Revenue from online slots and casino games (officially termed interactive gaming) in the state of Pennsylvania has totaled $8.4 million since the market opened on July 15. But it takes some context to understand if that figure is an indicator of a successful launch or if it is a signal that the Keystone State has stumbled out of the gate.

To try to gauge the success of the Pennsylvania interactive gaming market after just 2.5 months, we can compare revenue figures to those in New Jersey after approximately the same amount of time following its launch of online casino games, even though there are several key differences between the neighboring states.

New Jersey first started allowing online slots and casino games nearly six years ago in late November 2013.

In its second full month, the New Jersey market had generated over $6 million and had amassed more than $11 million in revenue since launch. In a state with approximately 70% of the population of Pennsylvania, generating 30% more revenue over a similar period of time seems like a big win for New Jersey, and it is, but the different circumstances surrounding each launch should not be ignored.

Fewer Online Casinos Launched in PA

New Jersey launched with six of its land-based casinos licensed to offer online casino games. Pennsylvania, on the other hand, launched with just three.

The number of available sites may not appear to be a big difference maker, after all, online casinos are not like land-based casinos which rely on their physical locations being in close proximity to large numbers of potential customers, and if someone wanted to play a virtual slot machine, it wasn’t like there was a shortage of available machines.

However, fewer operators likely means that fewer marketing dollars were allocated to the promotion of the newly opened online casino market, and with public awareness being a key factor to success for a new igaming market, the highly coordinated launch in New Jersey seems to have paid dividends.

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Time of Year

Having opened in November, the New Jersey market experienced its first two full months over the holiday season. Those winter months may have contributed to the greater success in the Garden State as people tend to spend more time indoors and at home compared to the summer months of the Pennsylvania market when more people were probably on vacation and spending time outdoors.

New Jersey also launched with online poker. Currently Pennsylvania has not had an online poker room go live, and the online poker industry in the Keystone State appears to be stuck in neutral.

No Poker is Hurting Pennsylvania

In addition to online slots and casino table games, interactive gaming in Pennsylvania also includes online poker, but as of now, no online poker rooms have opened in the state.

On the surface having less online gaming verticals might seem to be an advantage for Pennsylvania online casino games, as no poker means less competition for consumers’ igaming dollars. However, online poker servers to bolster other verticals including casino games as a low-cost method of acquiring new players.

When asked last month in an exclusive interview with pokerfuse how online poker fits into 888’s cross-sell strategy, Yaniv Sherman, 888’s Head of Commercial Development, emphasized the importance of poker as a customer acquisition tool.

“Much like sport, poker is typically a lower CPA product, hence it is vital in order to create a sustainable ROI on our marketing dollars, especially in the higher tax brackets,” Sherman said. “PA for example has 54% tax on slots and 40%+ on sport, but only 14% on poker. In addition, player engagement is always higher when they play across product and platforms, Sherman continued.

Uncertainty Surrounding the Future of the Wire Act

In January the US Department of Justice made pubic its revised opinion that the restrictions of the 1961 Wire Act were not limited to sports betting. The DOJ asserted its opinion that online gaming that crossed state lines was illegal. Being that even igaming confined to a single state often have internet routing that crosses over state lines, the new opinion posed a threat to the overall online gaming industry.

The new DOJ position was highly contested by the gaming industry and so far, the US judicial system has agreed with the industry. But the DOJ still appears to be pursuing its options to appeal the lower court’s decision, and it is possible that the final say may be had by the Supreme Court.

In the meantime, it has been business as usual for online gaming. Online poker is one of the igaming verticals that is most reliant on being able to share its games across state lines, yet the nation’s only cross-border online poker network, the All American Poker Network, continued to allow players in New Jersey compete for World Series gold bracelets on while the DOJ put its pursuit of those violating its new opinion on hold until the end of 2020.

Still, the uncertainty surrounding the future online gaming undoubtedly remains a concern, a concern that wasn’t present when New Jersey opened its online gaming market.

Stiff Competition from Sports Betting

Perhaps the biggest difference between the Pennsylvania and New Jersey igaming launches is the legality of sports betting. Six years ago when the Garden State launched, sports betting was largely confined to Nevada, and though a few other states were authorized to offer some sports wagers in a limited capacity, sports betting was widely illegal.

As a point of comparison, sports betting in Pennsylvania (land-based and online) generated $34.3 million from July through September—nearly $23 million of which came from online sports betting, or almost three times the revenue generated by Pennsylvania online casinos during that time.

Sports betting has captured the attention of the nation since the US Supreme Court cleared the way for states to regulate the gaming vertical, and its popularity has not gone unnoticed with marketing budgets, operator’s strategic road maps and ultimately consumers’ dollars flowing into sportsbooks.

While some online sports bettors will be cross-sold to online casino games, the disparity in the amount of revenue generated between the two verticals indicates that the interest of Pennsylvania online gamblers is primarily focused on sports.

Taxes Could be the Biggest Reason

There is still a path for online casino games to flourish in Pennsylvania. New Jersey is still seeing growth in its online casino sector even with the competition of sports betting. And though the market had the advantage of maturing before competing with sports betting, it is likely that the taxes imposed by state regulators are the biggest factor throttling online casino revenue in Pennsylvania.

Online slots are taxed a total of 54% in Pennsylvania, compared to New Jersey where the same games are assessed only 17.5% in taxes (which includes 2.5% for Investment Alternative Tax Obligations) on Gross Gaming Revenue.

And though the tax rate on table games in Pennsylvania is considerably lower than slots (16%), last month slots generated more than three times the GGR than online table games. Having the highest tax rate on the most popular interactive gaming vertical may sound like a sound strategy, but it could also be limiting the marketing dollars devoted to online casino games, which in turn is likely contributing to the sluggish start.