Online gambling in New Jersey is barely six months old, but it’s a good bet we can learn something about its future by examining how it has played out so far.
To date, the state has authorized seven Internet betting operations. Two of those are operated by Caesars Interactive Entertainment, a subsidiary of Caesars Entertainment, which has four Atlantic City casino resorts: Caesars, Harrah’s, Showboat and Ballys. Jersey’s five other gambling sites are connected to five separate Atlantic City casinos: the Borgata, Golden Nugget, Tropicana, Trump Taj Mahal and Trump Plaza.
Online gambling went live in late Nov-ember amid much fanfare and high expectations. Proponents in Trenton and Atlantic City predicted online gambling would help close the state’s budget deficit and give a shot in the arm to our ailing casino industry, which—online revenue excluded—took in $2.9 billion in 2013, down from $3.1 billion the prior year.
Revenues thus far have lagged forecasts, which appear to have been greatly inflated. According to data from the state Office of Legislative Services, tax revenue from Internet gaming totaled $4.22 million from the start of operations through the end of February. Compare that to the Christie administration’s original first-year tax-revenue target of $200 million (later revised to $160 million).
State Senator Ray Lesniak (D-Union), sponsor of the bill to legalize online gambling here, cites several reasons for the slow start. “The licensing and start-up takes time, as does building a marketplace,” says Lesniak, whose own revenue prediction was lower than the governor’s.
Lesniak is critical of some elements of the launch. “The advertising campaign to attract Internet gamblers has been childish, sophomoric and ineffective and has turned some folks off,” he says. “One ad was encouraging someone in a row boat to go online to gamble. The operators themselves have been ineffective in advertising, but they are getting better.”
Complicating the launch were glitches with the geo-locator technology used to ensure that all Internet bets are placed within New Jersey borders, as required by the legislation. The glitches were another turn-off.
Although the response has been disappointing, Lesniak says online gambling has already helped the Atlantic City casinos. “These revenues keep the lights on in an industry that has seen declining revenues over the past years,” he says. “It is not a lifesaver, but it is a lifeline.”
As with brick-and-mortar casinos, the state taxes the Internet sites’ net revenue after winnings are paid. That is called the win. In New Jersey, casinos pay 15 percent on the Internet win; brick-and-mortar casinos are taxed 8 percent.
Jeff Gural, owner and operator of the Meadowlands Racetrack in East Rutherford, says the tax rate on Internet gambling is insufficient. “In New York and Pennsylvania, the tax on casino gambling is much higher than in New Jersey,” he points out. Pennsylvania’s casino’s pay the state 55 percent of the slot machine win and 16 percent for table games; in New York it’s 45 percent and 10 percent.
Revenues aside, Gural is concerned that online access to gambling has a social cost. “I don’t see how it is a good idea to allow people to play slots from their bedrooms on their computer or iPad,” he says. “If someone is a problem gambler, why make it that easy for them? If someone is an alcoholic, would you have a tap in their house?”
Lesniak sees it differently. “Convenience stores sell lottery tickets, which is a much bigger problem than online gambling,” he says. “Middle class and upper middle class are those who are more likely to use online gambling. The lower class is more likely to buy lottery tickets.”
Online gambling in New Jersey clearly got off to a rough start. But, in recent months, the revenue has started to improve. With technical glitches behind us and, one hopes, a more effective advertising campaign down the road, the odds should start to favor online gambling.
[Editor’s note: At deadline, two U.S. senators introduced a bill that would outlaw Web gambling in all states.]