for 3 1/2 months at the beginning of the Covid19 pandemic, and internet gambling was just about the only money they had coming in. Most sports were shut down as well, and there was little to bet on.

Internet gambling, which began in New Jersey on Nov. 25, 2013, exceeded most expectations.

“The volume of wagering, the interest from people, the excitement surrounding it as an entertainment option shows the power and reach of the internet,” said David Rebuck, director of the New Jersey Division of Gaming Enforcement. “We were able to do it in a responsible, professional way that avoided embarrassment and scandal.”

There was concern initially that internet gambling would eat into money that would otherwise be won by brick-and-mortar casinos from people physically on their premises. But that has proved not to be the case.

Jane Bokunewicz, director of the Lloyd Levenson Institute at Stockton University, which studies the Atlantic City gambling industry, noted that in most internet gambling states, brick-and-mortar gambling revenue has grown alongside that of internet betting, although at a slower pace.

Richard Schwartz, CEO of Rush Street Interactive, agreed that the two complement each other. “New Jersey proved it,” said Schwartz, whose company operates the BetRivers and PlaySugarHouse platforms. “Casino revenue after the pandemic has stabilized, and online revenue is setting new records.”

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