Maryland Study Supports iGaming Legalization

November 16, 2023
Amid the debate over whether lawmakers will ask Maryland voters next year to legalize internet gaming, an official legislative study has projected that a regulated market for online slot machines and table games could generate almost a billion dollars in annual gross gaming revenue.

Amid the debate over whether lawmakers will ask Maryland voters next year to legalize internet gaming, an official legislative study has projected that a regulated market for online slot machines and table games could generate almost a billion dollars in annual gross gaming revenue.

That iGaming market should feature licenses tethered to existing brick-and-mortar casino locations, with each license-holder allowed to monetize its market access through two “skins” each for a total of 12 operators in Maryland, according to the 49-page report authored by The Innovation Group on behalf of the Maryland General Assembly.

“Those we spoke with believed that 12 brands, implying two skins each for six operators, would be sufficient for the market without diminishing the salability of a skin. Several believed that six access points would also be able to sustain a strong market,” the report added.

The iGaming report prepared for the Maryland Lottery and Gaming Control Agency (MLGCA) was submitted Wednesday (November 15) by the MLGCA to the budget committees in both the House and Senate, as per language that was included in Maryland's annual budget law earlier this year.

The Innovation Group report lays out the current regulatory landscape for iGaming, as well as the estimated size of the market. The report's other findings address iGaming’s impact on Maryland’s six brick-and-mortar casinos, other gaming venues and the MLGCA.

The MLGCA declined to comment on Wednesday on the report. 

State Senator Ronald Watson, a Democrat, plans to once again lobby his colleagues to pass legislation that would legalize iGaming in next year’s session. 

A bill authored by Watson earlier this year proposing a 2024 voter referendum on iGaming failed to pass the Maryland Senate before the March 20 deadline, but the measure carries over into next year’s session and will still be on the table once lawmakers return to Annapolis.

Maryland’s legislative session starts on January 10 and adjourns on April 8. Should lawmakers pass a bill, the expansion of the state's gaming market through iGaming would still need to be approved by the voters in November.

According to revenue estimates in The Innovation Group’s report, should iGaming be at 60 percent of its development in 2026, gross gaming revenues would be $533.4m with a per capita spend of $112.26 by 4.75m residents aged 21 and over.

Revenues should increase to $904.9m at full maturity in 2029, with an average spend per capita among those aged over 21 of $187.86.

By 2032, with a population of legal gamblers at 4.88m and spending $188.62 per capita, gross revenue from iGaming is estimated to reach $921.1m.

The report also found that fears of cannibalization of brick-and-mortar casino revenue were overblown if iGaming was legalized.

Between 2019 and 2022, the report found 2 percent same-store casino revenue growth in non-iGaming states, versus an 8.2 percent decline in iGaming states, suggesting a cannibalization rate of 10.2 percent.

As Maryland’s casino revenue was just over $2bn in fiscal year 2023, the loss would equal more than $200m but that would be offset by an initial gain of $533.4m from iGaming and estimated revenue growth for the next seven years.

The consultants dropped the actual loss from iGaming cannibalization to around 8 percent to 9 percent, when distributed gaming in West Virginia and Pennsylvania, and the addition of mini-casinos in the Commonwealth, were factored into their estimate.

The report also found iGaming’s impact on the financial health of the Maryland Lottery would be near zero, while the rate rises to 10 percent on electronic bingo machines and then declines to near zero again for its impact on racetracks and off-track betting facilities.

According to interviews with current and former regulators, legislators and operators, the report suggests that Maryland iGaming licenses should be tethered to existing casinos, have a reasonable tax rate and gaming board oversight, as well as reasonable responsible gaming requirements.

In terms of a suggested tax rate, interviewees suggested anywhere from 10 percent to 30 percent, and another “simply stated that iGaming taxes must be higher than brick-and-mortar rates.”

In terms of the size of the illegal online casino market in Maryland, the report estimated roughly $197m in 2022.

"But to capture the illegal market, operators need to be taxed at a reasonable level to allow them the latitude for substantial marketing and technology/product improvement," the report stated.

Neighboring states Delaware, Pennsylvania and West Virginia already have legalized and regulated iGaming, while Virginia offers digital lottery games online.

There are three additional states — New Jersey, Michigan and Connecticut — that have launched legal online casino games. Rhode Island also has legalized iGaming and is expected to launch by March 2024, while Nevada has online poker only.

Currently, there is one skin per license in Delaware, Connecticut and Rhode Island, with Michigan allowing two (one each for poker and casino), West Virginia three, New Jersey five and an unlimited number in Pennsylvania.

In Pennsylvania, online slots are taxed at 54 percent and table games 16 percent, while the rate is 15 percent in West Virginia. 

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