Pennsylvania’s Online Gambling Industry Will Outperform NJ: Here’s Why

Steve Ruddock July 23, 2015 821 Reads
PA v NJ legal online gambling

As Pennsylvania continues to inch closer to online gaming expansion, it’s becoming increasingly hard to avoid comparing Pennsylvania’s potential market to the existing market of its eastern neighbor New Jersey.

New Jersey launched its iGaming industry on November 21, 2013 and despite some early technical and regulatory struggles, the state managed to tally $123 million in gross gaming revenue in 2014. Six months into 2015, New Jersey is on pace to generate $145 million in GGR.

Pennsylvania politicians are hoping to do much better, while a number of analysts feel Pennsylvania will only produce a slight improvement over New Jersey’s numbers.

I’m of the belief that the truth lies somewhere in between, albeit, closer to the conservative estimates.

Population provides baseline predictions

A number of analysts have predicted Pennsylvania’s Year 1 revenue and the totals fall within the $165 million to $250 million range.

With Pennsylvania’s population a full 30% larger than New Jersey (12.8 million compared to 8.9 million) the simplest calculation is to take New Jersey’s Year 1 revenue of $123 million and add 30%, which gives you $160 million in Year 1 revenue.

The more conservative estimates are based mainly on the experiences from New Jersey adjusted for Pennsylvania’s larger population base, but also take several other factors into consideration, which adds about $5 million on top of the population baseline number.

However, I’m of the opinion that the several other factors are being undersold, and these factors could propel Pennsylvania well beyond New Jersey’s Year 1 revenue totals.

It’s extremely unlikely Pennsylvania will come close to the high-end Year 1 predictions ($250 million), but if everything falls into place, $165 million feels more like the floor and not the ceiling.

So I’m a bit more optimistic than some of my colleagues. Here is why.

Border population

Firstly, a significant number of New Jersey’s online gamblers originate from neighboring Pennsylvania and New York.  And since Pennsylvania not only borders New Jersey, but also New York, Ohio, Maryland and West Virginia, Pennsylvania should do even better in attracting “out-of-towners.”

Legal online poker rooms see a significant increase in players who reside outside of New Jersey on Sundays, as these players make the trip into New Jersey to play in the major Sunday tournaments. I’ve heard as many as 10 to 15% of Sunday tournament players live outside of New Jersey.

With larger guarantees expected, even more players are likely to cross the Pennsylvania borders on Sundays to partake in these tournaments.

Large poker tournaments and tournament series in Pennsylvania could pull in players from all across the mid-Atlantic region, and perhaps as far away as Baltimore and Washington DC, about an hour and an hour and a half drive, respectively.

Technical and regulatory improvements

New Jersey suffered mightily from several early technical and regulatory issues such as cautious geolocation and player verification policies. Now that regulators have seen these processes in action, they’ve given these companies a little more leeway.

A year and a half on, regulators have a much better understanding of geolocation technology, and have reduced their constraints on geolocation service providers, which has in turn reduced the number of false negatives.

Operators and the third-party companies they work with are also moving away from requiring players to divulge their full Social Security numbers, instead relying on just the final four digits. Collecting the final four digits still allows operators to verify players and record their full Social Security Nnumber, but it has the appearance of being less intrusive to the consumer.

Another early issue that has improved is payment processing. In the early days of online gaming in New Jersey, credit card approval rates were in the single digits. With new MCC codes and a sustained outreach program, approval rates have increased to over 50%.

Much like watching a golfer putt on the same line, the progress made on these fronts in New Jersey is transferable to Pennsylvania, which should allow Pennsylvania to avoid these early hiccups.

Bottom line: Pennsylvania will avoid the early issues that plagued New Jersey and not only prevented people from registering, but disenfranchised them and led to bad publicity.

Better software

Because of New Jersey’s use of an accelerated timeline (New Jersey launched just nine months after Governor Chris Christie signed the state’s online gambling law), and because New Jersey’s regulators were new to online gambling and therefore cautious with what they would allow operators to integrate into their software, New Jersey’s operators launched with very stripped-down versions of their software.

Since then, several software upgrades have been made, and the current software in use in New Jersey has far more features and fewer glitches than the earlier versions.

So once again, Pennsylvania is able to watch New Jersey putt and then step up and make the same putt.

Pennsylvania regulators will likely draw on New Jersey’s experience (and could actually outsource a lot of the testing to New Jersey’s testing lab), allowing online gaming operators to launch with superior platforms. Pennsylvania’s first wave of iGaming platforms could very well be two or three releases ahead of where New Jersey began.

Pennsylvania should launch with mobile platforms

The fourth and final reason I expect Pennsylvania to outperform New Jersey in its first few months is how people consume online gaming thanks to the proliferation of smartphones.

There is no conceivable reason why Pennsylvania operators shouldn’t be able to launch with mobile platforms, or bring these platforms online soon after launch.

Once again, New Jersey regulators paved the way for Pennsylvania to quickly approve mobile gaming platforms.

New Jersey’s first mobile platform was launched by partypoker in December of 2013 for iOS systems only – an Android app was added in February of 2014. But it wasn’t until January of 2015 that the partypoker/Borgata app supported multi-table tournaments.

The WSOP.com mobile app wasn’t unveiled until late March of 2014, a full four months after the industry’s launch.

And like their primary software platforms, these mobile apps have been updated several times.

Considering the current size and expected growth of the mobile online gaming market, an early rollout of mobile platforms should enhance Pennsylvania’s revenue numbers.

Upshot

Pennsylvania will likely avoid many of the early issues that hindered New Jersey’s online gambling industry.

Because of this, Pennsylvania should see much better revenue numbers in the first few months following launch, and more modest improvements over New Jersey in subsequent months since fewer players will have been disenfranchised by early issues.

Image Cheryl Ann Quigley / Shutterstock.com