As I write this, I have Covid. Again. I’m tired of it. You’re tired of it. Based on fading federal pandemic aid to states, everyone’s tired of it. However, coronavirus topic fatigue won’t make it evaporate from reality.
Yet that’s what’s about to happen to that funding.
In 2023, no new money will be coming into state coffers from the State Fiscal Recovery Funding from the American Rescue Plan.
Every cent of those billions arrived in 2021 and 2022. No disbursements are slated to arrive in 2023, despite the continued existence of the virus that’s even now picking the outfit for its third-anniversary party.
So states that still have bills to pay and no new pandemic relief money coming in may consider raising taxes on their residents, who are still getting sick.
Or maybe they’ll look for other sources of revenue.
Either way, they’ll have to somehow make up for the lost consumer spending resulting from their residents still periodically being stuck at home, primarily occupied by creating piles of used tissues.
If they look into how many states are offsetting pandemic tax revenue losses, they’ll notice recent legal online gambling income streams.
Since 2018, 23 jurisdictions have legalized online sports betting.
While they could do so earlier than 2018, many more states may be considering legalizing iGaming as six jurisdictions already do.
What iGaming Tax Revenue Can Do
In states like mine (Pennsylvania), some of that lost pandemic relief funding is offset by tax revenue from the gambling industry.
As the Pennsylvania Gaming Control Board (PGCB) put it on Nov. 17:
“A significant job generator in the Commonwealth, casinos, and the other types of Board-regulated gaming generated over $2 billion in tax revenue during the 2021/2022 State Fiscal Year.”
So $2 billion during the fiscal year doesn’t replace the $7.3 billion in pandemic relief funding that arrived in 2021, but it’s something. And instead of Pennsylvanians complaining about rising taxes, some are entertained by placing bets.
It’s important to note that Pennsylvania launched its online gambling marketplace in July 2019, before Covid-19 shut down schools and workplaces in the US and so many of us became coughing, sweaty messes.
Also, tax revenue from iGaming is a fraction of the state’s gambling tax revenue. For instance, about $53 million in tax revenue came from iGaming in October 2022, the PGCB said.
Which States May Be Ready
A report from VIXIO estimates the US iGaming market could grow to over $30 billion per year if all 42 states with legal online sports betting or retail casinos added online casinos to their offerings. That figure from Vixio, a company that helps gambling and payments industries comply with government regulations, could mean $6.5 billion in combined state tax revenue, assuming a tax rate of 20% in new iGaming states.
Plus, a Nov. 30 report from the American Gaming Association (AGA) claims that because of illegal online gambling sites, states are losing $13.3 billion a year in tax revenue that would otherwise be collected from legal gambling sites.
That 20% legal tax rate assumption isn’t a given.
Current law in Pennsylvania taxes online casino table games at 17% and slots at 54%.
New York taxes online sportsbooks at 51%.
The Empire State is one of five states to watch in 2023 for possible online casino legalization. Other top prospects include Illinois online casinos, as well as the potential for online casinos in Colorado, Indiana and Iowa.
In New York, that pandemic drought is already happening. In 2021, the Empire State received its entire allotment of $12.7 billion in State Fiscal Recovery Funding from the American Rescue Plan, according to a Sept. 15 report from the Center on Budget and Policy Priorities. While New York hasn’t yet spent the entire sum, it’s not slated to receive more.
The Empire State already benefits from legal online sports betting, which itself is a pandemic offset. Nine operators launched sportsbooks there on Jan. 8 and Gov. Kathy Hochul says between then and Oct. 30, New York coffers gained $542 million in tax revenue.
Based on research by Bonus staffers, New York could have generated $1.3 billion in tax revenue from legal online casino gambling during that same 10-month period. (New York doesn’t yet have legal iGaming.) That $1.3 billion figure is the result of Bonus calculations related to historic revenues in states with both online casino and sports betting. They tend to see a revenue split of 70% and 30% for the respective forms of gambling.
That implies an annual total of around $1.5 billion in iGaming tax revenue for New York, which is within the realm of possibility. Of states that have already legalized online casinos, Pennsylvania provides the closest comparison in terms of population and tax rate.
The current Pennsylvania market, scaled up to New York’s population and taxed at 51% across the board, would generate about $1.2 billion in taxes each year. However, bigger states tend to draw more investment from operators and perform better as a result, which could bring the actual total closer to $1.5 billion.
So that is part of why iGaming might be especially attractive to nearly 20 states that have live or legal online sports betting but have yet to legalize iGaming. Another reason may be that the six states where iGaming is legal (Connecticut, Delaware, Michigan, New Jersey, Pennsylvania, and West Virginia) also generated nearly twice as much gaming tax revenue last year as did states with only legal sports betting.
Legalizing Online Casino Won’t Erase the Entire Shortfall
Tax revenue from legal iGaming may seem like a small offset for the loss of $195 in pandemic-related revenue, but Detroit Mayor Mike Duggan credited the city’s share of online gambling tax revenue with bridging the gap in income tax resulting from Covid-19 shutdowns.
In March, Duggan told Detroit City Council: “Internet gaming revenue, which was new to us, has so far offset the losses of our income tax revenue.”
Michigan launched online casino, poker, and sports betting on Jan. 22, 2021.
During the first nine months of 2022, the Wolverine State saw gross gaming revenues of $1.1 billion and sports betting revenues of $131 million. As for tax revenue, both forms of online gambling contributed $26 million to state coffers during September 2022 alone. That’s a portion of Michigan’s expected $6.5 billion in pandemic relief funds, of which the state received $3.3 billion in 2021.
That’s why billions of dollars in new tax revenue from legal online casino gambling would certainly help to buoy states as they continue whittling down relief funding from Congress. As of Aug. 2022, only around $41 billion of that money was left.
States Most Likely to Legalize Online Casinos in 2023
Aside from New York, Illinois, Indiana, and Iowa are the most likely states to add legal online casinos during 2023.
Entain CEO Jette Nygaard-Andersen came up with the shorthand for her vision of expected iGaming-launching states during her company’s Oct. 13 earnings call. Entain and MGM Resorts International jointly operate BetMGM, which holds the largest market share in US online casino gambling.
New York seems to be the farthest along the path of legalizing online casino and poker, considering its two main gambling expansion advocates won their elections on Nov. 8.
State Sen. Joe Addabbo tells Bonus he’s hoping to get the iGaming bill he sponsored in front of Hochul before she presents her executive budget in January 2023. That’ll be shortly after a board Hochul defended during her gubernatorial campaign begins accepting retail casino license applications for three new downstate facilities on Jan. 6.
One of the reasons Addabbo emphasizes the importance of legalizing iGaming soon is he believes New Yorkers are already either gambling legally in online casinos and poker rooms outside of the state, or they’re doing so in New York via illegal, offshore sites. Either way, legalizing iGaming in New York would mean regulation that enables identifiable bettors with gambling problems to access the help they need, he said to Bonus.
Addabbo’s assertion about illegal sites operating in New York is backed up by the AGA report. On Sunday, AGA CEO and President Bill Miller referenced that illegal site situation and said it’s a nationwide problem. Miller urged state lawmakers to crack down, reports the Las Vegas Review-Journal.
How iGaming Offsets Could Look in CO, IL, IN, IA, NY
Before 2023 starts and we see which states move forward on iGaming legalization, it may help to take a look at what each of these jurisdictions have to win or lose.
The summaries include current pandemic relief allotments, as well as online casino tax revenue projections. The estimates employ each state’s current sports betting tax rate, not Vixio’s flat 20%.
New York State iGaming
- In 2021, New York received its entire allotment of $12.7 billion in State Fiscal Recovery Funding from the American Rescue Plan.
- Based on the state’s current online sportsbook revenue, a legal online casino market taxed at 51% would generate $1.5 billion each year in tax revenue.
- Illinois has $8.1 billion in pandemic relief funds, which it received in 2021.
- Bonus predicts legalizing iGaming would generate $240 million during the market’s first mature year, if GGR is taxed at the same rate as the current 15% the sports betting market sees.
- During 2021, Indiana’s coffers saw $1.5 billion of its $3.1 billion pandemic relief funds.
- If it were to legalize online casino gambling, Bonus predicts Indiana could receive up to $190 million a year in tax revenue. That’s based on the 18% tax rate contained in a draft of the 2023 bill obtained by Bonus.
- The Bonus estimate is optimistic, being based in part on the volume of activity in the current sports betting market, which is taxed at a lower rate. iDEA Growth provides a more conservative estimate of $166 million.
- Iowa only has $740 million of its $1.5 billion expected pandemic relief.
- So $35 million from legal online casino gambling industry taxation, at its 6.75% sports betting rate, would help offset its pandemic fund losses.
- Colorado received its entire $3.8 billion pandemic funding allotment during 2021.
- Legalizing iGaming could generate $35 million in tax revenue, at its 10% sports betting rate.
The Status Quo
It’s entirely possible nothing will change in 2023. It could be that no states will legalize online casino or poker gambling, and Connecticut will remain the last state to do so. Nutmeggers saw their market go live on Oct. 19, 2021.
Meanwhile, the next state launching online sports betting is Ohio – as a way to celebrate the New Year.
However, I’m quite ready to say “goodbye” to Covid and “hello” to reporting on a new legal online casino state.
Although if no new states legalize iGaming, I already have my tissues ready.