Although New Jersey has Atlantic City, which is the nation's top destination for gambling, New Jersey still decided to authorize online gambling in 2013. In general, the monthly income of Atlantic City casinos averages $200-300 million. Do you think the New Jersey Legislature wanted to develop a new way to gamble at a time when a proven business model existed in Atlantic City?
In the 20th Century, prior to the start of the 21st Century, the United States government faced a legal challenge because of the large number of online gamblers. Even though there was no law that prohibited online gaming, the laws against online gaming that were enacted by states that prohibited gaming contained no provisions that prohibited online gaming. Since earlier generations of lawmakers wrote these laws before the advent of online gaming, they were unable to anticipate that online gaming would become a reality. The U.S. Federal Wire Act prohibits betting on sports across state lines, therefore, the U.S. government created ambiguity about whether or not something is lawful.
As stated above, the primary reason that the New Jersey legislature authorized online gaming was to make money. There are numerous examples of multi-billion dollar industries that include, but are not limited to: movie theater chains, amusement park companies, video game store retailers, etc. Online gaming is another example and prior to being authorized in New Jersey, the only manner in which the state could receive Revenue from casino gaming was through visitors coming to play live casino games (therefore limiting their ability to play).
Aside from generating money, the state of New Jersey also considered regulating online gaming for other reasons. It has been noted that there was an active black-market for online gaming that was available internationally. The black-market consisted solely of unregulated and untaxed gaming opportunities and the black-market grew every year. Therefore, it did not take long for State Legislators to recognize that the state of New Jersey was missing out on a lot of money.
Senator Raymond Lesniak proposed legislation for online gaming in late 2010 to permit anyone older than age 21 living in New Jersey to participate in online gaming. The proposed legislation mandated that all servers for online gaming sites reside within Atlantic City's licensed casinos to ensure that online gaming sites were covered under existing statutes governing casino gaming in New Jersey.
The proposed legislation also included language to restrict any wagering activity outside of the State of New Jersey to address any possible federal regulatory issues concerning interstate wagering. However, Governor Chris Christie vetoed the legislation early in 2011 citing his concern that nightclubs may open and offer online gaming. Late in 2011, new legislation was proposed that resolved this issue by mandating where online gaming sites may be operated from and advertising be done, i.e., only from and to licensed Atlantic City Casinos.
On February 13, 2013, the new legislation for online gaming was ratified and signed into law and New Jersey became the second state in addition to Delaware to ratify laws allowing online gaming. The New Jersey legislation permitting online casino gaming granted a 10-year testing period for the new industry and taxed all Net Revenues generated by online casinos at a rate of 15% of such Revenue. The first online gaming sites opened on November 27, 2013.
Estimates suggest that the new online gaming industry would bring in an estimated $400 Million of new Revenue per annum for one of New Jersey's casinos. Just shy of $1 million was earned by the 5 operators that received licenses for online gaming during the first month of operation. Over $150 thousand was collected in taxes from those same operators during that first month. By the fifth anniversary of the legalization of online gaming, twelve different brands of online casinos were offering thousands of gaming options and hundreds of games to players in New Jersey. Estimates indicate that New Jersey collected over $100 million in tax Revenue from its new online gaming industry.
By 2017, Revenue from online casinos was collecting more than some physical casinos in Atlantic City were. Monthly gross revenues for some online casinos in New Jersey were exceeding seven figures ($1 million) and continued to increase.
October 2018 will be remembered as the largest month ever for New Jersey's twenty-plus online casino sites. The sites collectively produced nearly $37 million in combined Revenue for the month and paid over $4 million in taxes to the State. By October 2018, the cumulative Revenue generated by online casinos for the year was approaching $300 million. And by December 2018, New Jersey had surpassed one billion dollars in Revenue from its newly regulated online casino industry.
The State of New Jersey elected to regulate internet-based gaming to obtain a piece of the rapidly developing global digital gaming marketplace while generating additional financing alternatives for itself. Even though Atlantic City remains economically viable with regard to brick-and-mortar casino Revenue, the State recognized that requiring people to physically come to Atlantic City to gamble imposed significant constraints on citizen participation. The State wished to eliminate those impediments and provide greater ease of access for its citizens' participation in the gaming industry.
The main motivators behind New Jersey's efforts to enact legislation authorizing internet-based gaming were financially related. Online gaming constitutes a highly profitable market segment that will significantly augment the expanded Revenue base for the State. A secondary factor motivating enactment of regulations controlling internet-based gaming was to stem growth of a rapidly emerging black-market opportunity for residents to engage in unregulated and untaxed international online gaming platforms.
To settle questions surrounding legality relative to Internet-based gaming, the State directed all server locations for its numerous licensed online gaming websites to be located within Atlantic City's licensed casinos. That method ensured compliance with existing laws pertaining to casino gaming within the State. Additionally, that method removed 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 required that amendments be made to legislation defining where licensed online gaming sites could operate from and advertise exclusively to licensed Atlantic City casino properties. These revisions were made after his original vetoes of the bill and ultimately led to approval.
Regulating online gaming has had a favorable impact on increasing revenue generated by New Jersey from this new revenue stream. During its first month of operation, online gaming generated sizeable profits for operators. By 2017, revenue generated by online gaming often matched or exceeded some physical casino revenues in Atlantic City.
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