How online lottery expansion is overtaking online casinos in the US

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When it comes to legal online gambling in the United States, there is a bit of a race between lotteries and casinos. Eight years later, it looks like the online lotteries are winning.

Retail lottery tickets and land-based casino games may be very different products, but the online experience blurs that distinction. Online instant “tickets” may look more like video lottery terminals (VLTs) — and therefore slot machines — than scratch tickets. Lawmakers interested in expanding gambling must therefore decide whether to legalize one or the other, or whether it is better to have both.

Currently, there are only two states with active online casinos, but none online lottery. Conversely, five states offer instant iLottery games but no online casinos, and two offer both. This does not include states that only sell raffle tickets online, but lack instant games, as these are not comparable to online casinos.

Lotteries lead 2-1 in 2020 as casinos look to tie it

This year’s trend echoes the general trend. In May, new online lotteries were launched almost simultaneously in Rhode Island and Virginia. West Virginia got its first online casino two months later. Depending on the course of the regulatory process for Michigan online casinos, we could see the related tally before the end of the year.

Until this year, Virginia was among the states selling raffle tickets online using a subscription service as a workaround to existing laws. Its sports betting bill, passed in March, also gave the lottery explicit power to sell tickets online at its discretion. Two months later, he launched a comprehensive online lotto site, including instant slot-type games.

Rhode Island was more of a surprise. Although few people outside the legislature noticed at the time, the Sports Betting Expansion Bill 2019 which allowed the lottery to launch a mobile bookmaker also gave it broader powers to contract with third parties to offer other types of online betting. However, using these powers to launch an online lottery was more of a long-term plan, until COVID-19 forced casinos to close. The creation of an iLottery has therefore become a practical means of compensating for this loss of income.

These are all the states that now have a full online lottery, along with their respective deadlines:

  • Georgia (2012)
  • Michigan (2014)
  • Kentucky (legalized in 2013, launched in 2016)
  • New Hampshire (2017)
  • Pennsylvania (2018)
  • Rhode Island (legalized 2019, launched 2020)
  • Virginia (2020)

Similar starting points

This choice between iLottery and online casinos has existed since the United States began to liberalize its position on online gambling. Indeed, the first successful iLottery bill and the first successful online casino bill came just three months apart, in 2012.

This moment is no coincidence. Two important things happened in 2011 that served as the starting gun for the race. First, the gray market situation that existed before ended on April 15 that year, what is now known in the poker world as black friday. It was the day the Department of Justice (DOJ) issued indictments against the three largest online poker rooms at the time and seized their domains.

Later that year, the logistics of legalization became easier, as the DOJ issued the opinion that the wire act applied only to sports betting. New Jersey had already made an attempt to pass an online gambling bill at that time. However, this interpretation of the Wire Act removed a major hurdle that had previously caused most lawmakers to balk at the idea. That’s really when such efforts became mainstream.

Illinois and Delaware led the charge the following year, passing bills for iLottery and online casino respectively. Georgia, which followed Illinois in creating an iLottery later in 2012, was the first to offer casino-style instant games. Illinois currently only sells raffle tickets online, which is why it does not appear on the list above.

Why is iLottery the most popular option?

Each state is different, with its own set of concerns and complications. Even so, there are a few universal factors that may sway more legislatures towards creating an iLottery rather than legalizing online casinos.

The first is simplicity. An online casino bill is necessarily complex, and most of them span dozens of pages. Every detail must be considered, from the assignment of responsibilities and licensing procedures to tax policies and technical requirements. It is also usually the case that a state’s senate and house each draft their own bill. These will differ in detail and then further work will be required to reconcile them.

Paving the way for an iLottery, on the other hand, is usually as simple as changing a single sentence in an existing law. Often all that is required is the addition of the words “including internet sales” to the section detailing the lottery board’s responsibilities. After that, lawmakers can move on, leaving the details of iLottery to the lottery commission itself.

The second reason is money. Taxpayer money is the main incentive for any gambling expansion, but with the private sector involved, inevitably some of the money has to stay with shareholders. Conversely, 100% net profits from a lottery end up in public coffers.

Industry can make valid arguments to justify the need for private sector involvement. For example, legal online casinos can compete with illegal offshore casinos in ways that an iLottery cannot. However, not all legislators will be receptive to these points. The argument about where the profits go is easy to follow and hard to dismiss.

There are more than two choices

Of course, iLottery and online casino are not mutually exclusive. Some states choose a third way.

One option is to follow Delawareis in the lead. The compromise found by its legislators was to legalize online casinos, but have them operated by the lottery. It was the natural solution there, as its land-based casino works on the same principle. Rhode Island is a good candidate to follow a similar path, as it has the same arrangement with its land-based casinos. It may not even need additional legislation to do so, as the same law that allowed it to launch its iLottery and mobile sports betting could also cover casino games.

States that do not have this kind of relationship with their casinos can set up both, but separately. Usually this means iLottery first, due to its simplicity, followed by private sector iGaming later. What’s this Pennsylvania did, and what Michigan is doing.

The problem here is that it can lead to a turf war. Online slots and instant iLottery games are similar enough that they can’t help but encroach on each other’s market. In Pennsylvania, it led to casinos unsuccessful attempt to pursue the lottery to offer games too similar to their own slot machines. In Michigan, the lottery has put a damper on the ability to play across states because of concerns that large progressive jackpots on slots could cause sales to decline for large interstate draws, such as power ball.

However, these conflicts can be resolved. Having both is the most natural long-term solution, and that’s what we see in most Western European countries. In the short term, however, simplicity wins out in the United States. For now, we can expect more states to start with iLottery and work towards online casinos than the other way around.

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