New Jersey Online Gambling Revenues Grossly Overstated

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Monday, March 3rd, 2014 | Written by Stephen Smith

Since New Jersey released its second full-month of online gambling results, it has become obvious that Governor Chris Christie’s initial projections of how much the state would generate were grossly overestimated. While working to get the whole project off the ground, Gov. Christie (photo) forecast full-year online gaming revenues to be $1.1 billion, with the state then receiving around $160 million in gaming taxes. Now, however, state officials have lowered this fiscal year’s expected revenues to around just $10 million.

Gov. Christie’s forecast grossly overstated

Gov. Christie originally estimated the state would collect around $13 million each month in taxes, but seeing New Jersey’s igaming industry didn’t start operating until the end of November, Christie’s forecast would therefore have predicted the state would receive $91 million for the seven month to the end of the fiscal year on June 30th.

So far, however, New Jersey has averaged around $1.5 million in monthly internet gaming taxes for December and January, which optimistically would generate up to $16 million for the fiscal year, or a mere 10% of the initial $160 million estimate the administration proudly boasted last spring. For the following full fiscal year, budget projections estimate online gambling tax revenues to improve by $55 million, which is still significantly lower than the originally anticipated figures.

New Jersey politicians point finger at Gov Christie

Although Governor Chris Christie’s initial projection of $160 million in online gaming taxes was based upon an analysis prepared by Wells Fargo, the vast amounts of unrealized gaming revenues is now being pounced upon by his political rivals.

In spite of being a strong supporter of regulated internet gambling ahead of legalisation, State Senator Raymond Lesniak, said he made his views clear that $60 million in taxes for the first fiscal year was a more realistic figure, although his figure would have been reduced further had he known the new internet websites wouldn’t start operating until five months into the fiscal year.

Comment on Christie’s inflated projections, Lesniak said; “The governor just ignored those sensible economic thoughts. He totally threw them out the window.”

Politicians failed to grasp nature of online poker

Ahead of legislation, online gambling was being touted as a cure for Atlantic City’s ailing casino industry, which has been in decline since peaking at $5.2 billion in 2006, and last year fell below $3 billion for the first time in 22 years. Obviously, an extra $1.1 billion in annual online gambling revenues would have represented a massive boost to the New Jersey economy, but the picture currently emerging from the state’s nascent industry would suggest politicians were largely oblivious to the nature of online poker and the need to ensure a viable player pool liquidity.

However, New Jersey is not alone in that respect, and the other two gambling states of Nevada and Delaware are also struggling to generate sufficient igaming revenues, resulting in the two states recently announcing a historic interstate online-poker compact. Nevertheless, a cursory glance at the sinking fortunes of France, Italy and Spain’s ring-fenced online poker industries should have acted as a cautionary tale for would be proponents, as well as sounding a more realistic revenue forecast from New Jersey authorities.

Online gambling revenues still a welcome contribution for NJ

In spite of an inauspicious start to New Jersey’s online gaming industry resulting in $7.4 million in revenues for December and $9.5 million in January, there have been other factors hampering the Garden State’s efforts to set-up a thriving online gambling market. These have included geo-location bugs, as well as some payment processing businesses continuing to reject online gambling transactions.

In addition, many gambling operators have yet to tap into their casino databases and implement full-scale marketing campaigns, which will play a key role in terms of penetrating the mass market. Casing point, a recent study conducted by Lloyd D. Levenson Institute of Gaming, Hospitality and Tourism revealed that an impressive 2.5% of NJ residents had already gambled on the state’s gambling sites, and that a further 7% indicated they intended to follow suit in 2014.

As a result, a true picture of New Jersey’s online gambling industry is still to be revealed, and as Gene Johnson, Spectrum Gaming Group’s SVP for market researching and online studies, states: “For all of those reasons, the rollout has been slower than anticipated and the resulting revenue has been lower than projections. It’s going to be very interesting to see how it plays out.”