The challenges traditional casinos face from illegal gambling, offshore websites, lottery casinos, and so-called "prediction markets" seem to be intensifying, as the debate over whether legal iGaming sites might erode the revenue of physical casinos continues.
At the 28th East Coast Gaming Congress held in Hard Rock Atlantic City, a panel composed of regulators, legal experts, and legislators reviewed these issues.
The panel was chaired by Lynne Kaufman, partner and co-chair of the group at Cooper Levenson, with the theme "Future Shock: Addressing Unprecedented Challenges in the Gaming Industry." Shawn Fluharty, a West Virginia legislator and chairman of the National Council of Legislators from Gaming States (NCLGS), also attended the meeting.
Addressing Challenges
Panel members also included Mary Jo Flaherty, acting director of the New Jersey Division of Gaming Enforcement, Yael Harel Hertz, CEO of TheLotter Group, David Brace, head of innovation and technology at Continent 8, and Andrew Winchell, director of government affairs at Betr.
Kaufman pointed out that physical casinos have injected billions of dollars into state and local governments through licensing fees, construction projects, job creation, and taxes. Now, casinos are facing battle after battle to preserve these revenues and their own profits.
Fluharty noted that many challenges do not come from outside the casino industry but from within, manifested as tax competition and competition with other forms of gambling.
Fluharty emphasized that given the numerous internet gaming bills under consideration, the tax impact is a primary consideration. He stated that legislators should pass bills that "increase revenue" but not raise taxes.
Growth of iGaming
Fluharty added that concerns about iGaming eroding physical gambling have not slowed the legislative process for iGaming. "I hear industry leaders say iGaming is eroding physical gambling, but that doesn't mean iGaming is failing," he said. "Many states have not passed it yet, but many are watching it. It's coming." He mentioned that President Donald Trump's reluctance to allocate federal funds to states could accelerate the legalization of iGaming to fill the revenue gap.
Other concerns about internal industry competition involve lottery courier companies. Lottery players can buy tickets online through lottery courier companies, which purchase actual tickets from retailers. Hertz from the global lottery purchase and courier service company TheLotter expressed concerns that courier services could erode the profits of lottery companies that offer direct online ticket sales and online scratch-off games (i.e., iLottery).
She defended the courier business model, noting that under the right regulatory framework, couriers could save states a significant amount of money, while sales could preserve the business and profits of physical lottery retailers.
However, panel members stated that the most pressing challenges recently faced by legal gambling include unregulated gambling, such as lottery casinos and prediction markets.
NCLGS Model Legislation
Fluharty stated that NCLGS is drafting model legislation to authorize online gambling, which includes banning lottery casinos. These casinos allow customers to "buy" products and play games via mobile apps or on-site computers that could win cash prizes. Fluharty said that lottery casinos circumvent the law and create unfair competition for companies that have completed rigorous licensing processes.
"A license is a privilege, not a right," Fluharty said. "If an online gambling bill is passed, it should include a ban on lotteries and impose fines."
David Katz, a gambling analyst at Jeffries, attended another panel discussion that explored the prospects of gambling stocks from an investment perspective. The panel also delved into issues such as illegal lottery casinos and prediction markets.
"These forms of gambling often walk the line between legality and illegality," Katz said. "But now the situation is not as simple as before. Some may need to be legalized, some may need to be banned. You have to make choices."
Meanwhile, Fluharty pointed out that another potential unfair competitor facing licensed casinos is the emerging prediction market, which treats bets as "commodities." In his view, prediction markets also allow customers to bet on political campaigns in a manner similar to sports event contracts.
While sites like Kalshi describe bets as "financial instruments" with returns for correct predictions, Fluharty stated that they are essentially like expanded sports betting. "If it walks like a duck and talks like a duck, it's probably a duck," he said, refuting the notion of treating these markets as "commodities."
