The United States is one of the most restricted jurisdictions for iGaming businesses. Starting an online casino in the U.S. can be tricky but very rewarding because of a dynamic interplay of federal and state gambling regulations.
At the same time, the global iGaming market is booming, driven by new technologies and increasing consumer demand. It’s projected to grow to $133 billion by 2029, with a compound annual growth rate at 5.42%.
How to start an online casino in the U.S.?
In this article, we’ll explore all challenges and opportunities of entering the market, sharing insights from our experience to help future online casino owners avoid common mistakes and build a successful online gambling business.
Federal and State Gambling Laws in the U.S.
Online gambling in the United States is regulated on both the federal and state levels.
Federal Laws
The most important is the Wire Act of 1961. Although this law was created before the advent of the internet, it still regulates the online gambling industry in the U.S.
At the federal level, online casino and sports betting are generally prohibited.
The Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006 further enforces this by banning betting businesses from accepting payments linked to illegal gambling. This means banks and credit card companies cannot process payments for gambling activities that violate federal or state laws. For instance, credit card transactions on illegal gambling websites may be declined.
A major enforcement of UIGEA occurred on April 15, 2011, “Black Friday”, when the U.S. Department of Justice charged the founders of PokerStars, Full Tilt Poker, and Absolute Poker with UIGEA violations, bank fraud, and money laundering. Their websites were shut down, and they faced severe penalties.
Importantly, UIGEA does not ban online gambling directly but targets financial systems supporting illegal operations.
But there’s a crucial loophole: states have been given the freedom to decide what happens within their own borders.
State Laws
In total, 38 states and the District of Columbia (DC) allow some form of gambling, but when it comes to online gambling, the rules change depending on the state and the type of activity.
For example, only a few states permit online casino games, while 33 states allow sports betting. Meanwhile, states like California and Texas ban iGaming altogether.
Why?
It often comes down to a mix of historical, cultural, economic, and political factors that are unique to each state.
With so many rules in place, could these laws slow down the growth of American iGaming?
It doesn’t seem like that.
Online gambling in the USA is expected to continue to grow in popularity, with some estimates suggesting that it will hit $33.15 billion by 2028.
Description: Online Gambling Market Revenue in the USA: A Growing Trend
State-by-State Overview of Online Gambling
The legal landscape for online gambling in the USA is limited, but several states have legalized it.
Online gambling legal states include:
- Connecticut
- Delaware
- Michigan
- New Jersey
- Pennsylvania
- Rhode Island
- West Virginia
In those states players can wager real money in sport betting, casino games, lottery and poker.
Operating an iGaming business in the USA requires navigating complex licensing processes and tax obligations, which vary widely by state.
For example, New Jersey is a progressive state in iGaming regulations. Here, online gambling is supervised by the New Jersey Division of Gaming Enforcement (NJDGE). The regulatory body requires operators to provide operational plans, financial assessments, and background checks. Connecticut allowed online casinos and betting since 2021. There are two licensed legal online casinos, DraftKings and Mohegan Sun.
Other jurisdictions in the USA provide their specific requirements. Licensing fees also vary significantly by state, posing a financial barrier to entry for many operators.
Pennsylvania has the highest start-up fees, ranging from $4 million to $10 million, depending on the type of operations. By contrast, Michigan asks for $100,000 upfront, while New Jersey charges online casino operators $400,000.
The tax landscape for online casinos varies widely:
- For example, Pennsylvania imposes a 54% tax on online slot games and a 16% tax on online table games and poker.
- West Virginia taxes online casino operators at 15%
- Connecticut applies an 18% on online casino gaming revenue for the first five years, increasing to 20% thereafter.
Challenges of Launching an Online Casino in the U.S.
Starting an online casino in the U.S. is tricky due to its restrictive and highly diverse regulatory landscape.
The core challenges include:
- State-by-State Regulation: Online gambling laws and licensing rules vary by state. While New Jersey, Pennsylvania, and Michigan have allowed online casinos, others completely ban them. Getting a license isn’t the same everywhere, it comes with extensive background checks, financial disclosures, and ongoing compliance.
- Strict Federal Control: The industry is primarily state-regulated, but federal laws like the Wire Act and UIGEA can affect online casino operations, especially in processing payments.
- Taxation: States often impose high taxes on online gambling revenues, with rates ranging from 15% to over 50% in some jurisdictions. These taxes can significantly cut into profitability, especially for smaller operators.
- High Costs: The costs of launching an online casino in the U.S. are substantial, including licensing fees that can exceed $1 million, ongoing compliance expenses, and the challenge of securing partnerships with banks and payment processors, which often require additional financial guarantees.
- Established Monopolists: The online gambling market is highly competitive, but there are some established ‘big fishes’ dominating the space. For example, top 5 players, including FanDuel, DraftKings, BetMGM and Caesars, have about 83% of the US online casino market share.
The Growth Potential of the U.S. iGaming Market
Since 1955, when the Illegal Gambling Business Act was adopted, the American gambling landscape has completely changed. Despite the restrictions, more and more online casinos keep emerging.
In 2023, the local online gambling market was valued at approximately $11.68 billion, and it’s expected to hit $25.79 billion by 2030. That’s a yearly growth rate of 12.0%.
Description: The image highlights U.S. Online Gambling Market Size
Here are possible trends for the near future:
Sweepstake popularity
This type of online casino where people play slots, poker, or blackjack without betting real money. These platforms give players virtual coins that might be redeemed for prizes.
There are two types of virtual currencies:
- Gold Coins: Tokens used for gameplay only and have no monetary value.
- Sweeps Coins: Tokens earned through promotional purchases and giveaways that can be redeemed for cash prizes or other rewards.
The Sweepstakes model doesn’t require wager real money. That’s why this framework works in jurisdictions where real-money gambling might be restricted, including most U.S. states. Moreover, social casinos are designed for scalability, allowing operators to expand their businesses to international markets.
Good news: We can help set up a turnkey sweepstakes casino or provide a white-label solution. Feel free to contact us for more information.
Emerging Markets
Today, New Jersey is the largest market for all iGaming activities, reaching over $214 million internet gambling revenue in November, 2024. However, experts predict that by 2028, the top 5 U.S. states for online Gambling will include New York, Pennsylvania, Illinois, New Jersey, and Michigan.
Mobile Gaming Trends
Already 75% of online gamblers prefer to use mobile devices for their gaming activities. Their number is expected to increase, as well as mobile casino apps. Moreover, mobile casino apps will dominate both the U.S. and global markets.
Risks and Controversies in the U.S. Gambling Market
Despite predicted market growth, the impact of iGaming regulations is also high on the market.
The UIGEA doesn’t make iGaming activities illegal. However, it prohibits banks and other financial institutions from initiating transactions between operators and U.S. residents.
Another risk for operators is related to local licensing. After obtaining a gambling license in the U.S., new operators enter the market but often find themselves unable to compete with the ‘big fishes’ we mentioned earlier.
The market players like DraftKings and FanDuel accumulate a large part of the industry, making small companies almost invisible for end users.
As a result, the license becomes a burden, and many eventually abandon it.
Is there any way to mitigate risks?
In our experience, sweepstake casinos are a great way to play it safe.
Sweepstakes make it easy to launch an online casino in the U.S. market, gaining momentum as a strong alternative to local casinos. The American sweepstake casinos market is expected to reach $6.9 billion by 2025 (approximately 31% year-over-year growth).
To get started, you need three key elements:
- an established company,
- sweepstakes software platform,
- a legal opinion to ensure compliance with state, or federal gambling regulations, and
- a reliable banking partner.
Once these are in place, you can integrate payment solutions directly.
Wrapping up
Undoubtedly, the US iGaming market is facing rapid growth. While sports betting has taken the lead, the online casinos sector follows closely in popularity. However, only 7 states currently allow this form of iGaming activities in their jurisdictions.
Given the legal challenges, social casinos are the way to go if you’re in the U.S. online casino market, to operate legally in the most restricted environment.
Contact us to discover how sweepstakes can help you to get a slice of the American market pie.
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