Online Gambling Slump Adds to Christie’s N.J. Budget Woes

Flagging online gambling is failing to bolster Atlantic City casinos that Governor Chris Christie has said are crucial to New Jersey’s rebound, compounding revenue shortfalls that threaten the state’s credit rating.

Five months after New Jersey started allowing Internet betting, the business had its first monthly revenue decline in April. The drop adds to the woes of the 11 casinos, whose revenue has dropped 44 percent since peaking in 2006. New Jersey depends on Atlantic City for its jobs, its taxes and the seaside resort area’s draw as a tourist destination.

The slump means less taxes for Christie, who said last week he would cut pension payments to close budget gaps. The Republican governor faced skepticism from analysts and lawmakers last May when he predicted New Jersey would earn $180 million from a 15 percent online-gaming tax this fiscal year. At the current rate, he’ll get about $12 million.

“I don’t think anyone had the crystal ball to predict what the market would be,” Tom Ballance, chief operating officer of the Borgata Hotel Casino & Spa, the largest player in New Jersey’s online gambling business with a 36 percent share, said in a phone interview.

Slow Start

New Jersey is the most populous state to legalize gambling on the Internet, joining Nevada and Delaware. In April, New Jersey’s online revenue fell by $500,000 to $11.4 million. In Nevada, which limits Internet bets to poker, revenue was $926,000 in March, the most recent month for which data is available. In Delaware, it was $207,000.

The business is struggling as banks decline to let their customers use credit cards for online gambling and software rejects players unless they’re physically in the state, according to Simon Holliday, founder of H2 Gambling Capital, a market research firm.

In addition, online wagering isn’t available on all mobile devices, he said by e-mail, and some operators are holding back on marketing until the issues are sorted out.

The tax decline adds to Christie’s fiscal woes. Revenue has missed his targets for three straight years, forcing him to revise projections and cut spending. On May 21, he said he’ll reverse course on promised pension contributions this year and next, after revenue missed his goals by as much as $875 million.

Tourist Draw

Christie, who took office in 2010, was counting on an Atlantic City revival to help boost tourism and turn around the economy. Casino revenue in the city, 60 miles from Philadelphia and 125 miles from New York, fell 6 percent to $2.8 billion last year. It was the seventh straight annual decline as neighboring states, including Pennsylvania, expanded gambling.

Casino companies and their online partners lobbied for legalization, arguing that Web-based poker, blackjack and slots would bring in fresh spending.

At their peak, the casinos provided more than $400 million of state tax revenue and employed more than 42,000 people. Last year, the state collected $205 million, including two months of taxes from Internet bets.

In New Jersey, taxes from gambling are dedicated to state programs for senior citizens and the disabled. Assembly Speaker Vincent Prieto, a Democrat from Secaucus, said the state will struggle to cover the costs for such programs in coming years.

“We need to look at them and be sure we fund those programs,” he said in an interview. “If that money’s not coming from there, we need to take a hard look at everything else we’re doing. Right now, as you see, it’s very difficult to come up with anything.”

Lagging Behind

Casinos were central to the “Jersey Comeback,” the post-recession theme that Christie touted at dozens of town-hall meetings in 2012, that never materialized. State unemployment, at 6.9 percent in April, remains higher than the national average and in neighboring Pennsylvania and New York.

Since February 2010, the recessionary low point for New Jersey’s private employment, businesses have added 125,700 jobs, about half the number lost during the slump. New Jersey, with its rebound trailing the nation’s, won’t recover all those jobs until 2018, Nancy Mantell, director of the Rutgers Economic Advisory Service, said this month.

Any revenue decline is bad for Christie, said David Redlawsk, director of the Eagleton Center for Public Interest Polling at Rutgers University. If the governor has his eye on the 2016 Republican presidential nomination, he can’t afford to raise taxes to deal with the drop, Redlawsk said.

“In some sense, the revenue from online gambling is a harbinger of everything else,” Redlawsk said. “The failure of the New Jersey economy to rebound in the way other states have has meant everything is down, and he’s been unable to meet any revenue projections. The gambling revenue is just another blow.”

Before it's here, it's on the Bloomberg Terminal.