We wish it was an April Fools joke, but alas, no such luck. Financial services analysts at Morgan Stanley have cut their valuation of the potential of the US online gaming market by almost half.
The revised forecast values the market at $2.7 billion by 2020, down from the $5 billion it predicted in late September 2014. The firm cited several reasons for the reevaluation, from payment processing and geolocation problems, to a lack of effective marketing and the continued strength of the offshore market.
Morgan Stanley initially predicted that the first three states to regulate online gambling, Nevada, Delaware and New Jersey, would garner a combined $678 million in their first year, but results have been underwhelming, with just $135 million generated over the first 12 months of operations.
“We continue to believe that there is a material runway for growth, but results have been disappointing,” the firm said. “Legislative processes continue to be slow as lawmakers remain unconvinced that online gaming is currently worth the hassle for limited tax revenue.”
15 States to Regulate by 2020
The analysts said they did not foresee any other states opting to regulate in 2015, although they expect California, Pennsylvania, New York, and Illinois to do so during the next few years, and predict that 15 states will have legalized online gambling by 2020.
Last year, Morgan Stanley estimated that 20 state jurisdictions would have been created by that date.
The company also said it was not overly concerned by the threat the industry faces from the Restoration of America’s Wire Act (RAWA), the bill that seeks to prohibit online gaming at a federal level, which received a Congressional hearing last week.
“We believe a federal ban of online gaming is unlikely given legislators’ split views,” the company said in a statement. “However, a recent hearing in a House Judiciary subcommittee on [U.S. Rep.] Jason Chaffetz’s proposal for a ban suggests it could be gaining momentum. While the bill may advance out of committee, we believe it faces long odds of passing, especially without carve-outs for online lotteries and existing online gaming states.”
Land-Based Poker Also Down in Nevada
And it’s not just online gambling that has taken a hit this week.
Nevada saw its land-based gaming revenues decline overall by 4.4 percent in February, with poker down by 8 percent, reflecting a recent spate of poker room closures. Hooters became the second casino in Las Vegas to shutter its poker room this year, following the Linq (formerly the Imperial Palace), and the 14th over the past two and a half years.
Recent research by the University of Las Vegas says that Sin City now has the smallest number of live poker tables in almost a decade: 660 spread over 70 rooms.
Other Las Vegas poker rooms that have closed recently include Circus Circus, Sunset Station, El Cortez, the Riviera, Texas Station, the Palms, Bill’s Gambling Hall, the M Resort, Tropicana, the Gold Coast, and Fitzgerald’s.
Of that list, the Riviera is set to close altogether on May 4 to make way for a Las Vegas Convention Center expansion, and Bill’s Gambling Hall was recently converted into the boutique casino The Cromwell.