Anticipating Michigan Online Gambling: Will It Surpass PA And NJ? – OnlinePokerReport.com

Michigan will be getting its first online casinos and poker rooms soon. Depending on how the regulatory and licensing processes go, the launch could be as soon as October, or as late as early 2021.

With right around 10 million people, its the tenth most populous US state, and will be the second biggest legal iGaming market after Pennsylvania. Its arrival into this still very exclusive club should therefore be a game-changer for the industry.

It is, however, very hard to predict how things will turn out for the Wolverine State. Online gambling is still very much in its infancy in the US. The context of the launch of sports betting and poker and online casino in Michigan launch is also rife with uncertainties, such as:

The best information we have about what to expect comes from looking at other states with iGaming, specifically Pennsylvania and New Jersey, as the two which are comparable in size. Michigan has a bit in common with each, but also some unique aspects which make predictions all the more difficult.

Michigan will probably look more overall like Pennsylvania than like New Jersey, at least in the early going. Thats for the simple reason that Pennsylvania launched much more recently, and circumstances have changed a lot in the years since New Jersey got its start.

Pennsylvanias story has been one of explosive growth. Its gross gaming revenue (GGR) was under $5 million for each of the first three months the market was active, but was over $50 million per month by the end of the first year.

New Jersey, by contrast, debuted a little stronger, but then remained very flat for the first year, hovering between $8 million and $11 million per month. It took three years to double that figure, six to reach the same point Pennsylvania did in just one year.

Some of the success of Pennsylvania online casino and poker was due to the shutdown of land-based casinos due to COVID-19. Depending on how the pandemic progresses, Michigan may or may not encounter something similar in its first year. Even correcting for that, however, Pennsylvania was likely on course to hit $40 million in monthly GGR by the end of its first year.

Another factor driving Pennsylvanias growth was that it launched half-cocked. Only three online casinos were able to go live in the first week, and without a full array of games. It took almost four months before the states first (and still only) online poker room arrived. Michigan isnt committing to a specific launch day, which suggests it will wait until its ready for more of a synchronized launch, as New Jersey had back in 2013.

Hiding behind those effects, however, is the fact that iGaming in the US is growing more generally at the moment. More companies are entering the market, striking big deals, and putting tons of money into marketing. The sports betting boom is also creating cross-sell opportunities for online casinos.

Even before COVID-19 made it to the US, New Jersey was riding that growth trend. Extrapolating from the second half of 2019, it was on course for over 50% annual growth without the help of a brick-and-mortar casino shutdown. That trend looks like it is continuing, and Michigan should benefit from it as well.

Taking all these factors into account, then, it looks likely that Michigan could launch bigger than either of those states. From there, it will probably enjoy strong growth over its first year, albeit not as dramatic as Pennsylvanias.

There are a couple of other ways in which Michigans situation is likely to resemble the Keystone States. Potential competition between the online casinos and the states iLottery is one.

Already, in Pennsylvania, there has been an unsuccessful lawsuit by casinos against the lottery for offering online instant games too similar to the casinos online slots. Theres the Michigan online lottery, too,whereas thats one potential point of friction that New Jersey lacks.

Poker is another area in which Michigan may look more like Pennsylvania than New Jersey.

Unfortunately, the glory days of online poker are probably gone for good. Internationally, poker revenue and traffic have been on the decline for most sites for nearly a decade. In New Jersey, revenue from poker might not have declined to the same extent, but it certainly hasnt grown.

In that states first year of iGaming, online poker made up 20% to 30% of online revenue each month. Since then, poker has stagnated while the online casinos have grown in leaps and bounds. By the end of last year, it had shrunk to just over 3% of the total.

Thats probably why New Jerseys online poker market has been competitive all along. In Pennsylvania, by contrast, other operators have so far been content to leave PokerStars with a monopoly, as there simply isnt that much money on the table. Unless something happens to change the situation, Michigan may play out the same way.

On the other hand, Michigan does differ strongly from Pennsylvania on the tax front. New Jersey charges a reasonable15% tax on iGaming revenue. Pennsylvanias rate for table games is only slightly higher, at 16%, but it wallops operators for 54% on slots, which are by far the biggest money maker for nearly all operators.

Michigan, on the other hand, will charge just 8.4%, plus a 1.25% municipal tax for the three commercial casinos in Detroit. Licenses are also priced reasonably, at $100,000 apiece plus a $50,000 application fee, compared to $10 million up front for Pennsylvania operators looking for a complete package of licenses.

Some pundits have predicted, based on this, that Michigan will quickly become the largest US iGaming market. That remains to be seen, and Pennsylvanias aggressive approach doesnt seem to have had the expected chilling effect on the approach of big companies like DraftKings and Flutter.

Michigans lighter touch may, however, encourage more competition from small operators. Pennsylvania licensees with smaller partners like Presque Isle Downs with BetAmerica may take a long time just to pay off the cost of their licenses.

In Michigan, it will be far less risky for smaller companies to take a shot at carving out a niche for themselves. It may, in that regard, replace New Jersey as the de facto launch point for companies seeking to enter the US market for the first time.

There is also one major way in which Michigan resembles neither Pennsylvania nor New Jersey. This is the fact that its casino industry comprises both three commercial casinos and roughly two dozen tribal properties.

All other states with online casinos at the moment are commercial only. One partial exception is Pennsylvanias Wind Creek Bethlehem, which is owned by a tribal hospitality company from Alabama.However, it is not on tribal land and operates in the manner as the states other casinos.

Michigan is therefore the first opportunity for tribes to get into the online gambling space. The closest thing that exists elsewhere is for Colorado sportsbooks, where Sky Ute CasinoandUSBookmaking launched the first native-owned and operated mobile sportsbook outside of Nevada.

Many of Michigans tribal casinos will partner with big online brands like PokerStars and DraftKings. At least one, however, is carving its own path. FireKeepers was one of the first Michigan casinos to announce its plans, and it will launch under its own brand, using Scientific Games as its technology provider.

This, combined with the low cost to entry, may mean that the Michigan market may feature more local brands and be split more ways than Pennsylvania and New Jersey, both of which are dominated by a few large companies.

In summary, then, we can expect Michigan to have a bigger launch than either Pennsylvania or New Jersey. It will likely grow quite quickly, though not quite as explosively as Pennsylvanias first year. In time, it may also end up fostering more competition from small companies than either of those markets.

Many question marks remain, however, including how the COVID-19 pandemic develops, and whether local tribal operators can hold their own against big national brands. For answers to these, theres little to do but wait and watch.

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Anticipating Michigan Online Gambling: Will It Surpass PA And NJ? - OnlinePokerReport.com