Why New Jersey Fell Far Short of Online Gambling Expectations

Revenue from online gambling in New Jersey has failed drastically to reach expectations, even if industry observers won’t call it a bust after just five months.

New Jersey’s state treasurer estimated last year that legal online gambling would net Atlantic City casinos as much as $1.2 billion in its first year—bringing in roughly $180 million in tax revenue for the state. After the floodgates opened last November, those numbers have been revised dramatically, to a mere $34 million in tax revenue for the fiscal year ending June 30, climbing to $55 million the following year.

“It’s the beginning of the beginning, and its hard to draw long-term conclusions,” says James Kilsby, a managing director at GamblingCompliance, which tracks the global gambling industry. “There is a degree of confidence that month-on-month growth is sustainable and will probably accelerate in the next few years.”

The rocky start can be linked to several hurdles. The biggest, according to Kilsby, is payment processing. “There are a number of major banks that don’t allow their credit cards to be used for deposits for Internet gaming,” he explains. A federal law requires banks to block online gambling transactions, Kilsby says, even though New Jersey and several other states have made it legal. That means most payments must be made using less convenient methods, such as Automated Clearing House transfers and deposits at Atlantic City casinos. “The expectation is that [payment processing options] will take months, if not years, to really change,” he says.

There are also technical and regulatory complications. To legalize online gambling, New Jersey had to develop ways of verifying users’ identities to make sure they meet age requirements and are located within state borders. “In some ways it’s been a customer support challenge as much as a technological one,” Kilsby says. These issues seem to be under control, he adds, and improvements to mobile technology could eventually boost revenue quite a bit.

On top of everything, lawmakers in the U.S. Senate and House recently introduced legislation to squelch legal online gambling across the country before it really gets going. The bill has support from Sheldon Adelson, the billionaire casino mogul who’s vowed to “spend whatever it takes” to kill online gambling in America.

New Jersey’s example may provide useful fodder for politicians looking to keep the industry alive. Despite an underwhelming debut, Kilsby reasons that New Jersey proves the effectiveness of online gambling regulations. “I haven’t seen any reported instances of players outside the state gambling,” he says. “And I haven’t heard any reports of underage gambling, fraud, or money launderers.”

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