States Leaving Tax Revenue on the Table By Not Legalizing iGaming, Report Says

State and local governments are losing out on more than an additional $5 billion a year in tax revenues by not legalizing, regulating and taxing internet casino gambling, according to a recent report issued by gaming company Light & Wonder, previously known as Scientific Games. The report was prepared by VIXIO GamblingCompliance, a provider of gaming research.

On the best U.S. online casinos, which also go by the shorthand of iCasino and iGaming, gamblers are able to play casino games, including slots and table games, on personal devices, such as computers, smart pads and smart phones. As is the case with almost all internet gaming — such as mobile sports betting — the gambler has to be physically located within the jurisdiction where that type of gaming is legal.

What has become apparent regarding iCasino is that despite the high-profile and the popularity enjoyed by sports wagering, it is the online version of casino gaming that is far more lucrative. The Light & Wonder/VIXIO report illustrates the financial implications of states not legalizing that type of gambling.

In 2021, 30 jurisdictions permitted online sports wagering and just six states allowed full iCasino (Nevada allows poker but not online house-banked games).

However, in 2021, iCasino generated $3.71 billion in revenues in the six states that allowed it, just behind the $4.29 billion produced by sports wagering in 30 states, according to American Gaming Association figures. The comparison was even more stark in tax revenues: $970 million in taxes from iCasino compared to $560 million from legal sports wagering.

To be more up-to-date on the financial statistics, the revenue and taxes generated by sports betting will get a big boost for 2022 with New York state going live in January and that state putting a 51% tax bite on online sportsbooks. In the first seven months of 2022, New York online sports betting delivered more than $347 million in state tax money, which is already 62% of the total tax contribution for the 30 states combined that were taking sports bets last year.

However, that doesn’t take away from the strong financial potential that iCasino holds for states if —  and it remains a Big If — more of those states that already have gambling were to legalize online casino play, including real money online blackjack.

That’s where the new report comes in pointing out the tax money that states could be collecting.

A VIXIO GamblingCompliance projection of iGaming revenue and potential tax revenue for four states — Arizona, Illinois, New York and Ohio — that have legalized sports betting, but not iGaming.  

Using a handful of assumptions (a hypothetical 20% tax rate) and some educated speculation on other key numbers (an estimated average revenue of $139.50 per adult), the iCasino report concluded that online casino revenues would reach $30.37 billion a year and annual taxes would amount to $6.35 billion annually, if it were legalized in all 42 states that currently have legal land-based commercial or Tribal casinos or mobile sports betting.

“VIXIO’s report demonstrates that states are leaving billions of dollars in tax revenue on the table which could fund a variety of public programs and services without resorting to broad based taxes,” Howard Glaser, global head of government affairs for Light & Wonder, said in a news release. “The dozens of states that already have land-based casino gaming merely have to turn on the digital channel to realize tax revenues which are otherwise being siphoned off by the prevalence of illegal off-shore internet gaming.”

However, the Light & Wonder report fails to mention some stiff headwinds that iCasino faces — friction that even Glaser has pointed out in public forums. For instance, sports gambling, Glaser said at an industry conference last year, can be seen as mainly about “sports” rather than “betting.” That’s not the case with pure online casino gambling, which chills some legislators. 

Then, there are concerns that the accessibility of online casino play — including online roulette — will exacerbate dysfunctional gambling, which raises the stakes for the gaming industry to address responsible gaming issues.

Additionally, there are concerns even within the casino industry itself that more online casino play will cannibalize patronage at bricks-and-mortar casinos where gaming operators have invested billions and billions of dollars and hundreds of thousands of jobs are at stake. In Nevada, for instance, some casino companies have fought hard against online casino play beyond poker.

Meanwhile, online advocates have argued that in recent years as iCasino revenues have skyrocketed, overall gaming industry revenues have also hit record highs leading those online proponents to argue that online play actually leads to bigger gambling spends when those customers do gamble in live casinos.

And while some state legislators may be uneasy with online casino gaming, others see it as an inevitable evolution. For example, NJ online casinos are thriving despite the launch of New York online sports betting.

“New York is surrounded by iGaming states, namely New Jersey, Pennsylvania and Connecticut, which are witnessing hundreds of millions in annual revenue from iGaming,” said New York State Sen. Joseph Addabbo, an influential voice on gaming in that state. “Those states have proven the model works and that iGaming can complement land-based casinos and ensure protections for players.

“When implemented safely and credibly, New York will also witness significant increases in revenue and educational funds from iGaming, while improving programs addressing gambling addiction. It makes no sense for New York to lose that revenue to neighboring states and the illegal offshore market.”