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Despite iGaming legislation gaining traction in various US states, Morgan Stanley analysts remain sceptical about significant progress in 2024 and beyond.

Yesterday, NEXT.io zoomed in on Morgan Stanley’s 2024 gambling industry forecast, analysing mainly the US online sports betting landscape and highlighting the bank’s preferred stock selections. 

Today, we shift our attention to the potential for iGaming legislation in the US and its market prospects.

For context, Morgan Stanley said its expectations for iGaming remain restrained due to the slower legislative process. 

The bank revised the timeline for Maryland’s iGaming launch to Q4 2024 and pushed Indiana’s launch to 2025, which was previously anticipated in late 2024. 

Furthermore, the firm now anticipates Colorado’s iGaming launch in 2026, as opposed to the initially planned 2025, and has completely excluded Iowa from its considerations.

Slow progress

The analysts noted that iGaming in the US has yet to realise its full potential as a lucrative profit stream and source of tax revenue. 

Since the repeal of PAPSA in 2018, the legalisation of sports betting has far outpaced iCasino. 

Currently, almost 80% of states have embraced sports betting, while iGaming lags behind, being adopted in fewer than 20% of states.

However, given the only material online sports betting launch this year as of now is North Carolina, the focus for incremental legalisation upside has shifted to iGaming, the analysts said. 

“Distinct possibilities”

“The main states we continue to hear coming around as distinct possibilities are Maryland, New York and Illinois,” Morgan Stanley stated.

Although Maryland is part of the bank’s forecast for iGaming’s Total Addressable Market (TAM), projected to reach $7.1bn this year, the anticipated impact of Illinois and New York surpasses Maryland significantly, and is estimated to be 1.25-2.00 times larger, the analysts stressed. 

“We remain sceptical that either New York or Illinois could launch in the next several years,” the team concluded however.

In New York, the distribution of downstate casino licences, with notable opposition from some casino operators, poses a hurdle to iCasino legislation over the cannibalisation fears of land-based stakeholders. 

In Illinois, opposition from Video Lottery Terminal (VLT) operators is seen as a significant barrier.

However, if both New York and Illinois were to legalise iGaming over the coming years, they would represent a substantial portion (27% for New York and 17% for Illinois) of the estimated TAM for 2024. 

Assuming a conservative operator margin of approximately 25% on the additional TAM, this could translate to roughly $1bn in industry EBITDA by 2025.

This would account for approximately 30% of the combined industry’s estimated EBITDA for 2025, according to Morgan Stanley. 

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