A recently concluded study supports a long-time belief: that states can truly benefit from legalizing online gambling and potentially earn anywhere from $9 billion to up to $15 billion a year in tax revenues.

A new study conducted by the regulatory intelligence enterprise Vixio, based in London, indicates that US states could experience a significant financial boost by legalizing online slot machines and table games. Commissioned by Light & Wonder, a worldwide developer and manufacturer of gambling services and products, the study explores the potential tax revenue that could be generated if more states embrace iGaming.

At the moment, a total of only seven US states allow online casino gaming: New Jersey, Delaware, Connecticut, West Virginia, Michigan, Pennsylvania, and Rhode Island. However, the study's findings suggest that if the 44 other states that currently permit mobile sports betting or land-based casino gambling were to legalize online gambling websites and apps, the national online casino market could surge to nearly $50 billion a year in gross gaming revenue. This expansion could result in a tax windfall of as much as $15 billion a year.

Substantial tax benefits

The Vixio report shows the substantial financial benefits that iGaming could bring to different states. "States and local governments could conservatively generate approximately $9 billion to $15 billion in annual tax revenue from legal internet gaming," the study summarizes. This potential revenue stream could be particularly appealing to states seeking new sources of funding for infrastructure and public services.

One of the key takeaways from the study is that iGaming has the potential to outperform other forms of gambling in terms of tax revenue generation. While sports betting has gained significant traction in recent years, it is still a small-margin industry compared to online casinos. The win rates for table games and interactive slots are extensively higher than those for sports betting, making iGaming a more lucrative option for states.

Online gaming outshines sports betting

In 2023, iGaming tax revenue from a mere six states amounted to $1.61 billion. In contrast, tax revenue from legal sports gambling reached $2.06 billion across 29 states with operational commercial sportsbooks. Despite the broader adoption of sports betting, iGaming delivered significantly higher revenue per capita in the states where it was legal, particularly in New Jersey, Michigan, and Pennsylvania.

The Vixio report also highlights the potential for even greater revenue generation in more populous and affluent states. Should states like Massachusetts, Maryland, California, and New York legalize iGaming, they are expected to outdo the per capita gross gaming revenue generated by current markets. "It is likely that larger, wealthier states that may authorize iGaming in the future would over-perform compared to the blended average revenue per adult figure used for the purposes of this report," noted the Vixio report.

Last year, combined iGaming GGR from the six states reached an astounding $6.17 billion, a nearly 23% increase year over year. Pennsylvania, New Jersey, and Michigan alone accounted for over 90% of this revenue, with each state generating around $1.9 billion.

Potential big winners

The study also identifies several states that could be the biggest beneficiaries of iGaming legalization. For instance, Vixio projects that New York could generate approximately $1 billion per year just by legalizing online casinos, while Illinois could see nearly $700 million in annual tax revenue. These estimates highlight the significant financial potential for states that have yet to embrace online casino gambling.

Despite the promising financial outlook, however, iGaming faces opposition from various quarters. Critics often cite concerns within the society, including the risk of increased problem gambling as well as the prospect of underage individuals accessing online casino platforms. These concerns continue to be significant hurdles in the path toward broader iGaming legalization.

Nevertheless, the Vixio study presents a compelling case for the financial benefits of iGaming. As states across the US continue to grapple with budget shortfalls and try to seek new revenue sources, the potential tax windfall from legalizing online slot machines and table games could become increasingly difficult to ignore.