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Why Online Casinos Spread With Online Sportsbooks

Why Online Casinos Spread With Online Sportsbooks

Since states began legalizing sports betting, some states have taken the extra step of legalizing online casinos. Some bettors may think that the law that allowed states to legalize sports betting also prohibited online casinos.

But that’s not true. States had legal room to legalize online casinos before 2018. New Jersey legalized online casinos in February 2013, shortly after its sports betting bill ran into legal trouble. New Jersey’s online casinos grew while its sports betting bills were tied up in federal court. But other states didn’t legalize online casinos until they had the option to legalize sports betting.

That seems odd until you realize that online sportsbooks were many states’ first shot at legalizing private gambling companies’ online products. Michigan didn’t have laws for online casinos until it had online gaming laws for sports betting. The repeal of the federal ban on sports betting (PASPA) did more than allow states to legalize sports betting. It forced them to reconsider their gambling laws and it exposed them to other states who were siphoning bettors and money from them.

PASPA’s Repeal

In 2018, the Supreme Court ruled that the law prohibiting states from regulating sports betting was unconstitutional. Once it was struck down, states could choose whether to legalize sports betting. PASPA and other federal never outlawed online gaming though. The Federal Wire Act prohibited wager information from crossing state lines, but processing the servers in-state got around that. The Unlawful Internet Gambling Enforcement Act outlawed accepting money to settle unlawful bets. States could always legalize online casinos.

But when sports betting became legal, it became a shiny new industry that some states wanted to jump in on. New Jersey signed its sports betting bill into law in 2018. So did Rhode Island and several other states. Sports betting proved to be profitable for states – even if those profits were modest. But many states didn’t want to get left behind as bettors left their states to place sports bets in neighboring states. (Some New York bettors take the subway to place mobile sports bets in New Jersey because it’s faster than driving to the casino.)

When bettors placed their bets in neighboring states, their revenue went to the neighboring state, not the home state. This placed additional pressure on states to consider getting into the sports betting industry.

For most states, sports betting was as far as they went. But others looked beyond sports betting to all online gaming.

Online Casinos and Online Sportsbooks

While some states only legalized retail sports betting, others took the extra step of allowing online sports betting. That allowed bettors to place sports wagers from anywhere in-state. But some states went even further to allow online casinos. That would expand the online gaming options available to bettors and expand the products gambling companies could offer. Michigan legalized online gaming in 2019, with sportsbooks launching in 2020 and online casinos in 2021. It allowed the full gamut of online gambling to its citizens.

Wait And See

Other states took a wait-and-see approach. After legalizing online sportsbooks in 2019, Illinois introduced an online casino bill in early 2021. Legalizing online sportsbooks likely taught Illinois lawmakers at least three things:

  • Private online gambling companies can be regulated successfully.
  • Online gambling accounts are secure.
  • Regulating online gambling isn’t as distasteful as its reputation suggests.

For most states, online sportsbooks were the first online gambling services offered. A few states had online lotteries. But even those were run by the state. Introducing a new private gambling industry wouldn’t just put account security in private hands. That meant trusting some of the most important parts of bettors’ information to private gaming companies.

It would also rob politicians of the “we fund education!” line. Politicians could say the state lottery went to different educational causes. Private companies’ taxes might go toward education, but most bettor money would go to sportsbook profit.

Legalizing online gambling took business and political risk. Politicians overcame fears of widespread underage and problem gambling. Companies rose to the challenge of validating bettor accounts and creating the digital infrastructure to allow widespread online gambling. But online sportsbooks became a trial to see whether expanding online gambling was worth it.

We’ve written about this before, but sports bettors like online gambling, too. It’s more convenient than driving to the casino. That consumer preference gives elected officials a crowd-pleasing reason to legalize online gaming.

With all that in mind, it’d be surprising not to see online casinos proliferate in the wake of sports betting legalization.

Summing It All Up

Online casinos didn’t spread from state to state until sports betting became legalized. It’s not because states couldn’t legalize online casinos before. It’s because online sports betting was the first online gambling activity that most states legalized. Once lawmakers saw how popular, profitable, and safe online sports betting was, some legalized online casinos. Many others introduced online casino bills. It wasn’t just that sports bettors enjoyed mobile gaming. States were reacting to each other, their citizens, and the economic success of this new industry.

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