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Morgan Stanley Cuts Estimate of Online Betting Market in Half

Morgan Stanley has cut its estimate of the potential U.S. Internet gambling market by nearly half.

The firm now estimates the nationwide online betting market at $2.7 billion by 2020, down from an initial estimate of $5 billion.

In a report issued Tuesday, the firm predicts no additional states will approve Internet gambling this year, but foresees California, Pennsylvania, New York and Illinois getting into the game within a few years.

Three states — Nevada, New Jersey and Delaware — have legalized Internet gambling, but online betting is off to a slow start. It took in $135 million last year; Morgan Stanley initially forecast $678 million.

"We continue to believe that there is a material runway for growth, but results have been disappointing," the firm wrote. "Legislative processes continue to be slow as lawmakers remain unconvinced that online gaming is currently worth the hassle for limited tax revenue."

The report cites several factors holding back the Internet gambling market, including problems with payment processing, a lack of effective advertising, difficulties with geolocation technology intended to ensure that a gambler is within a particular state's boundaries, and a thriving offshore Internet gambling market.

Morgan Stanley forecasts the 2017 online market will be $410 million, down from an initial estimate of $1.3 billion. It predicts 15 states will legalize online gambling by 2020, with legalization in larger states prompting smaller ones to follow suit.

It also believes a federal ban on Internet gambling remains unlikely, but is a growing risk.

"We believe a federal ban of online gaming is unlikely given legislators' split views," the company wrote. "However, a recent hearing in a House Judiciary subcommittee on (U.S. Rep.) Jason Chaffetz's proposal for a ban suggests it could be gaining momentum. While the bill may advance out of committee, we believe it faces long odds of passing, especially without carve-outs for online lotteries and existing online gaming states."

Copyright AP - Associated Press
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