In December 2013, the Pennsylvania Legislature authorized a study of the condition of the state’s gambling industry as well as what may be in store for the future. Econsult Solutions was tasked with this challenge and has now released its report.

Of particular interest to the visitors of this website is Section 5 of the report, entitled “New Source of Revenue” and focusing first on internet gaming. After detailing some of the history of internet gambling in the US and discussing what has been happening in New Jersey, the report moved into estimating the potential Pennsylvania market.

Two approaches were used: econometric and rule-of-thumb. The econometric approach is much more quantitative and used demographics and regression analysis to draw relationships between revenues in countries where online gambling is regulated and places where it is not. For the rule-of-thumb method, it used countries with “well-developed” internet gambling markets that are seen as the most comparable to the US.

The rule-of-thumb method produced higher revenue estimates for US online gambling than the econometric model. Econsult took the average of the two to produce its final numbers. The report predicted $3.577 billion in poker revenue annually if the entire US market opened up, as well as $4.922 billion from casino games. The total: $8.498 billion.

The report then narrowed things down to just Pennsylvania. Again, two methods were used to estimate revenues: the first just used Pennsylvania’s share of the country’s GDP, while the other used the percentage of online poker that was played in Pennsylvania in 2010, according to a University of Hamburg database.

Both numbers were very similar and, again, the Econsult took the average, settling on 3.61%. Thus, the report put the potential market for online poker in Pennsylvania at $129 million and, for casino gaming, at $178 million for a total of $307 million. In estimating the first year’s revenues in a potential Pennsylvania online gaming market, the study went with 60% of the forecasted level, or $77 million for poker and $107 for casino games.

However, in its weekly online poker Scouting Report, PokerScoutbegged to differ with those numbers, as it has always erred on the more conservative side. PokerScout saw the potential poker market for Pennsylvania topping out at $60 million annually and just $45 million in the first year (chart pictured).

Also of note in the Econsult report are the firm’s thoughts on possible i-gaming cannibalization of land-based casinos’ revenues. The company doubted there would be any problems. It saw the online and land-based gaming markets as very different: online players can play for much smaller stakes, can play multiple games at once, and can enjoy the benefits of statistical tracking, whereas brick-and-mortar players enjoy the social aspect of playing live as well as the casino amenities.

The report also stated that most internet play takes place in the afternoon or evening, indicating that it is simply replacing other forms of home entertainment rather than a trip to the casino.

The report went a step further, arguing that internet gambling would actually help brick-and-mortar casinos by introducing a new market of people to gambling. These people could get comfortable with the games and then try their hand at the casino.

As such, Econsult estimated the potential for increased revenues from the “complement effect” seriously outweigh the potential lost revenues for land-based casinos from the “replacement effect” of i-gaming, concluding that internet gambling, on net, would help existing casinos.

Visit PocketFives’ Pennsylvania poker community for the latest news and discussion from Pennsylvania players.

PokerScout’s Scouting Report is a daily newsletter for the online poker industry, with in-depth data and analysis of the market. More information can be found by clicking here or contacting support@pokerscout.com.

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