Regulators in the Old Line State allowed its licensed online sportsbooks to start accepting wagers on Nov. 23. The move came nearly a year after they launched a brick-and-mortar market at five of the state’s casinos.
Maryland’s recent online sports betting launch should have no significant impact on its brick-and-mortar industry.
Twenty-one states and the District of Columbia already offer online sports betting. Maryland’s launch marked the 22nd state with online sportsbooks.
With that launch comes the inevitable debate about whether online sportsbooks will cannibalize their retail counterparts. In those other jurisdictions, there is no evidence to suggest the addition of online sports betting hurts retail operations. There is no reason to believe that Maryland would be an exception to the rule.
However, there is a major difference between Maryland and those other states.
Long launch delay makes Maryland a unique market
The 11-month lag between the rise of retail and the launch of online sportsbooks is the longest of any state that legalized betting after PASPA was overturned in 2018. Consequently, many will question whether online sportsbooks will cannibalize existing in-person operations.
The question doesn’t come without merit. There is a lot at stake for retail operators.
Since their inception, the state’s eight sportsbooks accepted $279.9 million of sports wagers through October. They won $36.2 million on those bets. Of that revenue, 15% has supported the Blueprint for Maryland’s Future Fund, totalling $5.4 million without adding license application fees.
A ninth Maryland retail sportsbook, at Long Shot’s in Frederick, opened in November.
In other states, there isn’t any data indicating retail operators should worry. But in those states, retail and online sportsbooks were opened in a much shorter timeframe.
Maryland, on the other hand, allowed its retail market to mature longer before letting online sportsbooks enter the industry. This key difference makes comparing Maryland to other sports betting markets a tricky task.
New Jersey online gaming makes for the perfect case study
Instead, it’s more prudent to compare Maryland with the New Jersey online gaming industry.
The Garden State casino industry was established in 1977, when the New Jersey Casino Control Act was signed into law. The following year, Resorts International opened its doors and marked the beginning of Atlantic City as a gambling destination.
More properties opened in the following years, and the city eventually developed into the East Coast version of Las Vegas. But 36 years later, New Jersey allowed its licensed operators to offer online gambling as well.
In 2014, New Jersey allowed casino games to move to the internet. Everything from poker to slot machines was available online.
The arguments for cannibalization
Some believed this would hurt the already existing brick-and-mortar market.
Why would anyone travel to Atlantic City if they could gamble on their computer from their home? Many feared the addition of online casinos would lead to a dramatic reduction in land-based casino revenue. In turn, that would lead to a shrinking industry and loss of jobs in the sector.
But there were plenty in the other school of thought who believed cannibalization wasn’t a real threat to the industry. In their eyes, the two industries act as a complement to one another. They aren’t direct competition.
Arguments against cannibalization
This could be seen most easily through the online poker boom of the early and mid-2000s. The world’s largest online poker rooms funnelled players into live tournaments at brick-and-mortar casinos. Poker’s marketability grew thanks to the emergence of online poker.
A recent study funded by MGM Resorts and authored by Dr. Kahlil Philander, an assistant professor at Washington State University and previously the director of research at the University of Nevada Las Vegas International Gaming Institute, echoed this sentiment. Philander’s study found that the two industries attract two entirely different types of gamblers.
“From a sociological level, people who are regular casino goers often find some sort of sense of community in those environments,” Philander wrote. “So, the idea that [online] is a direct or even partial substitute for the online experience that’s typically at home, it’s not obvious that’s the case. … It just didn’t seem like there was any material impact from online gaming legalization on retail gaming, in all the markets we studied.”
In other words, brick-and-mortar facilities offer an experience that online can’t provide. There are fine dining and entertainment options that go with the gaming aspect. It’s a social experience, whereas online gaming is strictly about wagering.
What happened in New Jersey?
Over the course of the past eight years, Philander’s working theory was what played out in New Jersey. The first full year of online gaming in New Jersey was 2014, so 2013 can be used as a baseline.
During that first year, brick-and-mortar casino revenue saw a slight decline in every month of the year.
The largest dip came in September as Atlantic City casinos reported winning $199.15 million compared with the $240.23 million in 2013. The smallest decline was in August when revenue dropped from $298.1 million in 2014 to $294.5 million a year later.
In terms of total gaming revenue, most months saw year-over-year declines as well. But this was part of a larger trend that saw the industry decline every year from 2007-2015. This was most likely a combination of the great recession and the addition of competing casinos in Philadelphia.
Online casino revenue represented 4.48% of the total gaming market in 2014. By 2019, however, total gaming revenue levels were well above where they were in 2014. Every month in 2019 saw double-digit gains in total revenue compared with five years earlier. The largest of which was a 51% increase in November 2019 compared with the same timeframe in 2014.
Retail and online betting revenue were at all-time highs. Therefore, the New Jersey gross gaming revenue was setting new highs.
In other words, the market completely recovered. Just in time for one of the largest catalysts of online betting ever.
COVID pandemic pushes online betting to the forefront
If ever there was an event that could kill the New Jersey gambling market, the COVID-19 pandemic was it. In March 2020, Gov. Phil Murphy shuttered Atlantic City casinos.
Murphy kept those casinos closed for nearly four months. Online poker, online casino games and horse racing were the only options for New Jersey gamblers until Atlantic City began the reopening process in July 2020.
The online casino industry saw steady growth leading up to the pandemic. And thanks to the pandemic-induced shutdowns, online casino revenue really took off in 2020. The shutdowns and capacity restrictions, however, make 2020 levels irrelevant in terms of finding a trend. It’s worth noting, though, that online casinos were the source of 33.77% of the total New Jersey gaming revenue that year.
On a nominal basis, online operators carried those gains into 2021. But the percentage of total gaming those numbers represented declined slightly.
Monthly online gaming revenue in 2021 was up more than 1,000% from its inaugural levels seven years earlier.
February was the only month in which online casino winnings didn’t crack the nine-figure mark.
By comparison, only eight months in 2014 cracked $10 million in total revenue. The largest came in March with reported winnings of $11.87 million.
Fast forward seven years and online casinos logged $113.67 million in March 2021. These days, the new standard for monthly online betting revenue is anywhere between $100 million and $140 million.
Atlantic City casino revenue stayed relatively flat…
While online revenue saw sustained growth before the explosion two years ago, New Jersey’s brick-and-mortar gaming revenue flatlined.
Compared to 2014, the first six months of 2021 all saw sizable decreases in revenue at Atlantic City casinos.
But the final six months of the year saw revenue levels on par with that of seven years earlier. Those levels were sustained in 2022, indicating the dip likely stemmed from the pandemic, not from online betting.
…but total gaming revenue rose consistently
Since online casinos were introduced nearly nine years ago, New Jersey’s total gaming revenue now stands much larger than ever. Even before the pandemic kickstarted online betting, the five-year span from 2014-2019 saw consistent expansion.
For example, gross gaming revenue during December 2014 was $190.5 million. In 2019, however, December’s revenue was $287.3 million.
We can use this increase to highlight just how consistent the growth of online gaming has been. The timeframe between 2014-2019 was organic growth in the online casino industry. The 2020 pandemic was the catalyst the customers needed to begin looking at online betting.
Fast forward another two years to December 2021, and the total gaming revenue increased to $404.1 million.
With brick-and-mortar levels staying flat throughout this time frame, it shows online betting is failing to cannibalize land-based casinos. Additionally, online casinos were the driving force behind the market’s increase.
What does this mean for Maryland?
Maryland is likely to follow the same path as New Jersey. In the coming years, revenue levels for existing sportsbooks will likely remain relatively unchanged.
But the total sports betting revenue for the state should increase dramatically.
Yes, brick-and-mortar operations will get a smaller piece of the overall sports betting pie. However, that pie will be much larger than its current size.