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Unexpected revenues penalize online gambling in Delaware


CASINO GAME RULES


A little over a year ago, the state of Delaware set a goal for itself: Within its first year of legalized online gambling, it would bring in a revenue of $5 million. Sadly, that goal has not been reached. A recent report from the Washington Post indicated that Delaware earned a revenue of only $1.2 million in that time frame. After start-up and vendor fees were taken into account, the state received a check from the industry for slightly over $300,000, a disappointing profit compared to its original projection.

Because of a prior agreement made with the state, every penny of Delaware's online gaming revenue for this past year went to the government. The agreement mandates that the first $3.75 million in revenue shall be awarded to the state each year. For the year 2015, experts have projected a total online gambling revenue of $3.3 million in Delaware. That amount still wouldn't be enough to saturate the state requirement, and if the projection holds true, it looks as if 2015 will see Delaware casinos in the red for the second year in a row.

Online Gaming Monthly Statewide and National Data Center for Gaming Research, June 2014
From UNLV - United States Online Gaming Monthly Statewide and National Data Center for Gaming Research, June 2014

Clearly this has been a let-down for online gambling proponents in the state. One of the major selling points for the legalization of online games in the first place was the potential revenue it would generate for both the state's government and its casinos. All of America's states are in dire need of economic stimulation at this time, and increased revenue on a local level would have been very good news for Delaware's economy.

The Reasons Behind the Disappointment

In response to the low figures, officials from Delaware's casinos and state government have tried to figure out what went wrong. They have suggested that a smaller-than-expected online gamer population could be to blame, that issues with the industry's start-up technology could be responsible for the low customer turnout, and that the brands offered online are less familiar and less appealing to consumers than the brands they see in land-based casinos. Any or all of these factors could have played a part in Delaware's disappointing revenue, but no one knows the answer for sure.

A Pilot Program

To be fair, Delaware's online gambling is somewhat of a pilot program. Just one year ago, it was the first state to officially welcome legalized online betting to its platform. All Internet gambling in the US must be associated with a brick-and-mortar casino; the three Delaware gambling halls linked to online gaming are Harrington Raceway, Dover Downs, and Delaware Park. Through a provider called 888 Holdings, and in conjunction with the state's lottery program, these three facilities have offered virtual slots, blackjack, roulette, and poker for the past year. Given time, the program could still find its wings and begin to thrive.

Tricky Restrictions

In order to join legal online games in Delaware, participants must be physically located within the boundaries of the state. If a person from another state tries to log onto one of Delaware's virtual casinos, he or she will not be able to wager money at the site. The casinos use geolocation software to monitor the whereabouts of participants and exclude those who aren't in the state. To ensure that online players are Americans, the casinos also require gamblers to provide their social security number.

delawarepark TOS
The 'Location Verification' section of delawarepark.com TOS

Some critics of America's foray into the industry claim that rigid restrictions have harmed revenue. If citizens from other states and other countries were allowed to log into Delaware's gaming sites, they argue, overall profits would balloon. Indeed this could be the case, but US laws at this time do not support country-wide online gambling in any state, nor do they support foreigners' use of the sites.

Intrastate vs. Interstate Gambling

As it stands today, intrastate online gambling is legal in Delaware, Nevada, and New Jersey. This means that it's legal for adults within any of these territories to wager money via the Internet within their state. As more states poise themselves to legalize this activity, the question of whether interstate gambling will become legal arises. According to Jennifer Webb, analyst for the research company Gambling Compliance, it's a real possibility that states like Nevada and New Jersey might one day “pool” business opportunities between their two territories. For example, a Nevada citizen might one day be able to legally play on a New Jersey site, and a New Jersey citizen might be able to do the same on a Nevada site.

Other regions of the US, including California, Iowa, Massachusetts, and Hawaii, are now contemplating the legalization of online gambling. If the activity becomes legal in more US areas, the possibility for interstate gaming will grow. The way in which revenue would be split in these instances is, as of yet, unknown. Delaware representatives have already held preliminary discussions with New Jersey and Nevada officials regarding this possibility.

New Jersey Revenue Results: Unsatisfactory

In New Jersey, the profits from online gaming have also caused some disappointment. At the end of May 2014, the state had taken in around $9 million in revenue. That figure might seem impressive compared to Delaware, but the initial prediction for fiscal 2014 in New Jersey was $180 million. According to Andrew Sidamon-Eristoff, treasurer for the state, “The results so far have not met our expectations.” Technological difficulties and problems with payment processing have been blamed for the disappointing figure, but no concrete answers have been identified.

New Jersey reports till May 2014
New Jersey reports till May 2014 (http://gaming.unlv.edu)

Nevada: Online Poker Yields Losing Results

Poker is the only legal online gaming activity in Nevada. As of April 2014, the revenue for Nevada poker sites totaled about $700,000. Unlike Delaware and New Jersey, officials in Nevada declined to make a prediction as to how much revenue the beta project would rake in. According to Michael Lawton, an analyst for the state's Gaming Control Board, “We . . . didn't feel that it would be wise to put out a number. It was just too much unknown.”

Perhaps Lawton and his colleagues were wise to withhold their predictions, and perhaps one year is simply not enough time to know for sure how these online projects will fare in the states.