Although New Jersey is the home to Atlantic City, the country's most popular destination for gambling, the state still decided to allow online gambling to begin in 2013. On average, the Atlantic City casinos generate $200-$300 million per month. Why do you think the New Jersey legislature chose to create a new form of gambling when they already had a successful business model that was already established?
Prior to the beginning of the 21st century, the U.S. Government encountered a legal dilemma due to the rapidly increasing number of online gamblers. Technically speaking, there was no law prohibiting online gambling; even states that had anti-gambling laws on the books did not prohibit online gambling, since they were written by earlier generations of lawmakers who could never have imagined the rise of online gambling. Furthermore, the Federal Wire Act prohibits betting across state borders, creating confusion about what exactly was legal and what wasn’t.
The primary reason why the New Jersey legislature voted to legalize online gambling was to earn money. There are many examples of very profitable industries that include but aren’t limited to: movie theaters, amusement parks, video game stores, etc. Online gambling is no exception and prior to being legalized in New Jersey, the state’s only means of earning revenue from casino gaming was by having people visit them in person (which obviously limits accessibility). Although there are certainly several excellent casinos, hotels, and restaurants in Atlantic City, there are clearly many others who would love to gamble but can’t or don’t want to travel there.
Aside from making money, there were other reasons for the state of New Jersey to consider legalizing online gaming. As mentioned previously, there was an active black-market for online gaming that was available internationally. This black market was comprised entirely of unregulated and untaxed gaming opportunities and it grew larger each year. Therefore, it did not take long for state legislators to realize that the state of New Jersey was losing a great deal of money.
Senator Raymond Lesniak introduced legislation for online gaming in late 2010 that would permit anyone over 21 years old residing in the state of New Jersey to participate in online gaming. The legislation required that all online gaming websites’ servers be based within Atlantic City’s licensed casinos so that they would be permitted under existing legislation for casino gaming set forth by state statute. Also, the legislation ensured only wagers placed within the state would be allowed, thereby addressing any potential federal regulatory concerns regarding interstate wagering.
However, Governor Chris Christie vetoed the legislation early in 2011, citing his fear that he believed other businesses like nightclubs might open up and operate online gaming sites. Later that year, new legislation was drafted that addressed this issue by limiting both where online gaming sites could be operated from and advertise, specifically to only Atlantic City casinos.
February 2013 marked the day that the new legislation for online gaming was finally approved and signed into law and New Jersey became the second state after Delaware to legally allow online gaming. New Jersey’s new law permitting online casino gaming provided a ten-year trial period for the new industry and established a fifteen percent tax rate on all net Revenue generated by online casinos. The first online gaming sites launched in late November 2013.
When the law to allow online gaming was passed, the official estimate indicated that the new online gaming industry would produce an additional $400 million annually in Revenue for one of the state’s casinos. Just under $1 million was produced by the five operating licensees during the first month of operation for online gaming. The state collected approximately $150,000 in taxes from those same operators during that same time frame. Five years later, twelve different brand names of online casinos were offering customers in New Jersey hundreds of options for online gaming and thousands of different types of games. At the end of five years, estimates suggested that New Jersey had earned over $100 million in tax Revenue from its new online gaming industry.
By 2017, Revenue from online casinos was producing greater amounts than some physical casinos in Atlantic City were. Monthly gross revenues for some online casinos in New Jersey regularly topped seven figures ($1 million) and continued to grow.
October 2018 will be remembered as the biggest month ever for New Jersey’s twenty-five-plus online casino sites. They produced almost thirty-seven million dollars in combined Revenue for the month and paid over four million dollars in taxes to the state. By October 2018, the total amount of Revenue generated by online casinos for the year was nearing three hundred million dollars. And in December 2018, New Jersey surpassed one billion dollars in Revenue from its newly regulated online casino industry.
New Jersey chose to regulate online gaming to capture a share of the rapidly expanding global digital gaming market while simultaneously providing additional funding sources for the state. Although Atlantic City continues to thrive financially with regard to brick-and-mortar casino Revenue, the state realized that requiring individuals to be present in person to gamble presented too many limitations. The state wanted to eliminate those restrictions and provide easier access to its citizens’ participation in the gaming industry.
The primary motivations behind New Jersey’s efforts to establish legislation permitting online gaming were financially related. Online gaming represents an extremely lucrative market that will contribute substantially toward the increased Revenue base for the state. Additionally, a secondary motivation behind establishing regulations governing online gaming was to curtail the rapidly growing illegal black-market opportunity for residents to engage in unregulated and untaxed international online gaming platforms.
To resolve the legality associated with Internet-based gaming, the state required all server locations for its various licensed online gaming websites to be located within Atlantic City’s licensed casinos. This arrangement facilitated compliance with existing laws regarding casino gaming within the state. Moreover, this approach eliminated federal regulatory concerns regarding interstate wagering as only bets placed within state boundaries were permissible.
Before approving the initial online gaming bill, Governor Chris Christie requested that legislative language be changed to limit where licensed online gaming sites could operate from and advertise exclusively to licensed Atlantic City casino properties. This revision was enacted subsequent to his original vetoes of the bill and ultimately resulted in passage.
The regulation of online gaming has had a positive effect upon increasing New Jersey’s revenue stream resulting from this new source. During its first month of operation, online gaming generated substantial Profits for its operators. By 2017, Revenue generated by online gaming frequently equaled or exceeded some physical casino revenues in Atlantic City.
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