Is Cannibalization Real?
When the National Council of Legislators from Gaming States (NCLGS) convened for its 2024 winter convention in New Orleans in December, a handful of its members made a side trip to Baton Rouge.
The goal at a Louisiana Senate Judiciary informational hearing was to sell legal online gambling, but executives from one regional casino company did what they could to throw cold water on the idea.
At issue is the concern that the introduction of online casinos in a state will take business away from brick-and-mortar casinos. Called “cannibalization,” the gambling industry is split on how digital gaming affects retail locations. It’s clear that online casino is a cash cow. But while bigger casino and digital companies are seeing spectacular returns, smaller retail casino owners say online gambling is cutting into their core profit centers.
Using phrases like “gambling fentanyl,” “bad bet” and “jobs killer,” the Cordish Companies’ General Counsel Mark Stewart in Louisiana revived arguments his company made when it successfully stalled iGaming legalization in Maryland last year. Cordish believes that digital casino will cut into its retail business enough to say no. Or at least to lobby hard against it.
On the flip side, NCLGS President Shawn Fluharty led a cadre of stakeholders who support the idea for iGaming’s increased revenue to states, broadened options for consumers and expanded protections for players. Fluharty’s group crafted model online gambling legislation that it will share with lawmakers across the U.S.
The framework is designed to serve as a guide for legislators as they educate peers and try to move legal online gambling legislation in their states.
Illegal iGaming ‘Sucks Revenue’
During the presentation, Light & Wonder Global Head of Government Affairs and Legislative General Counsel Howard Glaser shared a presentation showing the benefits of online gambling. According to the presentation, crafted by Vixio and Light & Wonder, online casinos would net gross gaming revenue of $764 million per year and $114 million in revenue to the state annually at a 15 percent tax rate.
He said that $4.6 billion was gambled illegally in Louisiana last year, and that online gambling is already happening in Louisiana and other states across the U.S.
Illegal online gambling “uses Louisianans as an ATM to suck revenue out of the state untaxed and with no protections for the players,” Glaser testified. “In addition, there are well-documented connections between illegal online gaming… and money laundering for human trafficking, for drug trafficking and for organized crime.”
There may not be a clear answer when it comes to the cannibalization issue. But rather, different points of view. A look at revenue in the seven legal iGaming states shows that online gambling platforms are massive moneymakers.
On the face of it, legal iGaming seems like a slam-dunk. The tax revenue available to states through online casinos versus sports betting is staggering. In Connecticut in 2023, digital casino tax revenue was $60.2 million, compared to $19.5 million for online sports betting, according to databases maintained by US Bets and Sports Handle.
In the biggest state with legal online casino and sports betting, Pennsylvania took in $490.4 million in online casino gaming tax revenue in 2023, compared to $155.9 million in sports betting tax revenue. And in West Virginia, which legalized both in 2018, the comparison is even more stunning—digital casino tax revenue was five times online sports betting revenue.
Studies Are Contradictory
Proponents and opponents have studies to support both views of the issue.
In October, the iDevelopment and Economic Association (iDEA Growth) released a report that refutes a 2023 study about cannibalization and the economic impact of online gambling in New Jersey. The previous report, by the NERA Consulting Group, itself questioned findings from a 2019 Meister Economic Consulting and Victor Strategies report on the same topics.
The iDEA study raised questions about the methodology NERA used.
iDEA hired the original market analysis companies—Meister Economic Consulting and Victor Strategies, as well as Regulus Partners—to revisit the 2019 study. The 2023 NERA report suggests that online gambling creates cannibalization. But the iDEA report references multiple studies that show the opposite.
The authors of the iDEA study wrote that a regulated online market draws consumers away from the black market. They also referenced studies that show stronger revenue in markets with both legal retail and online gambling.
Top-line figures may not tell the full story. Casino revenue and tax revenue across a single jurisdiction definitively spike when online gambling is legal. And national companies like MGM or Caesars are among the biggest beneficiaries. They are also more able to absorb a shift in where that revenue comes from than smaller companies.
But smaller or more regional casino companies and Indian Country tell a different story. In March 2024, Craig Billings, CEO of Wynn Resorts, wrote on LinkedIn that the focus on online casino expansion has been centered on total addressable market (TAM) and taxes, which he called a “narrow focus.”
As a more regional player, Wynn is in a different situation than the biggest casino companies. Billings wrote that such companies—whether it be Wynn or JACK Entertainment in Ohio or the Cordish Companies—must prioritize their own market share in order to survive. While TAM may be the sexy number, it’s the big picture. Not the small one.
“There are almost 1,000 commercial and tribal casinos in the U.S.,” Billings wrote. “How many of them can actually avail themselves of the often-touted benefits of an “omnichannel” strategy? 100? 150? The properties that might actually be able to compete with the digital native online gaming providers are those that are owned by the large national gaming operators. What about everyone else?”
Indian Country’s Cautious Approach
That’s a question that is particularly relevant in Indian Country, where casinos provide an income stream that literally changed the lives of many. When the Indian Gaming Regulatory Act went into effect in October 1988, it created an opportunity for some of the poorest sectors of America to become self-sustaining.
As gambling proliferated on reservations across the U.S., tribes were able to provide vital services, from education to elder care, and in some cases tribal members get per-capita payments. The tribes now also can provide jobs at casinos, hotels, restaurants and more to many of their members. There’s also concern that online casino will challenge tribal sovereignty.
Because online casino has the potential to cut into casino revenue, the jobs brick-and-mortar gambling has created and the concerns about tribal sovereignty, many in Indian Country want to take a slow and measured approach.
“As tribal leaders, we have to stand firm and see the bigger picture,” Leslie Lohse, treasurer of the Paskenta Band of Nomlaki Indians and vice chairwoman of the California Tribal Business Alliance, told Tribal Government Gaming in 2011. “You have to have things to preserve for the future. We want our people to be able to survive and thrive. If we make an agreement on internet gambling and it goes wrong, we’ve betrayed our children.”
To date, no state in which tribes have exclusivity to gambling has approved online casino. In Michigan, where online casino is legal, the tribes there agreed to be regulated by the state.
How Online Gambling Can Grow Retail Gambling
While the end game for Wynn and the Cordish Companies and Indian Country may be different, they share a belief that cannibalization is real. And that it could destroy—or at least diminish—what they have created.
Stewart also argued that other casino companies support an online expansion as a “pretext” for limiting the black market. Among the reports Stewart cited was a report from YieldSec commissioned by the Campaign for Fairer Gambling (CFG).
The 2024 Super Bowl report showed that twice as many illegal bets were placed versus legal bets. It also revealed that the illegal market accounted for 65 percent of all wagers and the legal market accounted for 35 percent. But Stewart did not indicate that the report is compiled in part by projections. There is no way to definitively track bets on the illegal market.
In February 2024, Regulus Partners found illegal bookmakers account for 19 percent of traditional betting engagement. Regulus also showed that legal operators accounted for 45 percent of all Super Bowl bets. That is a significantly higher number than the number the CFG put out.
But Brandt Iden, head of government affairs for Fanatics Betting & Gaming, makes a convincing argument that cannibalization isn’t a detriment. It’s just another tool to grow the potential customer pool for in-person gambling.
Consider this example, in which Iden compares online casino and food-delivery services.
“I’m going to Piero’s for dinner tonight,” Iden said during an October 2024 Global Gaming Expo (G2E) panel. “I love Piero’s but sometimes, if I don’t want to go out, I might order it in. It’s the same thing. If I want the casino experience, I’ll go to the casino, but sometimes, I want to play at home.”
Iden was at the Louisiana hearing two months later. There, he gave an example of how online casino was a savior in Michigan, where, as a state legislator, he was the architect of the law that simultaneously legalized online sports betting and casino.
“Casinos pay taxes daily. That’s every day at the end of the day at 4:59 p.m.,” he said. “The mayor of Detroit has talked to me many times about this issue, and he said, ‘Brandt, thanks. Because of that legislation in the state of Michigan, I was able to keep boots on the ground, I was able to keep first responders here, I was able to keep our streetlights on. When the pandemic hit this city the hardest, iGaming was there.’ And that is a very moving statement from a city that had a very tumultuous time.”
Online vs. Retail Customers
On a day-to-day basis, executives from Boyd Gaming and Caesars, both of which have locations in Louisiana, say they view online gaming as “additive.”
Boyd Gaming operates five brick-and-mortar gambling locations in Louisiana while Caesars operates three—among them, a flagship casino adjacent to the French Quarter that recently underwent a $435 million renovation that includes a 340-room hotel tower. Trevor Hayes, vice president of government relations for Caesars, said at the time that his company would not have made that kind of investment if it believed that online casino would kill the retail business.
He and Ashley Menou Center, head of government relations for Boyd Gaming, testified that online casino “attracts a different kind” of consumer than brick-and-mortar casinos. Center also said that online casino “doesn’t take players out of the brick-and-mortar, it brings new players to the market.”
Hayes said omnichannel customers in New Jersey make an average of 25 percent more visits to the casino than in-person customers. He also said that in-person customers who later began gambling online make 55 percent more visits to the the brick-and-mortar casino than they did before iGaming was legalized.
As with legal digital sports betting, there is a synergy between online casino and in-person gambling. Casino companies allow players to accrue points for online play that can then be redeemed at physical properties for meals or merchandise or hotel rooms.
It’s clear that different kinds of casino operators see online casino through different lenses.
Is cannibalization real? Good question.
