Regulated gambling jurisdictions fall into two broad categories: state monopolies and multi-license systems. Once popular, the state monopoly model now seems to be falling out of fashion.
In a state monopoly, the law prohibits all gambling except that under the direct control of a government agency. Gambling companies can be involved but only as a public-private partnership. In a licensed system, private gaming operators compete against one another while the government provides regulatory oversight and collects taxes.
Most US states with online casinos follow the latter model. The sole exception is Delaware, although Rhode Island is contemplating extending its online sports betting monopoly to include online casino gaming.
In Europe, national gambling monopolies are common, especially among Nordic countries. Norway and Finland are prominent examples, though the latter is looking at following Sweden’s lead in switching to a licensed market.
Canada’s gambling laws mandate provincial lottery monopolies. However, Ontario, the most populous province, has attempted to create a competitive market within that framework. The jury’s still out on the success of the Ontario model, which has just entered its second year.
The monopoly model sometimes works for retail gambling, but it runs into trouble because of the internet and the existence of an offshore black market. A monopoly isn’t really a monopoly when illegal competition is always just a click away. As a result, revenue numbers and offshore site usage statistics call into question whether state monopolies can ever work for online gaming.
The Difference Between Monopoly And Multi-License System
The primary differences between the two systems involve ownership and control, revenue and taxation, consumer choice and innovation, and responsible gaming and problem gambling prevention enforcement.
- Ownership: The state government controls all gambling activities in a monopoly. In contrast, as the name suggests, multiple private companies operate under government-issued licenses in a multi-licensed system.
- Revenue: In a monopoly, the state collects all revenue. In the opposite system, gambling operators pay taxes and licensing fees to the government. In both cases, the money collected goes towards public services and projects.
- Consumer Choice: Generally, in a monopoly system, the choices of games, incentives, and other features are fewer. On the other hand, multiple gaming operators face competition and compete to offer more games, bonuses, and other features to attract new customers.
- Enforcement: Because the government is not directly involved in a licensed system, it sets regulations and guidelines but relies on private operators to implement these measures. That leads to varying levels of compliance. A recent example is the record $23.8 million fine the UK government handled to William Hill Group.
Delaware: the Only Online Casino Monopoly In The US
Delaware was the first state to legalize online casinos in 2012. But the state chose to implement a monopoly system with the Delaware Lottery overseeing the three online casinos in the state. Delaware Park Online, Bally’s Dover Online, and Harrington Gaming Online all run on the same platform, managed by 888 Holdings. That means competition between the three is essentially an illusion. A single platform means the game choices are essentially the same and fewer than in other states.
Delaware’s online casino revenue is low in part because the state’s population is small. However, the impact of the lack of options shows up in per capita revenue numbers.
In February 2023, Delaware online casinos generated just $0.04 daily revenue per resident. By comparison, West Virginia and Connecticut, also small states, each generated about seven times as much revenue per person per day ($0.26 and $0.28, respectively). Moreover, Delaware’s per capita revenue has remained relatively flat over the past six months while every other state has continued growing.
These numbers show that even a low-population state like West Virginia can be far more competitive with a multi-license model. Delaware’s deal with 888 expires this year, and the lottery might elect to switch to Rush Street Interactive as the only other applicant. However, the underlying problem of the monopoly model will remain regardless.
As for Rhode Island, its lottery offers online sports betting through an exclusive partnership with Bally’s and IGT. Bally’s executives have painted a rosy picture of potential revenue. Still, there’s a high risk the market will look more like Delaware’s than other states if legislators approve the single-operator model.
In Europe, Norway and Finland Struggle With Offshore Sites
Norway and Finland also have a monopoly system. Both are bleeding money to offshore sites. The European Gaming and Betting Association states that 66% of Norwegian online gamblers play at international sites. That cost about 2 billion NOK ($185 million) in lost tax revenue for the country.
Finland is contemplating a change. On the other hand, Norway has doubled down and decided to try battling offshore sites with stricter laws. However, European economic laws make this tricky.
For instance, it has tried to drive Kindred Group – the parent company of Unibet Casino – out of the country with a $120,000 daily fine. But instead of ceasing operations in the country, Kindred is appealing, saying the attempts to enforce a monopoly violate European Economic Area rules.
Finland has a similar system to Norway’s and faces similar problems. A recent study by the Ministry of Interior suggested a need for reform. The report, released in April 2023, showed that the number of people playing at offshore sites remained stable in recent years, about 5-6% of the total population. However, in financial terms, the country is losing €500 – €550 million ($551.8 – $606.9 million) to these sites. That equals a staggering 50% of the total online gaming market.
The report concludes that moving to a multi-license system will benefit the country. Unlike their peers in Norway, Finnish lawmakers and leaders of the state-owned gaming business Veikkaus welcomed the report. Some are even suggesting making the change sooner than later.
Sweden: an Example of Successfully Making the Switch
We don’t have to go far to see results from switching from a state monopoly to a multi-license system. Sweden, a neighbor to both Norway and Finland, changed in 2019.
Gambling activity on international sites decreased from 56% in 2016 to 9% in 2019. This capture of formerly offshore gambling activity by regulated markets is called channelization. Another Scandinavian neighbor, Denmark, which switched to a licensing system in 2012, saw illegal site users drop from 28% to 8%.
We see a similar effect when former black markets turn white. For instance, a Penn State University study has shown high channelization since Pennsylvania legalized online casinos and sports betting.
Going back to Sweden, it has seen revenue increase from 23.4 billion SEK ($2.28 billion) in 2018 to 27.4 billion SEK ($2.67 billion) in 2022, an 17% increase. The number might have been even higher, but factors like COVID-19 and the Ukraine war have taken a toll on the Swedish economy.
The worry with competitive markets is that they tend to increase overall gambling. According to the Swedish Gambling Association (SERP), 72% of adults have gambled in 2022, up from 58% in 2018.
According to SPER, about 4.5% of adults in Sweden had a risky gaming pattern in 2022. Out of that, only 0.5% have gambling problems, while 1% were considered to have an increased risk of gambling problems. The number is not much higher than in 2018 when a study found that 4.2% had risky gaming patterns. According to Svenska Spel, the state-run gaming company, the 2022 number actually decreased from previous years.
Ontario Celebrates Its First Year of ‘Privatized’ Gambling
Ontario, Canada, recently celebrated its first anniversary of switching to a competitive system. It can’t quite be called a “multi-license” system, as the provincial government doesn’t have the authority to license private companies to operate autonomously. However, by signing dozens of partnerships rather than just one, it has created what is effectively a privatized market for most practical purposes.
Before that, the Ontario Lottery and Gaming Corporation (OLG) held a monopoly. It reported that 70% of online players used offshore websites during that period. These were considered a gray market rather than black, as Canadian gambling laws don’t expressly address international online gambling.
Ontario’s market is even more competitive than any regulated US state. There are now 43 operators and 74 legal sites in the market. By contrast, there are 33 sites in New Jersey, the most crowded US market. Sure enough, traffic from Ontario to offshore sites has dropped. The latest reports show that 85.3% of users were now gambling at legal sites, although 19.3% of those said they still used offshore sites occasionally. In a year, the number of gamblers using offshore sites at all has been cut in half and should continue to fall.
Looking at iGaming Ontario’s quarterly reports, we can see tremendous growth in the market. Handle grew 244% over the first four quarters, while revenue increased 217%.