Maryland Report Supports iGaming Expansion – Should More States Start to Consider Legalization?

By: Sara Dalsheim

In its effort to legalize online slot machines, table games, and poker (“iGaming”), the Maryland Lottery and Gaming Control Agency (“MLGCA”) hired the Innovation Group to create a wide-ranging report that would analyze the projected Maryland market, provide legislative and rule recommendations, and summarize both best practices and pitfalls to avoid in launching iGaming in Maryland (“Report”). The Report, released on November 15, 2023, reviewed other legalized iGaming markets in connection with feasible paths for legalization in Maryland. The Innovation Group noted that legalized iGaming in Maryland would create many jobs and revenue for the state. It also advised that it could combat the flourishing and long-lasting illegal market, which it estimated is currently making about $200 million annually from Maryland residents.

Based on the Innovation’s Group review of the potential Maryland market compared to other states, they recommend that licenses for iGaming be tethered to the state’s land-casinos with each casino having 2 skins because the land-based casinos deeply understand casino gaming, already have extensive licensing in place, are experienced in AML and KYC policies and procedures, etc. If each casino were provided with 2 skins, then the state would potentially have a total of 12 iGaming brands available in the state. It was the Innovation’s Group’s opinion that this would be enough brands for the market without diminishing the profitability of a skin; granting each casino 2 skins, as opposed to 1 skin. A 12-brand market would allow for a better market in the state – an arrangement including “industry powerhouses” along with the prospect of a variety of smaller operators offering niche products. 12 skins would also better promote introductions and inclusions of emerging technology.

The Innovation Group encouraged Maryland to set reasonable tax rates for iGaming, learning from the mistakes of other states, and impose a lower rate than what is imposed on land-based casinos. It is also critical to set the tax rate low enough that the licensed iGaming operators can attract the illegal, black-market users. They advised that the tax rate for online slots and table games should be the same and recommended a rate between 15% and 30%. They claim a rate within these percentages would bolster overall state gaming revenues; although, this would permit a tax rate much higher than other states which the Report cautioned against later.

Oversight of the legalized iGaming market should be provided to the MLGCA, according to the Innovation Group, because of their experience in regulating the land-based market, the lottery, and online sports betting. Additionally, and notably, the Innovation Group also recommended that to have a viable and profitable poker and progressive slots market, the iGaming law should have provision to allow entry into the Multi-State Internet Gaming Agreement (“MSIGA”). The MSIGA allows states in the United States to pool their online players to ensure that there are always enough players for competitive game at any given time. Currently, Delaware, Michigan, New Jersey, Nevada, and West Virginia have signed onto the MSIGA. Finally, the Report also recommended “future-proofing” the market by setting broad frameworks in legislation and allowing regulators the leeway to adopt rules to meet changing market conditions and/or technology advances.

As with any expansion of a legalized gaming industry, the Innovation Group advised that Maryland increase its investment and attention into responsible gaming measures and investment into problem gambling funding.

The Innovation Group’s recommendations are in line with the approaches in other legalized markets (e.g., Michigan and New Jersey) and encouraged Maryland to predominantly use those states as a model. Notably, the Pennsylvania tax model was not encouraged because of its high and split structure tax rate between slots and tables. If Maryland proceeded with tax rates like what it currently imposes on the land-based facilities industry operators would be forced to reduce marketing or reduce the competitive abilities of their products, resulting in underperformance of market estimates and a less competitive market.

The Innovation Group’s Report should be reviewed and considered by other states contemplating legalized iGaming. It provides great insight into the positive potential a legalized iGaming market can bring to a state. As has been seen with the legalization of sports betting, legalization combats the illegal black market and provides states with the ability to ensure safety and responsibility on gaming conduct.