Do Online Casinos Cannibalize Physical Casinos’ Revenues?

Article ByDavid Weir

February 21, 2024

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Posted in: US Casino News, US Gambling News

This week, New York state Senator Joseph Addabbo was roundly criticized for introducing online casino legislation in a public letter.

However, it did not come from anti-gambling campaigners, rival politicians, or a group of his concerned constituents. Instead, the main opposition came from a group of 700 union workers at the Resorts World New York casino venue in Queens.

Their main reason for opposing online casinos? Cannibalization.

But not cannibal casino owners, in the style of video game Fallout: New Vegas.

These workers are expressing their fear that online casinos will take customers from where their jobs are, putting their employment at risk and potentially harming their communities.

Employees of a physical casino making a big statement like this is rare. But the idea that online casinos take customers from physical business is as old as online gambling itself.

That one actually has quite a sway over many lawmakers, members of the public, and even those who work in the business.

Seems Logical

Since Delaware online casinos opened for business in 2012, only six more U.S. states have legalized online casinos. New Jersey, Michigan, Pennsylvania, West Virginia, Connecticut, and (most recently) Rhode Island.

Meanwhile, in the five years since the repeal of the Professional and Amateur Sports Protection Act (PASPA) in 2018, 26 states have legalized online sports betting.

There are many reasons for this. Not least being the American fascination with sports.

But one of the other big reasons, one repeated across the years and across various states by workers, politicians, and even some casino owners, is that online casinos will take revenue away from physical venues.

And it is indeed a persuasive argument. From a quick view, it just makes sense.

Surely, some people must think about going to a casino 50 miles away, but instead opt to play a blackjack hand or two from the comfort of their couch.

It just feels logical that online casinos would take some revenue from their physical counterparts.

But just like the Gambler’s Fallacy or the Monty Hall problem, things that seem obvious at first aren’t always that clear-cut. Let’s take a look at the evidence.

The Argument For

When brick & mortar casino workers in New York oppose online casinos, despite the huge tax money Senator Addabbo says they might make for the state, they probably aren’t looking much further than their neighbors in New Jersey.

Garden State online casinos debuted in 2014, and since then they have seen incredible growth. Along with New Jersey sports betting, the gambling business in the state is booming – but the nine physical casinos have not kept up.

In 2015, online casinos made $155 million in revenues, compared to the Atlantic City casinos’ $2.5 billion.

In 2023, New Jersey casinos made $2.85bn in person, and online made $1.9 billion.

Sure, the AC casinos have grown in that time some 14%. But online casinos have grown, wait for it, approximately 973% over the same period.

With those kind of statistics, it’s easy to see why casino workers in New York are nervously looking over their shoulders at online casinos.

Another example is Nevada. The booming U.S. gambling hub is blazing along without online casinos, and workers just negotiated record contracts.

Given that even the massive operators of Nevada casinos have shown little interest in expanding online in the Silver State, you’d be forgiven for thinking they were on to something.

Another is Connecticut. Since online casinos launched in 2021, they have quickly become a billion-dollar market. However, the Connecticut casinos run by the state’s Tribes have seen gaming revenues tumble, with Mohegan Sun’s revenues falling 5% year-on-year in 2022.

That’s no proof of causation or correlation so far, however. But some studies do actually back up online cannibalization claims.

One study from an impact assessment on a bill aiming to legalize online casinos in Indiana in 2023 said that cannibalization would occur.

“Online casino games will displace some gambling activities occurring at brick-and-mortar casinos. Studies have concluded that up to 30% of new online gaming revenues are displaced from existing casino revenues,” the report said.

Systematic Reviews

However, despite that data, most studies actually suggest little if any cannibalization happens between online casinos and land-based venues.

A little further digging reveals that the Indiana impact assessment cited a previous study from 2011, which itself used data based upon self-reported use of offshore casinos between 2000 and 2007.

One Senator, John Ford, told the media exactly what he thought of that study.

“The fiscal analysis on the bill was horrible and made collaboration pretty hard,” he said.

“To use a study from 2011 and not pay attention to the other four or five studies done around the country since then, it appeared to me the fiscal analyst was looking for a study that proved his thought.”

This same 2011 data was looked at in a 2017 meta study on the issue, which also highlighted its flaws.

Mainly, that 2000 to 2007 was a completely different world for U.S gambling.

A study conducted much more recently, literally released this February, says that states with existing land-based casinos usually see a rise of 2.4% per quarter in revenues after online casinos are introduced.

One of the most comprehensive studies conducted in recent years, that meta study (or a study of the results of other studies) was imaginatively titled Market Cannibalization Within and Between Gambling Industries: A Systematic Review.

The overarching study cautiously concluded that online casinos did not, in fact, cannibalize brick and mortar customers or revenues in any statistically meaningful way.

“We can therefore cautiously conclude that the relationship between online gambling and land-based casino gambling may be complementary, although more research is still needed,” the study said.

Interestingly, that meta-study’s most concrete conclusion was that physical casinos in the U.S. take customers away from horse race betting facilities and state lotteries.

This was also reported in the fiscal report into online casinos in Indiana from 2023. Because many Indiana casinos are tied to horse racing tracks.

Yeah, it gets complicated.

Pivots and Complications

See, with fragmented U.S. gambling laws being what they are, the differing nature of markets makes market dynamics as confusing as a disreputable online casino’s bonus terms.

In New Jersey, Atlantic City casino revenues were falling (for many reasons) before online casinos joined the party. In one hearing a year after the market opened, operators said that only 10% to 20% of online casino signups were previously physical casino customers, suggesting little overlap between the two bases.

In Nevada, the destination nature of the casino resorts in Las Vegas has made online casinos seem not worth it, seeing as in the modern era, operators spend hundreds of millions on attracting visitors for other reasons as well.

In Connecticut, the Tribes also run online casinos, which they profit off in collaboration with DraftKings and FanDuel and other national operators who take a cut.

But even there, Mohegan’s recent 2023 reports showed a pivot from casino gambling to more destination-style resorts. The operator’s successful year of record overall revenues saw a loss-making Q4, with casino floor gambling down, but online gambling, dining, and retail operations all up.

It also recently opened a massive $1.6 billion resort in Incheon, South Korea, which will have a minimal gambling floor compared to its other attractions.

So, our answer is no – with some caveats. Online casinos do not intrinsically take revenue from commercial casinos in the U.S. In fact, they usually both grow in tandem.

But given unique state factors and the effects on U.S. horse racing and tribal casinos, the situation is not entirely clear-cut.

With all that, it’s difficult to see wider public or legislative opinion changing on the issue anytime soon. Even if the data suggests many people’s fears are overblown.