Online gambling could be the next big legalization fight in Albany

For more than two years now, almost anyone in New York above the age of 21 has been able to legally bet on sports from the palm of their hand. And millions have.

Since the state launched mobile sports betting in January 2022, gamblers have stampeded to betting apps. As companies like DraftKings and FanDuel have blitzed the airwaves with ads and leagues like the NFL and NBA have fully embraced sports betting, New Yorkers have wagered almost $40 billion on sports. New York has surpassed the two other juggernauts in the sports betting space – $22.9 billion has been bet in New Jersey over the past two years and people in Nevada have wagered $16.1 billion. It’s a big part of the reason why New York is already being called the “sports betting capital of the world.”

The rise of sports betting, however, may not end up being the most consequential new form of gambling in the state. Many in the industry – and some New York lawmakers – are pressing to legalize a lesser-known type of mobile wagering known as interactive gaming, or “iGaming.” While iGaming – which essentially is an online casino, featuring slots, blackjack, roulette and craps – has the potential to be more lucrative for gambling companies than sports betting, it also may be more problematic.

Up until recently, it was difficult to legally gamble anywhere in New York, let alone on a computer or phone. For decades, official wagering in the state was limited to state-run lotteries and betting on horse races – as well as gambling allowed on Native American tribal lands under federal law. New York authorized four Las Vegas-style casinos upstate in 2013, and each of those opened or expanded into offering a full array of table games between late 2016 and early 2018.

In May 2018, the U.S. Supreme Court struck down the 1992 Professional and Amateur Sports Protection Act that had effectively outlawed sports betting throughout the country, with the most notable exception being Nevada. That decision paved the way for states to legalize sports wagering, and very quickly the floodgates opened. New Jersey was among the first to act and within a year a dozen states had passed some sort of legalization bill. Within two years, more than 20 states had.

New York was not one of them, however, as then-Gov. Andrew Cuomo had initial misgivings about allowing mobile betting. Eventually, after seeing almost all of the states around New York legalize it, Cuomo relented and included legalized sports betting in the 2021 state budget agreement. Cuomo did still get his way, as the state implemented the regulatory scheme and high tax rate he had insisted on, but that did not dissuade many sports betting companies from applying to operate in New York.

One reason behind the push for iGaming this year is that it's an extremely profitable and steady revenue center for gambling companies. Sports betting, in comparison, is a relatively low-margin business at about 8% of total wagers nationwide in 2020. And it’s not as consistent. For instance, if lots of bettors wagered on the Kansas City Chiefs to win the Super Bowl and very few people bet on the San Francisco 49ers, the sportsbook might’ve lost money because the losing bets wouldn’t have covered paying the winning bets.

But iGaming has a bigger potential customer base beyond just sports fans and the games it offers have a higher “hold percentage” – the industry’s term for how much a casino wins on a certain game – than sports gambling. A University of Nevada, Las Vegas study over 20 years of table games in Nevada found an average hold percentage of 12.69% to 18.90% across blackjack, craps, roulette and baccarat. Some industry leaders have estimated the value of an iGaming customer to be seven times the value of a sports betting customer.

Speaking at a gambling conference in Saratoga Springs in 2022, state Sen. Joseph Addabbo – the chair of the Senate Racing, Gaming and Wagering Committee and a driving force for gambling expansion – said that iGaming revenue in New York has the potential to “blow the numbers from sports betting out of the water.”

That projection is a big part of why sports betting companies in New York, all of which also offer iGaming in other states or countries, are champing at the bit to see it legalized. At a joint hearing for the state Senate and Assembly Racing, Gaming and Wagering Committees last year, executives from DraftKings, FanDuel and other operators urged lawmakers to legalize iGaming. The hearing was intended to just be about sports betting and reviewing its fiscal implications after one year of operations, but many of the panelists – and Addabbo – seemed more interested in talking about iGaming. “The time for New York to legalize and regulate iGaming is now,” Jason Robins, the CEO of DraftKings, said in his opening remarks. The road to iGaming legalization in New York may be tougher than it was to legalize sports betting. While almost 40 states have legalized sports betting since the U.S. Supreme Court decision in 2018, only seven states have legalized iGaming since the Department of Justice effectively decriminalized it in 2011. Delaware was the first state to legalize iGaming, followed by New Jersey, Pennsylvania, Michigan, West Virginia, Connecticut and Rhode Island.

In January, Addabbo introduced an iGaming legalization bill in the Senate, following his introduction of one last year and in 2022, which he called more of a “conversation starter.” The legislation would give all nine sports betting operators – as well as seven brick-and-mortar casinos, nine racinos and a few other entities – iGaming licenses to offer online slots, blackjack and other casino games and tax them at 30.5%. It would also legalize an online version of the New York Lottery.

When asked why so few states have legalized iGaming, Addabbo said gambling addiction is a major concern. “I think it’s the apprehension of the widespread addiction issue,” he told City & State.

Still, he believes legal iGaming in New York will happen. “With iGaming, it’s not if, but when,” he said.

The main argument Addabbo and other supporters make for iGaming revolve around its revenue potential for the state. “Every year we don’t do iGaming in New York, there’s roughly, again if you do the math, $4 billion lost, if you think of it that way, (in) revenue lost,” he said. 

However, his estimated figures are tenuous at best that $1 billion is lost each year to illegal wagers by New Yorkers or gambling in neighboring states, in addition to the estimated $3 billion in yearly revenue if iGaming was legalized. 

To start with, the idea that a large number of New York residents are driving to neighboring states to play online casino games is probably not true. “When you’re dealing with internet gaming, it’s one you don’t move over the border quite as much for,” said Howard Glaser, an executive at the gambling company Light & Wonder, in response to a question at the hearing. A few New Yorkers did bike across the George Washington Bridge or travel by train to New Jersey to bet on sports before New York legalized it, but their numbers were incredibly small.

The idea that there is a large existing illegal iGaming market in New York has also not been documented with any substantial evidence. The gambling industry made the same argument when it was lobbying for sports betting, but the estimates the industry often uses for the size of that illegal market are unreliable. “The number is pretty much pulled from the air,” Koleman Strumpf, an economics professor at Wake Forest University, told The New York Times.

The $3 billion estimate of new annual revenue the state should expect is based on data from other states like Pennsylvania and New Jersey, but it is still a projection and New York has been burned before by unrealistic projections on gambling revenue.

When New York authorized four Las Vegas-style casinos upstate, they projected at least $270 million in direct state tax revenue in the first year and at least $325 million in the fifth year. Actual revenue has fallen far short of those projections, and the state has never received more than $150 million in direct tax revenue in a given year since those casinos were expanded to include table games.

Even if the revenue worked out, the state would still have to worry about the biggest potential issue with iGaming – addiction and problem gambling. Brandy Richards of the New York Council on Problem Gambling, which advocates for those impacted by gambling addiction in the state, said this is often overlooked.

“There’s a lot of publicity about the revenue, but the flip side of that revenue is the loss right? That money that’s coming in is human loss and that comes in the form of somebody not being able to pay their mortgage or not being able to put food on their table or draining a savings account,” she told City & State.

Although the organization does not take a formal position for or against any form of gambling, Richards would have concerns if New York legalized iGaming. “As the opportunities to gamble increase, we know that there is a direct correlation with the increase in problem gambling,” she said. Her organization has already seen this trend play out with sports betting. Since January 2022, which was when mobile sports betting launched, the group’s call volume has gone up by 25%. They also have noticed an increase in calls from a new demographic: young people, especially young men. A recent poll from Siena College and St. Bonaventure University found that 20% of people in the Northeast know someone with an online sports betting problem. The poll also found that 65% of all respondents believed that online sports betting “will end up creating compulsive gamblers that will cause pain to them and their families.”

Compared to sports betting, iGaming could create more problem gamblers due to the nature of the games they play. Online slots dominate the iGaming space in terms of revenue in states like New Jersey and Pennsylvania, and slots have been shown to make people addicted to gambling much faster than sports betting.

And right now, the state only allocates $6 million from sports betting to address problem gambling. That number falls woefully short according to Jim Maney, the director of the New York Council on Problem Gambling. “We are not doing enough at all – not even close,” he testified during last year’s state legislative hearing.

Maney wants closer to $21 million for sports betting addiction support, and an additional increase if iGaming is legalized. Addabbo’s bill only calls for $11 million for problem gambling, however.

When asked about the potential addiction issues with iGaming, Addabbo claimed that legalizing it would actually help. “We can then help a person on their way to an addiction because now we can monitor their activity. Right now, if they’re going to Jersey or Pennsylvania or doing it illegally, you can’t help them,” he said. “Once you regulate in New York, you’re in a better position to help a New Yorker.”

But that’s not necessarily true. City & State asked the state Office of Addiction Services and Supports whether New Yorkers who gamble in other states can seek help with the agency and a spokesperson said in an email: “Problem gambling services and support are available to all New Yorkers.”

Although there are no guarantees iGaming will be legalized this year, the state is inching closer and closer. When asked about the timeline for iGaming legalization, a lobbyist for the gambling industry said, “It took us three years to pass sports betting, and we’re going to keep at iGaming and eventually we’re going to be able to move it – hopefully this year – (and) if not, it will be some time in the future.”

Addabbo is convinced that now is the right time to legalize iGaming. “What we’re seeing is that mobile sports in New York is being perceived as the No. 1 product in the country. We should build upon that. The timing for iGaming is perfect in the sense that we’re showing that New Yorkers have the propensity and the desire to game with a device, as well as going through a brick-and-mortar site,” he told Gaming Today in January.

Recently, he updated his legislation to reflect the interests of different stakeholders, including the Hotel and Gaming Trades Council and video lottery terminal operators, and he said he is willing to continue compromising to make something work.

The state Senate majority leader’s office has remained tight-lipped, saying, “It is something we will discuss as a conference as the budget process moves forward.” And the Assembly speaker’s office did not respond to a request for comment.

When asked for a comment on Gov. Kathy Hochul’s position on iGaming, the governor’s office replied, “Governor Hochul will review any legislation that passes both houses of the Legislature.”

So it appears as if no one in state leadership has iGaming as a top priority for this session, or if they do, they aren’t saying that publicly. But, the reality of the state’s budget gaps could mean that lawmakers will be looking for additional revenue as the session progresses – and iGaming may be an enticing option.