Richard Drew, Associated Press
In this photo taken Aug. 12, 2014, the headquarters of Morgan Stanley, near Times Square, in New York.

ATLANTIC CITY, N.J. — 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.

It also predicts no additional states will approve Internet gambling this year but foresees California and Pennsylvania doing so next year, followed by New York and Illinois by 2018.

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.

Morgan Stanley predicts 15 states will have legalized online gambling by 2020.

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