Delaware’s Online Gambling Industry Struggling to Keep Up Due to Limited Structure and Scope

While neighboring New Jersey continues to enjoy record-setting revenue within its own online casino industry, and Nevada’s poker-only market offers steady performance, the first state to legalize online gambling has yet to enjoy the same success.

Delaware has failed to reach pivotal revenue benchmarks during the first three fiscal years in which regulated online gambling has been offered. As a consequence, the state’s three online casino operators have yet to earn a single dollar since Delaware’s legislature created the industry in June of 2012.

With yet another disappointing fiscal year now in the books, industry experts, local lawmakers, and other stakeholders are attempting to understand the plight of online gambling in Delaware. Thus far, the three-year period of underperformance has been widely attributed to the state’s rigidly constructed operator scheme, which precludes competition, along with an onerous tax burden based on faulty excessive revenue estimates.

Rather than allow land-based casinos to partner with third-party operators – as New Jersey does with its Borgata / PartyPoker and Caesars / WSOP alliances – Delaware operates its online casinos through a preexisting state lottery program. As such, the state’s three racing-oriented casinos (or “racinos”) – Delaware Park, Dover Downs, and Harrington Raceway – have no choice in terms of platform provider, and must utilize software provided jointly by 888 Holdings and Scientific Games.

Thus, any player logging on to one of these three racino websites to enjoy the online casino experience essentially finds nothing more than a “skin” of the exact same operating system, lobby, and games menu.

As online casino players have long since become accustomed to enjoying variety – through competing software providers like Playtech, Microgaming, IGT, NetEnt, and many others – the dearth of options and absence of popular game titles has hampered growth. With a population of only 1 million residents, the potential player pool within Delaware’s borders is already limited, because once an individual tries the 888 / Scientific Games software and doesn’t like what they see, no alternatives can be found.

Further exacerbating the issue is the heavy tax burden imposed by the state on the three operators.

By basing its tax rate for online casinos on an unrealistic revenue estimate of $5 million per year, Delaware requires each of its three operators to pledge the first $3.75 million in revenue to the state. All revenue in excess of the $3.75 million threshold is to be shared by the state, the operators, and the horse racing industry.

But in each of the first three fiscal years legal online gambling has been offered, Delaware’s racinos haven’t come close to clearing even that perfunctory hurdle.

In the 2013-2014 fiscal year, the first in which online gambling was offered, Delaware’s three racinos generated just $1.4 million in combined revenue. The following year that number climbed slightly to $1.8 million, and in the recently concluded 2015-2016 fiscal year, revenue increased to $2.5 million.

As a result, in three years of continuous operation, Delaware’s racinos have yet to collect profits of any kind, with all combined revenue being paid to the state instead. With no cash flow to work with, the racinos are now devoting fewer resources to the marketing effort which typically grows fledgling niche industries like online gambling.