Legal online gambling in the U.S. has produced little in the way of tax revenues over the last three years since Nevada, Delaware and New Jersey introduced well regulated markets that attracted companies offering everything from online slot machines to poker and blackjack.

Gaming executives, lawyers and analysts interviewed by GamblingCompliance agreed that the promise of hundreds of millions of dollars in tax revenues has fallen short. But each expressed confidence that more states would begin to legalize online gambling.

They cautioned that any new industry takes time to evolve.

In New Jersey, Republican Governor Chris Christie, who signed the legislation in 2013, expected Internet gambling to generate $150m in tax revenue in its first year to help balance the state’s budget.

Others were more conservative with their estimates. GamblingCompliance projected a market worth around $39m in tax revenue in the first year. At the end of the market’s first full year of operation in 2014, New Jersey’s 15 percent tax on online gambling generated taxes of $2.32m.

Taxes increased $22.3m on total online casino revenue of $125m in 2015, according to the state’s Division of Gaming Enforcement (DGE).

“It took a long time to gain some traction,” said Matt Davey, CEO of NYX Gaming Group.

“The New Jersey market has shown excellent growth. It’s about a $150m market … similar size to Sweden in terms of population. We expect it to grow to $250m over the next couple of years.”

The entry of PokerStars into New Jersey boosted New Jersey’s online revenues in March, despite the company being operational for less than two weeks. PokerStars earned about $600,000, according to the DGE.

Overall, online gambling in New Jersey generated $15.5m in March, a 17.7 percent increase over $13.1m earned in March 2015 and a monthly record total.

PokerStars launched its New Jersey website on March 21 and is the state’s largest poker network by poker traffic, according to the PokerScout website.

NYX Gaming provides slot games to PokerStars in New Jersey. Amaya, PokerStars parent company, along with William Hill and SkyBet, are investors in NYX Gaming.

Jeff Ifrah, a founding member of Ifrah Law in Washington D.C., said growth in New Jersey’s online gambling revenues would help convince other states to legalize online gambling.

“Things looked like they were happening in Pennsylvania and New York, but then [efforts] in both states got stalled,” Ifrah said. “It’s not clear we are going to get anything again this year.”

But, Ifrah said, as long as New Jersey’s online gambling industry keeps growing that will help “get Pennsylvania and New York over the hump.”

Nevada has been limited by legalizing only online poker, while online gambling in Delaware generated$299,789 in online gambling revenues in February.

The Nevada Gaming Control Board in November 2014 stopped reporting how much revenue the state receives from online poker specifically because there were not enough operators to warrant collecting the numbers.

Davey said Nevada’s decision to legalize only online poker showed why it was a difficult business model. He said the lesson that Nevada taught the industry and regulators is that states must “offer a broader list of products.”

Ultimate Poker, an online poker site launched by Station Casinos, closed in November 2014 after nearly 19 months in operation, leaving Nevada with two operating poker websites —, and Real Gaming, a website associated with the South Point Casino.

Caesars Interactive Entertainment (CIE), an online and mobile gaming subsidiary of Caesars Growth Partners LLC, owns the World Series of Poker Brand and its Playtika division. CIE posted record revenueof $209.2m for 2015 and operates real-money gambling sites in Nevada and New Jersey.

“We’ve been [able] to turn Nevada and New Jersey into a break even or better business,” Bill Rini, head of online poker at CIE in Las Vegas, said. “We are doing fairly well.”

Rini said that business could only improve as more states legalize online gambling.

He declined to speculate on how many states might legalize online gambling. Rini said as larger states legalize online poker it will allow for more compacts between states, enabling CIE to “get that economy of scale.”

Nevada and Delaware reached an interstate agreement in February 2014, connecting online poker players between the two states, and increasing the number of players online. The compact was launched in March 2015.

Still, the agreement’s initial impact on terms of revenue has been muted, leaving observers to urge continued patience as the U.S. online market develops.

“It’s a flat industry from a growth standpoint,” said Matthew Katz, CEO of the geolocation and KYC company CAMS LLC.

“2016 will be a year to ensure all systems are stable. It’s the calm before the storm.”

Katz expects the industry to “regain some momentum” next year, once the November elections are over. He said he seriously doubted that any politician would make online gambling a priority in an election year.

Katz also said daily fantasy sports (DFS) could be used to support the expansion of online gambling. He said that if DFS can be proven to generate substantial tax revenues, then online poker and other casino games might have an easier path to legalization.

Ifrah said the problem is lawmakers do not view DFS and online gambling as the same thing.

“Daily fantasy sports are important to their constituents,” Ifrah said. “Some legislators believe they will be punished for not supporting this. This is a reflection of the marketing that DFS does.”

So, which U.S. states are candidates to legalize online gambling in 2017?

Davey said that he expects between six to 12 states to legalize online gambling within the next five years.

“It will change, but it takes time. We don’t think there will be a federal model that will regulate online gambling, but it will be a state driven model. Each state will need to make a decision. Some will, some won’t. It will happen over time,” said Matt Davey, CEO, NYX Gaming.

Other industry observers believe New York and Pennsylvania are more likely than California to approve online gambling next year.

“The politics in California is a lot more complicated,” said Frank Fantini, CEO of Fantini Research. “In California, you have so many competing interests, from tribal gaming to racetracks and card clubs. Politically, it has been difficult to come up with a consensus.”

The newest effort to legalize online poker in California was introduced in the legislature in February. The biggest change over previous bills is Assembly Bill 2863, which would exclude racetracks from being operators in exchange for up to $60m a year.

“It’s a long process in California, with a lot of competing interests,” Rini said. “For us, every state presents its own opportunities and challenges.”

Meanwhile, the Pennsylvania legislature is considering a bill, House Bill 649, to reform the gaming laws in the state.

Online poker in New York is in limbo while lawmakers deal with constitutional issues over whether poker is a skill-based game or gambling.

Michigan on Friday became the latest state to consider online gaming with a bill in the state Senate that would regulate online poker and other casino games.

Senate Bill 889 would restrict access to players aged 21 and older, Michigan-based casinos and tribal casinos could apply for a license, but no more than eight licenses would be granted, a $5m licensing fee and a 10 percent tax on gross gaming revenue.

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