The Current State Of Online Gambling In New Jersey

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Friday, April 25th, 2014 | Written by Charles Washington

New Jersey launched its first online gambling site five months ago in November 2011, with NJ governor Chris Christie predicting $1 billion in annual revenues and $160 million in yearly tax collections for the state. That forecast has proved to be wildly inflated and State Treasurer Andrew Sidamon-Eristoff has since down-scaled the estimate to just $34 million in taxes for 2014.

So far just three states have embraced regulated online gambling in the US, of which New Jersey is by far the biggest market. Naturally, the other states are keen to learn all they can from New Jersey’s igaming experience in order to gauge the potential financial benefits of initiating their own igaming industries, or indeed whether any potential exists at all.

How much is igaming worth in the USA?

The worldwide online gambling market is said to be worth an estimated $30 billion each year, with around $12 billion of that total accounted for gamblers in the USA. Nevertheless, much of the country’s igaming revenues include offshore, unregulated companies operating in the grey market which makes trying to predict revenues for a regulated online gambling stateside extremely difficult.

Unsurprisingly, estimates vary wildly with Morgan Stanley forecasting a regulated market to be worth $9 billion by 2020; H2 Gambling Capital suggesting a figure of $7.4 billion by 2017; whilst Adam Krejcik from Eilers Research has offered the most sober projection to date of just under $2 billion by 2020.

Adam Krejcik’s conservative forecast is also likely to be the most accurate, so it is worth noting his estimate of the New Jersey online gambling market being worth $226 million once the market becomes mature, which Krejcik says will happen two or three years from now.

Current state of NJ Igaming

New Jersey’s six casinos holding igaming licenses generated $11.9 million in revenues in March, up 15% compared to the $10.3 million taken in February. From that tally, online casino revenues accounted for $8.6 million compared to $7.2 million in February, whilst online poker leveled off at $3.2 million compared to $3.1 million for the previous month.

In the other two regulated states the results have been even less stellar with Nevada’s three online poker only websites generating just $8.5 million over the past 10 months, and Delaware collecting a mere $166,454 in February.

Following on from inflated estimates of the pre-regulation period, Poker Players Alliance Executive Director John Pappas obviously recognizes the necessity to provide realistic assessments for potential igaming markets, and recently commented:

“We need to be realistic when talking to lawmakers about what can be expected from iPoker revenue, particularly when looking at a state-by-state deal where individual states are operating. Until they can have interstate liquidity, I think they will always have lower-than-expected revenues.”

Poker may represent just a third of NJ’s online gambling revenues, but the game is seen as a vital means by which to attract casual gamblers to the state’s sites, who may then be tempted to gamble on other games offered by the online sites. Worryingly, however, online poker traffic has dramatically declined in NJ, with the state reporting three consecutive months of falling traffic and daily cash-game players now reaching their lowest levels since December.

New Jersey operators have only themselves to blame

A number of issues have been suggested for NJ’s waning interest in online poker, including geolocation issues which initially plagued the industry as potential players located in the unusually large buffer zones between state boundaries found themselves locked out of NJ’s gambling websites. That problem has largely been eradicated now, and as Macquarie Capital Inc. analysts Chad Beynon and Jeremy Luskin stated recently:

“Even as geolocation issues have been mostly resolved and platforms are more built out, we still are not seeing the demand necessary to make us believe this will be a meaningful part of the [profit and loss] of regional gaming operators.”

More relevantly, it appears other factors directly related to NJ poker operators lack of efforts help to explain the traffic falloff. Borgata Hotel/PartyPoker then Caesars/888 currently dominate the market, but most pressingly problems still persist with the sites’ software, including slow loading times, sub-menus which fail to display graphics properly, and the occasional server failures.

Customer services issues have also been reported for PartyPoker, with Robert DellaFave on onlinepokerreport, describing the site’s customer service team as “slow, uninformed, and curt, the team’s most glaring flaw is its lack of empathy. Player concerns are often brushed aside, even those worthy of being addressed..Factor in the hour-long wait times and frequent issue escalations, and it becomes clear that Party’s customer service is hardly worthy of a passing grade.”

Interstate compact the solution?

Internet casino gambling may be on its ascendancy and providing the majority of NJ’s igaming revenues, but online poker’s steady decline has lead some analysts to suggest the state might seriously have to consider joining an interstate compact like the one agreed between Nevada and Delaware. It has been speculated such an arrangement could instantly increase NJ’s player pool by 30%, and provide for an attractive, viable poker playing ecology. Nevertheless, before such a deal is struck New Jersey would do well to first sort out the type of issues already mentioned before carrying its currently inefficient ipoker operation further afield.