New Jersey online casinos’ success continues into 6th year

Last Monday marked the fifth anniversary of New Jersey Gov. Chris Christy signing online gambling legislation into law after the Assembly passed a revised bill (A2578) by a margin of 68-5, and the Senate agreed to the measure (S1565) by a 35-1 margin. While Nevada, Delaware, and now Pennsylvania have also passed online legislation, New Jersey is still the only state that offers a true online gambling experience comparable to that available in Europe and elsewhere.

On 21 February 2013, Nevada Gov. Brian Sandoval signed Assembly Bill 114 into law. Although the bill itself authorizes the state’s casinos to offer online games, the Nevada Gaming Commission has only written rules for online poker and to allow player liquidity so that players in Nevada can compete with players in the other states with online poker laws.

The online games available from Delaware land casinos are administered by the Delaware Lottery. The rules and regulations make no mention of true odds or return to player percentages, and don’t differentiate “internet table games” from any other internet lottery games. The slots are referred to as “internet video lottery” games.

Pennsylvania has not released a timetable for the launch of their online casinos, but early indications are that the iLottery will be activated first in the summer or fall of this year and may include some video lottery terminal and lottery-powered slots games. While rumors continue to swirl, no tech supplier or game providers have been announced yet for the casinos.

Since Nevada officials have not had much to say about it, the only valid reason imaginable for their delay in launching online casinos is protectionism and pressure from Strip operators who are still opposed to the vertical for reasons that simply don’t hold water when looked at more closely. Observing half a decade of success in New Jersey we can see how the state has addressed those boogeymen along with the undeniable economic facts that show that New Jersey casino online operations actually benefit Atlantic City terrestrial properties.

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Since it’s all about the money and fattening the states’ coffers we’ll look first at the economic impact of online casinos in New Jersey as well as their effect on land-based operations.

New Jersey’s synchronized launch of seven online casinos and six poker sites on Nov. 21, 2013, turned out to be more of a whimper than a bang due to Gov. Christy overselling the revenue potential by at least 5-fold. The first full year of operations was 2014, a year that saw four out of twelve Atlantic City brick and mortar casinos close up shop with none of the reasons even remotely related to the advent of online gambling. While more websites opened and closed, online casinos recorded just $10.7 million in revenues for the final month of 2014 beating year on year numbers for the same month in 2013 by 63.6%, according to the New Jersey Division of Gaming Enforcement.

By 2016 land-based casino operations had stabilized after suffering a long downturn caused by the great recession of 2008, and online revenues continued to climb. By the end of 2017, online operations accounted for about 10% of all casino revenue in the state. A study by industry proponents, iDEA (iDevelopment and Economic Association) shows that 3,375 new jobs have been created in New Jersey, $124 million in new tax revenue has been created and that there has been no measurable increase in underage gambling or bankruptcy.

Nevada and Pennsylvania have a virtual plug and play module for regulatory framework thanks to the success of online gambling in New Jersey. They can also avoid a few of the stumbles and pitfalls that NJ experienced in the early days. One of the problems NJ experienced was that they were too careful implementing their geolocation service, which assures that players are within the state’s borders when they log in and play. While it may still err on the side of caution in densely populated border areas, the state-of-the-art technology does not allow players in adjacent states to access real money casino play.

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As almost any online player can tell you after going through rigorous KYC and AML (know your customer, anti-money laundering) procedures that require proof of identity, physical address, and ownership of financial instruments at a minimum, children simply can’t open accounts or collect winnings from any online casino. NJ regulators and operators provide more deterrence to money laundering than land casinos do because every transaction is tracked and recorded.

Now that history has proven all of the strawmen put up by opponents to be nothing more than fearmongering contrivances, and New Jersey has a tried and true formula and roadmap for regulation, it may be time for more states to jump on the bandwagon. However, online casinos are not the thing that has major gambling companies holding their collective breath right now. The big money is waiting for the United States Supreme Court to render a decision in Christie v. National Collegiate Athletic Association, No. 16-476. The state seeks to overturn the Professional and Amateur Sports Protection Act (PASPA) which many believe would allow sports betting in every state that chooses to regulate the practice. The American Gaming Association  (AGA) supports legalized sports betting, noting that about $4 billion is bet illegally on just one game each year, the Superbowl.

Monmouth Park in Oceanport has been preparing for years to offer a Las Vegas-style sportsbook and plans to take bets online through a partnership with William Hill they inked in early 2013. But the High Court ruling would also open the floodgates for other states to join Nevada, the only place in America that full-scale legalized sports betting is currently allowed.

Pennsylvania, New Jersey, Mississippi, and Connecticut already passed pre-authorization or contingency bills preparing for what many believe will be a favorable ruling from the court. Fourteen additional states have introduced sports betting bills that have not passed yet. While the legal arguments are complicated, hence the need to be settled by the highest court in the land, the Christy premise is simple. His argument states that the Tenth Amendment and the Commerce Clause of the U.S. Constitution specifically forbid the federal government to control state lawmaking. Oral arguments by the Justices have many observers leaning toward a Christy victory. The decision is not expected to come before June 2018.

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Several states with existing lottery commissions such as Kentucky and Ohio are considering the possibility of extending the lotteries’ powers to include the oversight of sports betting.

While online casinos have been a success in New Jersey, there is no guarantee that will be the case as more states take advantage of a 2011 ruling by the United States Department of Justice stating that the Wire Act of 1961 applies only to sports betting. The Wire Act was the “teeth” behind the Unlawful Internet Gaming Enforcement Act (UIGEA) of 2006. With that ruling, states were free to establish online lottery sales, poker, and casino sites and still are today.

As this is an election year it is hard to imagine any movement by other states to establish poker or casino sites online in the next ten months. It is also difficult to predict how successful Pennsylvania’s online casinos will be with an effective tax rate of 54% compared to New Jersey’s 15% levy on internet gaming revenues.

One bright spot for poker players in PA is that they will be able to join a liquidity poo 7BALL CC l that already hosts players in New Jersey, Nevada, and Delaware. Nevada doesn’t publish online poker revenue reports, but profits are most likely down for all of 2017 in line with New Jersey and Delaware numbers for the game. Delaware saw an 18% y-o-y decline in 2017 and New Jersey’s poker revenue fell about 8% in 2017 from the previous year. New Jersey online revenue for casino games was up about 30% for 2017.