(Bloomberg) -- Online casino gambling has become a big business in the handful of states that allow it, but that growth spurt may be over.
In March, Rhode Island became just the seventh state to let residents bet on casino games like blackjack and roulette online. Just two more states, Florida and New Hampshire, are expected to follow over the next five years, according to Eilers & Krejcik Gaming LLC. By comparison, 38 states allow sports betting.
“US online casino expansion has been hard, and it’s getting a lot, lot harder,” said Chris Krafcik, a managing director at Eilers.
For a while, online gambling looked like an unstoppable force. States were keen to tap gambling as a source of tax revenue, and sports-fantasy companies such as DraftKings Inc. and Flutter Entertainment Plc, the parent of FanDuel, were poised to offer real betting online nationwide.
But now some officials are having second thoughts about the social costs of easy access to gambling. States with existing casinos have begun asking if online betting would destroy workers’ jobs.
“Key stakeholders, including online sports-betting operators, land-based casinos, and labor unions, remain bitterly divided over whether online casino eats into land-based casino revenue,” Krafcik said.
Earlier this year, Maryland legislators refused to pass an online gambling bill. Opposition came from some local casinos and unions that argued online wagers would cannibalize existing properties, as well as from groups that said internet betting would lead to an increase in gambling addiction.
In testimony before the Maryland legislature in February, Mark Stewart, general counsel of casino owner the Cordish Cos., called online betting a “jobs killer,” saying thousands of casino positions had already been lost in Pennsylvania and New Jersey.
“Science has shown us that online casino gambling is a known dangerous and addictive product on the same level as heroin, cocaine and opioid,” Les Bernal, national director of Stop Predatory Gambling, said in his testimony.
The large and influential hotel workers union has also opposed online casino betting in New York, already one of the biggest sports-betting markets.
New Jersey helped jump start online casino games when they were approved in 2013. Operators in the six states that allowed it last year generated more than $6 billion in revenue. Sports betting has taken off even faster. In part because of its long history in fantasy leagues and office pools, sports betting was seen as more palatable by politicians. It generated about $11 billion in revenue for operators last year.
The money generated online by slot machines and other games now rivals that of land-based casinos in the three biggest states that allow it: New Jersey, Pennsylvania and Michigan. For the fiscal year to date through August, land-based casino revenue in New Jersey was flat at $1.92 billion, while online revenue rose 23% to $1.52 billion. That number doesn’t include sports betting, which generated an additional $716 million, most of it online.
Online casino games are more lucrative than sports betting for the operators. Customers can play all day and night if they choose, not just during college or pro sports games. The house also has a built-in edge on casino games. That’s not the case in sports, where bookmakers set the odds and can guess wrong.
Operators generate about $6,200 annually from an online casino player, versus $1,900 for a sports-only bettor, according the Macquarie Capital research.
Bill Miller, chief executive officer of the American Gaming Association, said last week in a wide-ranging interview at the Global Gaming Expo trade show in Las Vegas, that some casino operators believe they were promised the opportunity to offer casino games exclusively when they agreed to pay license fees and invest in fancy resorts.
Miller, whose group represents both traditional casinos and online players and doesn’t have a position either way, said there’s no consensus on the impact of online betting on land-based properties.
“The issue is unsettled whether it’s additive or whether its cannibalization,” he said.
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