As more gambling goes digital, opportunities emerge to modernize payments

May 17, 2021 10:17 AM

The U.S. gaming industry is a highly regulated, multi-billion leisure sector that holds significant near-term opportunities for banks, payment processors and mobile app developers as the country reopens and more states approve or expand gambling.

The industry is as much on the cutting edge of innovation with internet gambling, sports book betting and customer loyalty programs as it is mired in yester-year by being shackled with arcane state laws that largely prohibit cashless payments on casino floors.

Until the pandemic struck, no state regulator permitted cashless payments on the casino floor. By the urging of the American Gaming Association, which represents U.S. casinos, along with health advocates the Nevada Gaming Commission took a small, but historic step in June 2020, to allow its casinos to permit cashless wagering.

The AGA’s Commercial Gaming Revenue Tracker found that the industry reported a combined $11.13 billion in revenue for the first quarter of 2021, up 17.7% from the same quarter in 2020 and up 4.1% from the first quarter of 2019. This brings the industry back to the $11 billion+ quarterly levels reported in late 2019, just before the pandemic struck. It should be noted that these revenue figures represent casino, online and sports betting revenues.

As lockdowns began in early 2020, few establishments were spared closures or restrictions in operations, and much of the revenue in the second quarter of 2020 came from consumers shifting to the internet for traditionally in-person table games such as online poker and blackjack, or shifting to the increasingly legalized world of sports betting.

A combination of more consumers wanting to travel or enjoy a night out, higher vaccination rates and states easing operating restrictions have all led to the recovery of revenue to the point where the industry is now at pre-pandemic levels. Based on data from the AGA’s COVID-19 Casino Tracker, most states still have operating restrictions, so it’s very likely that 2021 revenue will continue to rise as these restrictions ease.

The gaming industry has come a long way in the last two decades, spreading beyond its iconic bases in Las Vegas and Atlantic City, New Jersey — it’s now very much a mainstream leisure activity that most Americans enjoy on a regular basis.

Nevada earned $2.6 billion in gaming revenue for the first quarter or 2021, or about 23% of the industry’s total revenue for the quarter. This was followed by a near tie for second place with Pennsylvania generating $1.04 billion in revenue and New Jersey with $994 million in revenue, both about a 9% share each.

While Nevada, with Las Vegas and Reno being the main hubs, still rules the roost when it comes to share of gaming revenue in the first quarter of 2021, based on the AGA data, there are 30 other states vying for share of consumers’ wallets. Yet the industry’s revenue is clearly concentrated among the top five states — Nevada, Pennsylvania, New Jersey, Mississippi and Indiana — holding over half (53%) of the pie, leaving 26 other states to fight it out for the remaining 47%.

The growth of online gaming and sports betting in the last two years has been nothing short of dramatic with the combined sector accounting for almost one-fifth (18%) of the industry’s revenue in the first quarter of 2021, based on AGA data.

Sports betting revenue for the first quarter was $961 million, up 270% from the same quarter in 2020 and up 450% from the first quarter of 2019. Online gaming or iGaming generated almost $785 million in the first quarter of 2021, up over 238% from the same quarter in 2020 and up by almost 650% from the same quarter in 2019.

While sports and online gaming are growing rapidly, they continue to face strong regulatory scrutiny, which often results in a patchwork of laws that can vary greatly from one state to another. This inconsistency can allow or deny usage of mobile apps or require in-person betting on a state-by-state basis. The states with the greatest set of games allowed and clearly defined betting procedures stand to gain the most, often at the expense of other states.

In May 2018, the U.S. Supreme Court struck down a federal 1992 law which prohibited states from authorizing sports betting. Since then, 21 states and Washington, D.C., have legalized one form of sports betting and five others have approved it and are pending a 2021 launch, based on the Sports Betting Tracker from Sportsbettingdime.com.

Americans, like consumers in many other countries around the globe, love to gamble on sports, whether or not it’s legal. After the lifting of the federal ban, the question put to many state gaming commissions was whether or not they wanted to get in on the game.

In the last Super Bowl, held in February between the Kansas City Chiefs and Tampa Bay Buccaneers, more than 23 million Americans bet a total of $4.3 billion on the game’s outcome, based on AGA data. Among those betters, a record 7.6 million consumers placed a bet with an online sportsbook, up 63% from the previous year. About 12 million Americans were betting among friends and another 4.5 million participated in office pools or squares games.

Similar to the experience seen in the cannabis industry over the past decade, where more than half of the U.S. states have legalized its consumption, the impact on state tax revenue by permitting sports betting has been meteoric.

Based on data from Sportsbettingdime.com, state tax revenue from 2018, the first year sports betting was permitted, reached over $39 million. In only two years, total state tax revenue has grown more than six-fold, to over $240 million.

In the same timeframe, revenue for sports betting operators grew from $228 million in 2018 to over $1.5 billion in 2020.

In terms of bets being placed, Americans wagered $21.5 billion in 2020, up from $13.1 billion in 2019 and $4.6 billion in 2018. New Jersey handled $6 billion in sports bets in 2020, followed by Nevada at $4.3 billion and Pennsylvania at $3.58 billion.