Penn National Gaming, which operates the Hollywood Casino at Penn National Racecourse, came out in full support of online gaming expansion in Pennsylvania at a hearing in front of the House Gaming Oversight Committee on Wednesday.
In addition to supporting iGaming expansion, Penn National’s Senior Vice President of Government Affairs, Eric Schippers, announced the company had created its own internal online gaming revenue estimates. Schippers said the company’s projections were based on other studies as well as lessons learned in New Jersey.
According to Schippers, these estimates are largely driven by Chris Sheffield, Penn National’s new iGaming guru, whose official title is Head of Online Gaming. Sheffield was brought on board in January to help guide Penn National into the online space.
Penn National’s estimates as relayed by Schippers were:
- Year one: $250 million
- Year two: $300 million
- Year three and beyond: $350 million
To many, Penn National is overestimating the potential of online gaming in Pennsylvania, but Schippers qualified the numbers by saying they are “aggressive” and do not include any “restrictor plates” that could be placed on the industry, such as having to sign up in-person at a brick and mortar casino.
Even with these caveats, Penn National’s projections seem lofty.
Econsult projections on PA online gambling
In a 2013/2014 report created for the Pennsylvania legislature, Econsult Solutions was a bit more pessimistic with its online gaming revenue projections for the state.
Econsult estimated year one online gaming revenue in Pennsylvania at $184 million, with revenue increasing to $307 million when the market fully matures.
And it should be noted Econsult’s projections are considered high by other analysts.
Using population as the sole metric (granted, not the best way to come up with revenue projections), Pennsylvania should generate roughly 30% more revenue than New Jersey.
So even though Econsult’s $184 million projection seems timid (particularly when compared to Penn National’s), it’s still above the $160 million the state can expect to reap based on the industry’s experience in New Jersey.
Are there reasons for optimism?
There are several viable reasons Penn National’s projections are on the higher end, and as Schippers stressed at the hearing, these projections were made under the assumption that the industry launches and runs seamlessly.
Two restrictor plates that will have to be removed for Pennsylvania to reach its full potential are:
- Improved payment processing.
- Learning the lessons from New Jersey and solving disconnects, inferior software, lack of customer awareness, and over-cautious geolocation constraints.
Additionally, Penn National may also believe Pennsylvania’s larger population (about 30% over New Jersey) will create better liquidity for online poker sites and increase traffic exponentially.
Two reasons for pessimism
For Penn National’s projection of $250 million in year one to hold true, the state is going to have to significantly outperform New Jersey.
This is a tall task considering New Jersey trumps Pennsylvania in two key economic metrics:
- Disposable income per capita: NJ = $49,267; PA = $42,253 (even adjusted for cost of living NJ residents still have more disposable income)
- Median household income: NJ = $67,458; PA = $50,228
Early New Jersey revenue projections were harmful
While it may not seem like a big deal, as New Jersey discovered, aggressive revenue projections can have a negative impact on the industry. In fact, New Jersey’s impossible projections have been a major talking point for those seeking to ban online gambling, allowing them to call the industry a failure.
Online gaming revenue totaled $123 million in New Jersey during its first full year. By itself this would be an acceptable tally.
Unfortunately, the $123 million number looks paltry when it was held up to the early predictions:
- Wells Fargo produced the most infamous projection in 2013 when it estimated the New Jersey market to be worth $650 to $850 million. This led to the New Jersey government estimating $1.2 billion, a number that was only off by a factor of 10.
- In 2013 Morgan Stanley projected $541 million. Morgan Stanley later revised its estimates in May of 2014 to $203 million – which was still off by 75% – and down to $127 million in December of 2014.
- A dated 2010 report by H2 Gambling Capital had the New Jersey market generating $410 million in revenue in year one.
- In 2013 Gambling Data (a subsidiary of Gambling Compliance) estimated New Jersey’s year one revenue at $235 to $288 million.
- Econsult’s projection for New Jersey was $266 million in 2013.
- Eilers Research was the closest to the mark, with a projection of $226 million in 2013.
- In two separate reports (one in 2013 and one in 2014) Fitch Ratings had New Jersey revenue between $200 to $300 million.
Analysts have learned from these mistakes
The good news is analysts have taken a number of lessons from New Jersey.
With the closest projection off by over 100%, analysis of the Pennsylvania market has been far less adventurous and tempered.
One example of this is Econsult’s projection for New Jersey (a state with a population of around 9 million) was $266 million, but roughly a year later its projection for Pennsylvania (a state with a population of nearly 13 million) was just $184 million.
Even though Penn National placed caveats on projections, its $250 million estimate will hopefully be the highest projection submitted.
Based on New Jersey, Delaware, and Nevada, as well as ring-fenced markets in Europe, it’s unlikely Pennsylvania will approach $200 million in year one online gaming revenue, even if it’s smooth sailing from the get go.