I Go High; You Go Low
If Maryland is going to legalize online casinos, compromise is needed. Industry support will deteriorate if the current exorbitant 46% tax rate is left unchanged.
The Bulletin Board
NEWS: Maryland online casino legislation has several difficult paths to navigate.
BEYOND the HEADLINE: How much does it cost to run an online casino?
NEWS: A first look at ESPN Bet’s December handle numbers.
VIEWS: PokerStars’ revised rewards program is a return to the previous problem.
AROUND the WATERCOOLER: New York Gov. ghosts online casinos.
STRAY THOUGHTS: Stick to the basics.
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Is a High Tax Rate the Key to iCasinos in Maryland?
There are a lot of reasons to legalize online casino gambling. But what happens when a state’s raison d'être for legalizing online casino gambling is money? Quite simply, it looks to maximize the amount of money it receives.
Case in point: Maryland.
Maryland is considered one of the better candidates to legalize online gambling in the coming years.
The latest online casino proposal in Maryland (breakdown here) would saddle the industry with a 46% tax rate on online casino games. The bill’s sponsor, Sen. Ron Watson, didn’t tiptoe around the reason for the steep tax rate when he spoke to Play USA last week.
“Because the casinos can afford it,” Watson said. “The margins are huge because there is no overhead. I believe there’s a lot more that can be done through iGaming to support the state’s financial deficit.”
Set aside the “margins” for a moment, and Watson’s proposal is indicative of what happens when gambling bills are passed solely to generate revenue and not to give consumers legal options or capture tax revenue currently traveling over state lines.
Pennsylvania will always come up when high taxes are discussed. The state was desperate to fill a budget deficit when it passed a comprehensive gambling expansion package in 2017 and burdened online operators with a 54% tax rate on online slots but only 16% on table games, which works out to about a 40% tax rate.
The good news in Maryland is Watson is willing to negotiate.
“I know how the game is played, Watson told Play USA. “You go low, I go high, and we meet in the middle.”
However, cannibalization claims in a recent report could put a damper on those plans and make the tax conversation moot.
Beyond the Headline: Overhead… A Lot of Overhead
When Pennsylvania was considering online gambling legalization in the mid-2010s and staring down extremely high tax rates, operators were very vocal about how much meat is actually on the bone.
As I wrote in 2017, one New Jersey operator explained where the typical dollar of online casino revenue goes (keep in mind this is from the operator’s perspective in 2017), and it was eye-opening:
17.5 cents go to taxes (the New Jersey tax rate)
20 cents go to player reinvestment (player promotions and retention costs)
18.5 cents are eaten up by payment processing, KYC, geolocation costs, and platform and content royalties
24 cents is spent on advertising
2.5 cents is gobbled up by other regulatory fees
12.5 cents goes to general and administrative needs, including staff
At a 17.5% tax rate, an operator is left with about five cents. There is some wiggle room, particularly if new market costs can be absorbed through existing infrastructure. Still, even in a best-case scenario, the operator’s profit is unlikely to exceed 20 cents. Essentially, a 40% or higher tax rate is a challenge few operators are willing to accept.
ESPN Bet December Numbers are Trickling In
We are getting our first look at December sports betting numbers, which is the first full month for ESPN Bet.
In Iowa, ESPN Bet accounted for $18.8 million in handle (6.7% market share), good enough for a fourth-place finish behind DraftKings, FanDuel, and Caesars.
ESPN Bet did a bit better in Maryland, finishing third with a handle tally of $42.4 million (7.8% market share).
ESPN Bet accepted $33 million in wagers in Indiana in December, good for a 6.8% market share.
In Massachusetts, ESPN Bet booked $50 million in bets, good for an 8% market share.
Those numbers are well ahead of Barstool’s numbers. That shouldn’t be surprising, considering ESPN Bet is taking an entirely different marketing approach.
As reported by Gaming Intelligence, Penn is pushing ESPN Bet in ways it wasn’t pushing Barstool:
“Across Ohio, Pennsylvania, and Maryland, PENN’s total promotional spending was $14.1 million for the first 10 months of 2023.
“In November alone, PENN’s promotional spending surged to $56.9 million in these three states.”
And keep in mind ESPN Bet launched on November 14, halfway through the month.
Still, I would classify the early returns as better but not great.
Penn has to be asking itself three things:
What level of spending is required to grab a double-digit market share, and is it worth it?
Did the marketing around the launch create a strong enough base to achieve its target goals?
And as I said in my deep dive into ESPN Bet, the big question it needs to answer is whether it can retain customers.
The company’s target was 10-20% market share. The low end is still a possibility as Eilers & Krejcik Gaming anticipates a more robust marketing push is still to come.
“ESPN Bet will be spending heavily to acquire share on a national basis—especially in 2H24, when we believe its product will (or should) be closer to parity with FanDuel and DraftKings.”
App downloads have also subsided, although ESPN Bet is still the third most downloaded mobile betting app, indicating ESPN Bet isn’t a flash-in-the-pan and has some staying power.
PokerStars New Rewards Program (Everything Old Is New Again)
PokerStars has unveiled its new rewards program, and it bears a striking similarity to its old Supernova and Supernova Elite rewards. The new program is being billed as a “fairer and more transparent” rewards program, per the emailed press release.
Gone are the personalized rewards (according to the release, 75% of accepted challenges were abandoned). Paving the way for a return to a volume-based system.
“PokerStars is committed to improving the poker experience for our players, and one of the most important aspects of that experience is ensuring players feel valued for the frequency and volume of play they give to us,” the release says.
PokerFuse has been all over this story, and I highly recommend its article to anyone looking for more details on the new program.
My interest in the new tiers, per PokerFuse:
“Beyond the Black tier are two new tiers: Select and Select Plus, for high-volume players. These are highly reminiscent of the famous Supernova and Supernova Elite tiers from before. They offer up to 60% rakeback to the biggest grinders who hit high monthly rake targets.”
Years ago, I wrote about PokerStars eliminating these highest tiers from its rewards program and why it was so crucial for PokerStars to abandon it. Those articles no longer exist on the internet (affiliate websites have a habit of scrubbing articles to optimize searches for other pages), but I do have saved copies I can reference.
As I wrote at the time, the high-volume online poker player reminded me of another customer I had a lot of experience dealing with during my years managing health clubs in the 1990s:
“… for a very long time, gyms catered to hardcore lifters. They cut them deals on memberships; offered discounted prices on supplements; would let them run tabs; and might even let them buy a case of their typical pre-workout drink at wholesale. They were seen as valuable members, and they were… the monthly revenue generated by the top 1% of customers (hardcore lifters) was easily 10-times a typical member.”
However, they also possess negative qualities and are way overvalued. And as I mentioned at the time, they have little loyalty. As an aside, I think the current trend of fitness influencers filming in gyms creates a similar dynamic.
Professional poker players and professional sports bettors come with the same baggage. Many, but far from all, are net-negatives (which is a column for another day).
In the years leading up to PokerStars ending the program, the issues with the volume-based model were bubbling under the surface and constantly brought up in private conversations.
In the years following the death of the Supernova Elite model, I have yet to have a conversation with any serious online poker industry person who thinks PokerStars should have stuck with the volume-based Supernova Elite model.
There is disagreement over what came next. And for that, I’ll point to Kim Lund’s thoughts on the return of volume-based rewards:
Lund’s point is that as much as PokerStars needed to overhaul its rewards program in 2016, what it replaced it with was just as bad.
But here we are, in 2024, looking at the return of Supernova Elite, just with a different name.
Around the Watercooler
Social media conversations, rumors, and gossip.
New York Gov. Kathy Hochul had an opportunity to raise the hopes of an entire industry on Tuesday. All she had to do was say two words: online gambling. Alas, the words never came, and online casino legalization will remain a difficult lift in New York.
Last week, State Sen. Joseph Addabbo put the ball in the governor’s court, telling Play USA, “Without the governor embracing this, we’re not going to do it. I won’t even advocate for it to be in the Senate… if the governor won’t embrace it.”
The governor took the ball and went home.
Stray Thoughts
This reminds me of a martial arts saying I like (h/t Hard2Hurt YouTube channel), “Advanced techniques are just beginner mistakes done on purpose.”
Nathan Williams is right; just like a fight against an untrained person, the basics will win the day if you’re playing in typical low-stakes games. A jab-cross right down the pipe or a blast double leg is a low-risk, high-reward approach, as is a typical tight-aggressive poker game.
The problem with advanced plays (in fights and poker) is people lack the experience to know when they should be deployed.
As another martial artist, Majid Raees, says, “Basics, when done correctly, look advanced and elegant.”