How Rhode Island Salvaged A Terrible Year For Online Casino Legalization

Online gambling legalization dates back more than a decade. It began in late-2012-early-2013 when Delaware, Nevada, and New Jersey became the first states to legalize online casinos and/or poker. Since then, four states have followed suit: Pennsylvania, Michigan, West Virginia, and Connecticut. 

Rhode Island is on the precipice of becoming the fifth and the first since Connecticut in 2021. Gov. Daniel McKee has yet to sign the bill officially. 

Thiswas supposed to be the year Indiana legalized online casinos, but the Hoosier State turned out to be a dud, full of sound and fury, signifying nothing. Attention then turned to New York, one of the biggest prizes on the U.S. map. But like Indiana, the legal online gambling advocates in the legislature were a little too bullish. Several other states introduced online casino bills: Maryland, Kentucky, Illinois, Iowa, Maine, and New Hampshire, but only New Hampshire’s bill made any headway before its eventual demise. 

And then, along came Rhode Island. A group of Rhode Island Senators introduced S 948 at the end of April. Roughly six weeks later, the legislation was passed by the legislature just before it adjourned for the year. 

Rhode Island was not on most people’s radar as an online casino candidate, but as I wrote in January:

“One of the things I’ve learned in the 15 years I’ve been following efforts to legalize online gambling in the U.S. is to pay close attention to the best candidates and leave some bandwidth for an unexpected candidate to emerge as a serious contender.”

SOP for Online Casino Legislation

Online casino bills tend to be eleventh-hour votes, and they also tend to go from zero to sixty in short order. 

Previously, bills sat for extended periods, followed by a flurry of activity late in the legislative session. Rhode Island took a similar approach, with one minor difference; rather than being parked in a committee, the bill was introduced later in the session. 

Where Rhode Island diverged from the online gambling norm is passing an online casino bill on its first attempt, as it typically requires a multi-year effort. 

Rhode Island’s Less-Than-Perfect iCasino Structure

In its pitch to the state, Bally’s estimated $210 million in revenue for the state over five years. The state’s five-year projection was $162.6 million. Because of the discrepancy, the revenue-sharing arrangement was amended, with the state taking a more significant cut of slot revenue to get back to $210 million over five years. 

Still, even with a larger piece of the pie, $210 million in revenue to the state may be on the high side, as the lone operator, Bally’s, will have little incentive to market iGaming for two reasons:

• Bally’s will have a monopoly.
• The state and IGT receive 85% of slot revenue and 51.5% of table game revenue per the revenue-sharing arrangement.

Further, because of the massive revenue-sharing incongruity between slots and table games, Bally’s is incentivized to market the latter, particularly live dealer games. 

The Rhode Island Online Casino Market 

Performance-wise, I suspect Rhode Island will fall somewhere between Delaware and Connecticut. 

Connecticut’s industry launched in June 2022. A year later, the state’s two online casino operators generate about $25 million monthly in revenue. Connecticut has a population of 3.6 million; Rhode Island’s population is 1.1 million. Based on Connecticut’s numbers, Rhode Island can expect about $8 million monthly in online casino revenue heading into Year 2. 

Delaware has a similar population to Rhode Island, and its online casinos struggle to generate $1 million per month in revenue 10 years into its existence. Delaware has even greater structural hurdles than Rhode Island. Still, the state provides a good comparison in population and as a lottery-run monopoly where the licensee receives a small percentage of revenue.

Considering these factors, the state is unlikely to receive $200 million over five years in anything but a bull-case scenario. The state can expect about 50% of the below projections: 

• Bull: $7 million month - $420 million over five years
• Baseline: $6 million month - $360 million over five years
• Bear: $4 million per month - $240 million over five years

The complete revenue-sharing breakdown is as follows:

• The state would receive 61% of all online slot revenue, with the towns of Lincoln and Tiverton receiving 1.45%. The platform vendor would receive 22.45% of online slot revenue and the vendor 15%.
• The table game revenue split is as follows: 15.5% to the state, 35% to the platform vendor, 48.5% to the vendor, and 1% to the towns of Tiverton and Lincoln.

Little Rhody’s Big Impact

Moving beyond Rhode Island’s small borders, I believe the passage of an online casino bill in Rhode Island will have a ripple effect across the country:

• Like sports betting, the idea of dollars trickling across the border will nudge other New England states like Massachusetts, New Hampshire, and Maine to jump into the online casino pool.
• It further demonstrates that online casino is a noncontroversial vote, which despite no lawmaker losing their seat over an affirmative online gambling expansion vote, is still somehow a widely held belief.
• With a launch date of March 2024 (right in the heart of state legislative calendars), any state considering online casino legislation will see a barrage of headlines about Rhode Island’s online gambling launch.