That’s the challenge facing Maryland casino operators in the wake of last month’s release of a report by The Innovation Group, commissioned by the Maryland Lottery & Gaming Control Commission, on the projected economic impacts from legalization of Maryland online casino play.
The study’s authors concluded that the state’s brick-and-mortar casino industry, which takes in roughly $2 billion in annual revenue, would see a decline in business of about 10% from the launch of online casino play. That drop of $200 million is liable to make many a casino executive take pause from supporting the expansion of gaming in the state.
But the same report concludes that in the first year of operations in 2026, online casino would bring in $533.4 million, ramping up to $904.9 million as the market reaches maturity in 2029.
That’s a net $700 million in blended casino revenue in the state. And if Maryland follows the path of states like New Jersey and Pennsylvania, the online casino licenses will be linked to partnerships with the land-based Maryland casinos.
It’s important to note that the casinos in those nearby states direct their partners to do all of the “heavy lifting” of managing and maintaining the online casino apps. In exchange, those operators tend to hold onto about two-thirds of the new revenue.
Under that system, a Maryland casino operator in 2029 might lose $200 million from its brick-and-mortar revenue while gaining $300 million – or one-third of the projected $900 million – from online casino play.
That’s an appetizing number for growth in overall revenue for the casinos. But if the decline in retail casino revenue matches or exceeds projections while online casino estimates fall short – well, that’s where a “half-empty” sentiment could win the day.
From the report: “While some interviewees held similar views as to the magnitude of such cannibalization, some others believed that there was little-to-no cannibalization of the brick-and-mortar casino. Among the interviewees, a common theme was, ‘we believe there will be a small amount of cannibalization eventually, but we don’t see too much in the data yet.'”
And who were these interviewees? Per the report: “We discussed a range of topics related to iGaming legislation with current and former legislators, regulators, land-based casino operators inside and outside of Maryland, and online gaming operators. In all, we interviewed at least 32 individuals representing at least 17 organizations.”
A Deep Dive into How Other States Fare With and Without Online Casino Gaming
To accurately analyze market growth aside from the COVID-19 pandemic upheaval, the researchers compared 2019 gross gaming revenue versus 2022 gross gaming revenue in 11 states – including large states such as New York, Ohio, and Illinois and smaller states such as Rhode Island, Maine, and Kansas.
The same analysis was made for the six online casino states – New Jersey, Pennsylvania, Michigan, West Virginia, Connecticut, and Delaware.
The projection of a 10% loss due to cannibalization from online casino play was drawn from a net growth in non-iGaming states of 8.2% versus a 2% decline in the states that do offer online casino gambling.
But a close look at that chart provides still more fodder for those mulling the “half full” or “half empty” sentiments. Combining Delaware, West Virginia, and Pennsylvania figures show virtually no decline at all from 2019 to 2022. On the other hand, New Jersey brick-and-mortar revenue slipped 6.6%, Connecticut casinos were down 16.6%, and Michigan’s casinos slipped an alarming 20.5%.
Meanwhile, Maryland’s six casinos experienced a 3.5% decline in adjusted gross revenue in November compared to a year earlier. The November figure of $157.7 million also was down a little more than 1% compared to October 2023.
Does that mean that the casinos would be better off trying to maintain the status quo – or does it demonstrate a need to try to expand via innovation such as partnering with online casino operators to seek a net boost in total revenue?
The most influential casino operator in terms of lawmakers’ attention would figure to be MGM National Harbor, which brings in about 40% of the total revenue won by the six-casino industry. As it happens, the MGM property had the state’s biggest decline – almost 7% from November 2022 to November 2023.
A key factor that Maryland regulators will have to consider is the tax rate for online casino operators.
“With Maryland’s existing land-based gaming tax at current levels, the general view from operators has been that an online gaming tax in excess of land-based gaming tax [20% on table games in Maryland] would force operators to reduce marketing or reduce the competitiveness of their intended product, causing them to underperform market size estimates and to be less competitive versus the black market.”
iGaming market leaders New Jersey and Michigan each feature about a 20% tax rate, while Pennsylvania charges just 16% for online table game play but 54% for online slots.
The Innovation Group recommended that Maryland regulators should look to the New Jersey and Michigan models for guidance, based on the “key aspects” of “(1) licenses tethered to existing brick-and-mortar casino licenses, (2) a reasonable tax rate, (3) gaming board oversight, and (4) reasonable responsible gaming requirements.”
Maryland elected officials at least may feel some relief from the conclusion by The Innovation Group that the state’s lottery and the horse racing tracks and their off-track betting facilities would likely face little to no negative impact from online casino legalization.
So the focus, then, will be on the casinos – and on the sentiment of those operators about whether iGaming will be a boon, or bane, for their overall bottom lines.