Bally’s executive president Craig Eaton raised the possibility of Rhode Island online casinos at a Chamber of Commerce legislative luncheon sponsored by the company. After the event, Senate President Dominick J. Ruggerio told the Boston Globe that he supports the plan and claimed credit for having proposed it to Bally’s in the first place. To sell legislators on its proposal, Bally’s cited a study it had commissioned from Spectrum Gaming, which estimates the state would receive $210 million in tax revenue from online casinos in the first five years.
Bally’s, as it exists today, is a combination of two companies. Twin River Worldwide Holdings was a retail casino operator that acquired the Bally’s name in 2021, along with the Bally’s Atlantic City property. It then acquired iGaming technology provider GameSys to expand into the online space with BallyBet and Bally Casino.
Bally’s holds a monopoly on casino gaming in Rhode Island through a partnership with the state lottery. It has two retail locations in the state, one in Lincoln and the other in Tiverton.
Right now, this is just a proposal to get the conversation started. No Rhode Island online casino bill exists as yet. However, the state’s legislative session will run until June 30, so there is plenty of time for one to appear.
Rhode Island’s Attitudes Towards Online Gambling
Rhode Island has been embracing online gambling in an incremental fashion. The state legalized retail sports betting in 2018. The Rhode Island Lottery began operating IGT-powered sportsbooks that year at both casinos. The following year, state lawmakers passed another bill to allow online betting but with in-person registration. They dropped the latter requirement in 2020 as it was hurting revenue.
Also in 2020, the state launched its online lottery. Interestingly, it did so without the need for additional legislation. The same bill allowing IGT to offer online sports betting on behalf of the lottery had also created the possibility for other types of online products.
Unresolved Constitutional Issues
Rhode Island is one of many states with a longstanding constitutional prohibition on gambling. In principle, legalizing any new form of gambling requires a referendum.
Having already secured voter approval for “casino gaming” in 2012, state lawmakers have chosen to interpret that phrase broadly. They did not call a referendum when passing the state’s sports betting bill, arguing that it was simply another form of casino game.
Dr. Dan Harrop, a Republican who had run for mayor of Providence, sued to challenge the constitutionality of sports betting. He made it as far as the state’s Superior Court, which ruled against him. In its decision, the court agreed with the state’s attorneys that sports betting is a form of casino gaming and that voters had received fair notice of what they were voting for in 2012.
Harrop had intended to appeal the decision to the state’s Supreme Court. However, he died last year before he could do so. If lawmakers were to authorize Bally’s to conduct online casino gaming, it could provoke another legal challenge.
The argument might be different this time around. The constitution requires voter consultation for any new type or location for legal gambling. For instance, the state would need a referendum to authorize a third retail casino.
When it comes to online sports betting, the argument is that having the servers on casino property means the betting takes place there. This has been a common argument in other states, too. Generally speaking, it’s an argument that has held up at the state level, though federal courts notably disagreed with Florida about it. So, the question of whether statewide online casino gaming counts as an expansion of allowable locations for gambling is another legal avenue opponents could explore.
Tax Revenue Estimate May be Too Optimistic
There are many good arguments for legalizing online casinos. Foremost among these is that prohibition is a failed policy due to the presence of offshore sites, and a regulated market is safer for the populace.
However, the industry has, at times, been guilty of over-promising when it comes to revenue estimates. We should therefore take the Spectrum Gaming study – which Bally’s paid for to support its lobbying efforts – with a grain of salt.
The study assumes a 51% tax on gross revenue from real money online slots and 18% on table games. That suggests that Bally’s is looking at Pennsylvania as an example. That’s the only other state with different tax rates on those two product types. It charges operators 54% on slots and 17% on table games.
Notably, Pennsylvania also happens to be the state with the highest per capita tax revenue from online gambling. That’s convenient when trying to make it sound good to lawmakers. It may not be the most realistic point of comparison to use, however.
Would Rhode Island be Like Pennsylvania? Or Delaware?
Pennsylvania online casinos generated about $518 million in tax revenue for fiscal year 2021-2022. Scaling that for population and multiplying by five years produces a figure of $220 million, just a little more than what Spectrum estimates.
However, bigger states tend to generate more revenue than smaller ones, even on a per capita basis. Moreover, Pennsylvania is a competitive market with multiple brands, while Bally’s proposes a single-operator market for Rhode Island.
At the moment, there’s only one other state with that model: Delaware. Its monopoly partnership between the lottery and 888 Holdings falls at the other extreme of the per capita tax revenue spectrum, despite having the nation’s highest online casino tax rate at 65%.
Delaware also happens to have a population of 1 million, very close to Rhode Island’s 1.1 million. Its gross online casino revenue for calendar year 2022 was $13.6 million, with the state’s share being $8.9 million. Scaling for population and multiplying by five again would give us around $50 million.
Granted, Delaware’s example represents a worst-case scenario for Rhode Island. Accounting for annual growth and a better product might double the total to around $100 million. But even then, it suggests that actual five-year tax revenue for the state might only be a fraction of what Bally’s is promising.
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