A report commissioned by the Indiana Gaming Commission and released this week projects that the Hoosier State could generate approximately $469 million in revenue in the first year of online casino gaming.
Spectrum Gaming Group, which conducted the analysis and presented it to the IGC in late July, said it “does not expect iGaming to negatively impact [brick-and-mortar] casino revenues.” There have been attempts to legalize online casino gaming in the Hoosier State the last two years, but bills have failed to advance beyond the committee stage in each session.
Six states currently offer a full suite of online casino gaming, while Nevada offers only poker. Despite its relatively modest population of 6.7 million, Indiana has been one of the top states in the nation when it comes to sports wagering handle, in large part due to a robust mobile platform that currently has 15 operators following the launch of MaximBet this week. It has generated nearly $7.7 billion in online handle since launch in October 2019, accounting for 87.6% of the state’s overall $8.8 billion wagered.
Indiana’s brick-and-mortar casinos have generated more than $200 million in win for five of the last six months, including $205.8 million in August, according to the most recent figures released by the IGC. Hard Rock Northern Indiana was the most recent venue to open last year, while Churchill Downs Inc. is preparing to build a casino near Terre Haute in Vigo County.
After two false starts, new hope?
Spectrum’s study is not the first to be conducted with relation to Indiana’s revenue potential for iGaming. A bill filed last year by Republican Rep. Doug Gutwein and co-authored by fellow Republican Rep. Ethan Manning called for iGaming with an 18% tax rate.
The accompanying fiscal note estimated adjusted gross revenue would be between $308 million and $616 million in fiscal year 2025, though at the expense of traditional casino gaming, which would experience a revenue decline of between $123 million and $247 million. The bill projected a net tax revenue gain between $13 million and $26.3 million in FY 2025.
Spectrum’s study directly addressed the issue of cannibalization, citing comments in 2020 from Thomas Winter, DraftKings‘ North American general manager of iGaming, and last year from MGM Resorts President and CEO William Hornbuckle. In particular, Hornbuckle noted that the “concern about iGaming cannibalizing retail gaming has never fully dissipated, but that it remains both unfounded and wrong.”
The study concluded there was an overall 3.3% decline in retail casino and video lottery terminal revenue from 2019 to 2021 in states with iGaming, but total gross gaming revenue increased 29.4% in that period to more than $2.7 billion.
Spectrum presented the IGC with three methodologies of revenue generation — Spend per Adult, Gross State Product (GSP), and Disposable Personal Income (DPI) — and took the average of the three to arrive at the $469 million first-year estimate. The methods had the common themes of focusing on revenue generation from 2019-21, how e-commerce changed due to the COVID-19 pandemic, and the near-universal availability of high-speed internet.
The overall study pointed out that brick-and-mortar casino revenue declined from 2019-21 in both New Jersey and Michigan, but offered a notable caveat in that those states have highly centralized locations for casinos with Atlantic City and Detroit, respectively. In Pennsylvania, where casinos are more spread out geographically, casino revenue was “more stable” in that time frame.
Predictions include a quick start
Spectrum noted that having digital sports wagering already available in Indiana should lead to a relatively quick ramp-up in terms of iGaming. The Spend per Adult showed Indiana with the capability of generating $277 million in iGaming revenue in year one, more than doubling that the following year, and totaling $836 million in its third year of operation.
In the GSP method, the key is that consumer spending rises with increased income and makes gaming an entertainment expense. In the five states that had iGaming prior to the pandemic, it showed the average combined GSP when it comes to overall gaming not only rebounded to 2019 levels post-pandemic, but slightly increased, going from 0.48% to 0.5%. It also increased in iGaming from 0.03% to 0.15%.
Spectrum, though, felt Michigan offered more like-for-like similarities because the e-commerce model had already changed by the time the Wolverine State launched iGaming in January 2021. Thus, it projected $563.9 million in iGaming revenue for the first year, with more modest increases to $820.4 million by the third.
The DPI method showed a post-pandemic revival similar to the GSP method, with Michigan’s DPI amounting to 0.2% for 2021. Overall, the six states averaged 0.13% of DPI going to iGaming in 2019, more than triple the 0.04% in 2019.
Spectrum was bullish on Indiana residents taking quickly to iGaming, offering a 0.16% DPI in the first year of operations to help generate $566 million in revenue while gradually increasing to $831 million in the third year.
Pondering tax rates
Because Indiana uses progressive tax rates that begin at 15% and reach 40% for gross revenue above $600 million for casinos and range from 25% to 35% at lower thresholds for racinos, Spectrum noted the “difficulty to apply a ‘Pennsylvania-like’ tax regime on Indiana iGaming.”
With the IGC’s blessing, Spectrum settled on three tax rates for its study — 20%, 30%, and 45%. The last is higher than any other jurisdiction that offers iGaming, save for Delaware’s 53.5%, and even the 30% is higher than the other five states offering a full suite of online casino gaming.
Spectrum applied the lowest tax rates to the lowest estimates and the highest tax rates to the highest ones, creating a range in the first year from $55 million at 20% in the Spend per Adult method to $255 million at 45% from the $566 million estimated via DPI. The second-year tax estimates had a similarly wide band from $121 million to $313 million, with the Spend per Adult method representing the low end at $604 million revenue and DPI on the high side at $694 million. The GDP method represented the low end in the third year, generating $821 million in revenue that led to $164 million in taxes, while the Spend per Adult estimate calculated $836 million in revenue and $376 million in taxes.
The average first-year tax totals from the gross gaming revenue ranged from $94 million on the low end at 20% to $211 million at 45%. The bands grew substantially each year, with the $166 million in year three based on a 20% tax rate compared to $373 million with a 45% levy.