Analysis: Will Ontario Online Casinos Cut Into Land-Based Revenues? American Data Says No

Written By Katarina Vojvodic on January 31, 2022 - Last Updated on February 2, 2022
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A report commissioned by one of Canada’s largest casino companies said the forthcoming expansion of legal online gambling will be bad for provincial economies.

Online casinos in Ontario will cannibalize land-based gaming halls, according to the study, costing the province $2.8 billion over the next five years, given the lower tax rate online operators are expected to face.

It was a late power play by Great Canadian Gaming Corporation deployed to ice Ontario’s internet gaming rollout and shift the power back to land-based casinos. GCGC had asked for casinos to issue licenses themselves in a tethered system.

Still, iGaming Ontario announced last week that online gambling will launch on April 4, years in the making. However, after Friday’s launch announcement, a statement from the Mississaugas of Scugog Island First Nation shared intent to challenge the market in court.

The Nation is wary of Ontario’s online gambling launch. Primarily, the group is concerned the open market will “devastate” the MSIFN economy. The Mississaugas own the Great Blue Heron Casino, an essential economic engine for the region.

Whether this new development will have any effect on the newly revealed launch date remains a mystery.

In the meantime, it’s worth a look though: Is GCGC right about cannibalization?

Our research of the data from the United States says no. And certainly not to the level suggested by the study.

Critical reception of Great Canadian report from the industry

These are tough times for land-based casinos.

And while industry insiders are grumbling about the timing of the study’s release and demands, you can’t blame GCGC for trying to maintain and grow its piece of the pie.

Still, reactions to the report within the industry have been predominantly critical.

“When the regulated market opens in Ontario, nothing is going to change in respect to players’ entertainment habits,” said Jeffrey Haas, senior vice president of international strategy at DraftKings, told CBC News.

“People who are playing in online casinos and online sportsbooks and online poker rooms will continue to do so, except they’re going to go from playing offshore to onshore. And anybody who continues to walk into real casinos in order to play games there will continue to do so.”

The report, from HLT Advisory Inc., cites the experience from the United Kingdom’s 2005 rollout of an open-licence model, which Ontario gaming officials are discussing.

But according to Paul Burns, president of the Canadian Gaming Association, “Drawing comparisons from different markets in different jurisdictions” may not be an accurate picture of what will happen when Ontario starts regulating online gaming.

It’s true drawing accurate conclusions from comparisons of inherently different markets is a challenge. But, considering the available evidence can help provide clues of what may go down in the province.

To that end, PlayCanada took a look at the three top US online casino states — New Jersey, Pennsylvania and Michigan.

We followed the money to see if there was truth to GCGC’s claim.

New Jersey: Online casinos helping spark gambling comeback

Like the pandemic later in Pennsylvania and Michigan, an outside force gave New Jersey’s early online casino days the appearance of failure.

But it’s clear Atlantic City was on a long-term slide. One that led to the closure of a handful of casinos in 2014.

As we move further from the November 2013 launch, internet gaming seems to be a way forward for the state, not a reason for regret.

Though the road to profitability in the Garden State certainly had its twists.

As the first American state to go live, the market got off to a bumpy start. Early difficulties included geolocation technology that was not verifying if players were physically in the state and banks not allowing credit cards to fund online gambling accounts.

NJ set its market up the way the GCGC seeks, with online casinos tethered to land-based partners. Much like due to the pandemic today, that revenue was necessary for Atlantic City’s boardwalk at the time.

Atlantic City’s decline well underway before internet launch

Starting about one year after launch, however, five of New Jersey’s land-based casinos closed their doors. One property was imploded, and one is still vacant. Two others either changed hands or merged with another casino property. Another reopened as a hotel destination.

Currently, there are nine active land-based casinos in the state.

While it’s easy to blame these land-based closures on the introduction of online gambling, the truth may be more complicated.

The closures came after eight years of declining revenue that kicked off during the 2007 economic crisis. Another reason for the downturn was the competition Jersey casinos faced from nearby states, such as Pennsylvania. And, yes, the state’s online gambling launch could also have played a factor in the reduction.

The problem? We can’t know for sure. And, realistically, it’s likely many aspects played into the revenue slump.

New Jersey land-based casino revenues and taxes

NJ online casinos launched in November 2013
Casino revenue
$2,862,068,918 $2,619,250,906$2,686,540,452$1,511,011,776 $2,554,493,369
Casino state tax
$203,965,114$186,910,357$191,422,097 $106,945,692$177,794,086
Casino state tax
(retail & online)
Numbers via the NJDGE

As you can see, numbers from the NJ Division of Gaming Enforcement show a drop in land-based casino revenue after online casinos launched in 2013.

However, after the initial drop, land-based revenue stabilized and continued to hold steady. From there, retail numbers continued to climb along with internet gaming revenue.

All the 5% decline in revenue at NJ’s brick-and-mortar casinos between 2019 and 2021 indicates is land-based casinos have not quite recovered from the pandemic.

As for Atlantic City, the state’s complicated revenue structure ensures only a small portion goes to city casinos. Although there are benefits of iGaming in NJ, the jury is still out on whether Atlantic City casinos reap them.

Despite pandemic, Pennsylvania online casinos sparked record ’21

In 2017, Pennsylvania voted to legalize online casinos in the state. The decision came despite witnessing the closure of several Atlantic City casinos in 2014 after NJ’s online launch.

The Keystone State had an advantage, however. It could take lessons from NJ’s beleaguered start and avoid similar mistakes.

But, while online casinos became legal in PA on Oct. 30, 2017, due to bureaucracy issues, the market didn’t kick off until July 2019. By the end of that year, five online casinos were operating in the state.

As with nearly all aspects of global life in early 2020, the pandemic changed everything, forcing ugly numbers for land-based casinos right as the online sector ramped up.

With COVID-19 lockdowns and restrictions halting growth, there was no way to tell if online casinos cut into land-based gaming revenues. Because of the timing, it was nearly impossible to get reliable year-over-year revenue for land-based casinos in 2020. But the drop was clearly connected to pandemic-related closures and restrictions (and avoiding casinos and Covid).

Slot revenue at the state’s land-based casinos dropped 42.6% in 2020 to US$1.36 billion, compared to 2019. And revenue from table games dropped 44.2%, to US$504.3 million.

Pennsylvania land-based casino revenues and taxes

Pennsylvania online casinos launched in July 2019
Casino revenue
Casino state tax
Casino state tax
(retail & online)
Numbers via the PGCB

But, in 2021, PGCB reported record revenue of US$4.7 billion. The majority of that came from slots (US$2.2 billion). The rest is from legal online gambling (US$1.1 billion), table games (US$924 million), sports betting (US$340 million), video game terminals (US$39 million) and fantasy sports contests (US$29 million).

Pennsylvania’s land-based casinos were shuttered for about four months in 2020, resulting in a 21% revenue decline in 2021 when compared to 2019 (in a pre-Covid world). In 2020, there was also strong growth in online casinos and online sports betting. That trend continued in 2021.

In any case, 21% doesn’t seem like a substantial drop when you consider the pandemic’s impact.

It’s worth noting that Live! Casino Pittsburgh opened in Nov. 2020 and three more casinos opened in 2021. So, more land-based casinos make year-over-year comparisons tough.

These days, however, land-based revenue is back to near pre-pandemic levels (with more casinos). And, the overall increase in revenue from online casinos is taking Pennsylvania gaming revenue to record highs.

Penn State study says most casino customers play online and at casinos

While casinos were closed for much of 2020, players in the Keystone State at least had the online option. And, as a 2021 report from Pennsylvania State University indicates, that doesn’t mean land-based casinos lost those customers forever.

According to the PA Interactive Gaming Report, more than two-thirds (68.6%) of those who play online are also gambling in person.

New Michigan online casino revenue mitigated pandemic shortfalls

Last but certainly not least, we have Michigan.

Michigan launched online casinos and sports betting on Jan. 22, 2021, with 10 online gambling apps live at launch.

The Great Lakes State has three commercial casinos and 12 federally recognized Native American tribal casino operators. Those entities make up the 15 licensed casino operators in Michigan for online gambling.

By the end of 2021, online casino revenue in Michigan reached US$1.11 billion, raising US$201.7 million in state taxes. Another US$55.3 million in taxes went to the city of Detroit, and US$22.4 million to the state’s tribes.

Michigan land-based casino revenues and taxes

Michigan online casinos launched in January 2021
Casino revenue
Casino state tax
Casino state tax
(retail & online)
Numbers via MGCB

As for land-based casinos, the state only releases numbers from the three downtown Detroit properties The state’s 23 land-based tribal casinos operate with autonomy.

Those three reported US$1.45 billion in revenue in 2019, the final year with available numbers not severely impacted by the pandemic.

Michigan closed Detroit’s casinos completely for about six months in 2020. And later casinos operated under 15% capacity limits for about three more. Like in PA, using those 2020 numbers for any land-based comparisons seems a fool’s errand.

With the pandemic still very much in play in 2021, amidst the launch of online casinos, Detroit casino revenue dropped 12.9% from 2019 to US$1.27 billion. The tax haul fell by US$15.2 million to $102.6 million in the same time frame.

But while the state was out $15.2 million from land-based Detroit casino revenue, it gained the previously mentioned $201.7 million from new online casino revenue, a net gain of $186.5 million in tax revenue.

In addition, tribes forced to temporarily close their casinos, a most important artery for funding in normal times, had a new stream of gaming dollars from their online products. And they garnered US$22.4 million in new tax revenue for their governing bodies.

Common denominator for the big three? Nine figures of new monthly revenue

What do New Jersey, Pennsylvania and Michigan all have in common?

First and foremost, each state ended 2021 with more than US$100 million of monthly online revenue. That revenue sparked millions in new tax money that wasn’t there a decade ago.

In 2021, online casinos in the big three combined to generate more than US$3 billion in revenue. Despite getting off to a delayed late January start, Michigan quickly caught up to its peers.

Additionally, as reported by PlayMichigan, the American Gaming Association calculates in 2021, commercial land-based venues in the US generated US$41.08 billion between January and November. That is a 6.4% increase over the US$38.62 billion amassed during the same period in 2019.

No one is proclaiming that online casinos are some white knight that can save Atlantic City.

But in the US, there’s enough room in the ecosystem for both forms of gambling to thrive in places where they had been stable before the launch of internet gaming.

US gambling dollar not being stretched in online casino states

While GCGC’s report claims online entities will cannibalize land-based casino revenue and associated taxes, what we see in three of the US’s top gambling jurisdictions says otherwise.

While it’s true there were initial drops in retail casino revenue when internet gaming launched, the US examples had other factors at play. After those factors stabilized, the true nature of growth emerged.

If we take COVID out of the equation, numbers like these show land-based casinos can coexist (and thrive) alongside their online peers.

Whether a tethering system is better for the overall economy is an open question, though it’s obviously better for the land-based halls. But to say online casinos will keep substantial amounts of gamblers home is a theory unproven in the states.

Times are tough for land-based casinos, and it’s easy to see how the upcoming rise of online gambling can seem like another kick in the teeth.

But what we see in these three thriving, co-existing US environments is gambling dollars are not scarce. Instead, support for two very different entertainment experiences is multiplying.

*With files from Robyn McNeil, PlayNJ, PlayPA and PlayMI
Photo by Shutterstock
Katarina Vojvodic Avatar
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Katarina Vojvodic

Katarina is a Toronto-based online gambling writer who holds a master's degree in journalism. Before joining PlayCanada, she was part of the AskGamblers crew where she reported about the world of online casinos and interviewed numerous iGaming experts. Being in the industry for 5 years, she became an expert in online slots.

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