Christie Relying on Web Bets for N.J. Budget Seen as Risk

Governor Chris Christie is betting New Jersey’s new online-gambling law will propel an 85 percent jump in casino-tax collections next fiscal year. He faces a skeptical group of analysts and lawmakers.

The governor’s 2014 budget anticipates a $1.2 billion market from Internet bets in its first year. Analysts at Moody’s Investors Service, Deutsche Bank AG and Bloomberg Industries all say that sounds too optimistic, with their estimates ranging from $250 million to about $850 million.

Christie, a 50-year-old Republican seeking a second term, missed his target for more than 8 percent revenue growth this year as sales, corporate and casino revenue fell short, forcing him to abandon an income-tax cut. Next year he’s counting on a smaller 4.9 percent gain, which depends in part on Internet wagers taking off to help Atlantic City rebound from six straight years of decline.

“You have to be realistic, and I’d think by this time he’d err on the side of caution,” said Assembly Budget Chairman Vincent Prieto, a Democrat from Secaucus. “If he doesn’t make those numbers, clearly we are going to have to cut somewhere in the middle of next year.”

Christie has made an Atlantic City revival a centerpiece of his first term, saying casinos are crucial to New Jersey’s economic recovery. He created state-run tourism districts and extended $261 million in tax credits to jump-start development of the first new casino in nine years, by Revel Entertainment Group LLC. Revel opened in April, failed to meet earnings expectations and is planning a prepackaged bankruptcy to erase more than $1 billion in debt.

Below Targets

The governor’s $32.9 billion spending plan, the final one of his first term, will take effect four months before Election Day. His budget would delay property-tax rebates to close the current year’s deficit as he increases spending on schools and pensions, and expands Medicaid.

A year ago, Christie proposed a budget that predicted the state’s collections from the 8 percent tax on Atlantic City’s casinos would jump 16 percent in fiscal 2013, which began July 1. Through February, that revenue was 28 percent below target.

Christie, who vetoed Internet betting in 2011, reversed course this year and legalized it to fend off competition from nearby states that have expanded gambling. His authorization set off a national horse race over an online market that’s forecast to reach $7.4 billion in five years.

‘Long Shot’

“It’s a long shot,” said Gene Johnson, a senior vice president at Spectrum Gaming Group LLC, a casino research and consulting firm in Linwood, New Jersey. “I can’t see them reaching that $1.2 billion figure.”

New Jersey became the most populous state to legalize online gambling, following action by Nevada and Delaware. Other states may follow after a 2011 Justice Department opinion said the Federal Wire Act, which prohibits the use of wires to transfer bets, applies only to sporting events or contests, said Brian C. Miller and Tim Craighead, gaming analysts for Bloomberg Industries.

Delaware probably will be the first to roll out online gaming, by September, while Nevada may follow by year-end, said Andrew Zarnett, a gaming analyst at Deutsche Bank Securities in New York. In Pennsylvania, whose Philadelphia-area casinos have siphoned gamblers from Atlantic City, Representative Tina Davis, a Bristol Democrat, plans to introduce a bill to establish Internet gambling this week.

Two Years

Implementation in New Jersey may take as long as two years, Zarnett estimated in a Feb. 28 report. Gary Loveman, chief executive officer of Caesars Entertainment Co., gave a similar time frame during a Feb. 25 conference call.

Delaware estimates an additional $9 million of tax revenue from online betting in its first full fiscal year after implementation, according to Moody’s. Christie is expecting to collect $180 million from a 15 percent tax on online casino revenue in fiscal 2014, according to his budget summary.

Miller and Craighead estimate that online gambling would result in $128 million of state taxes, though only if fully rolled out by July 1.

“He is in trouble,” Senator Raymond Lesniak, an Elizabeth Democrat who sponsored New Jersey’s online gambling bill, said of Christie’s forecast.

Lesniak said he projects first-year tax collections of about $45 million, based on operators posting about $300 million in revenue.

Being Kind

“I’m being kind when I say optimistic -- I mean unrealistic,” Lesniak said. “I just don’t see how a couple of hundred million dollars going into the state treasury can be reached. And I’m the main proponent of this.”

Casinos account for more than two-thirds of the tax base in Atlantic City, where a quarter of its 40,000 residents live in poverty. The seaside city was a bustling resort until the 1960s, when it became riddled with crime and corruption. The state approved casinos in 1976 to boost the city’s ailing finances.

The $2.6 billion Revel has fallen short of its own expectations, ranking next to last in January gambling revenue among the city’s 12 casinos, the state reported Feb. 11. Under the bankruptcy agreement with lenders, the casino will restructure to erase more than $1 billion in debt.

Christie also signed a law last year to allow wagering on professional and college sports in Atlantic City and at racetracks. A federal judge this month ruled against the governor, siding with groups including the National Collegiate Athletic Association and the National Football League that sued to block the legislation from taking effect.

Sports Books

Sports-book wagers account for one-third of the $30 billion Internet gaming industry, according to data compiled by Bloomberg. Still, Christie said his budget projections weren’t counting on sports wagering.

“Our revenue projections were based upon the institution of Internet gaming and what we think will be a generally better nature of the economy in the next year which will lead to more people having more disposable income and gambling more,” Christie told reporters on March 4 in Jersey City.

Christie said March 4 that the state will file an appeal of the court ruling and that he anticipates the case will take two years to be resolved before the U.S. Supreme Court.

“Without sports betting, I don’t see New Jersey getting to a billion-dollar industry, especially not in the next five years,” said Spectrum’s Johnson. “I’m not going to say that I understand the governor’s thought process.”

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