Conditional veto means there’s still work to do, but regulated online gambling is closer than ever
Supporters of online gambling regulation in New Jersey rejoiced yesterday, as a breakthrough was finally made in the form of a conditional veto by Governor Chris Christie.
Unlike in 2011, when Christie killed a similar bill proposing the legalisation of any online game that is currently offered in the state’s casinos including poker, yesterday’s veto appeared more of an endorsement than it did a critique.
Now, with a few tweaks primarily concerning greater transparency and stricter rules to support problem gamblers, bill sponsor Raymond Lesniak should at long last see his legislation signed into law.
Christie kept everyone guessing on what his decision would be. A political foe of Lesniak for many years, most had assumed he would again reject the bill over fears of problem gambling, corruption and a detrimental effect on land-based casino revenues. Just last week he claimed he was yet to make up his mind despite the bill landing on his desk in December.
It came as a welcome surprise then, when Christie told the state Assembly the bill represents an “important policy decision for the residents of New Jersey” and was “historic opportunity” for the state to be a leader in the tourism and entertainment industry.
There are plenty of people who believed the Republican Governor would never utter such sentiment.
At best, many expected Christie to call for all games bar online poker to be removed from the bill. His main requests, however, are that online winnings should be taxed at 15% rather than the suggested 10%, for the law to “sunset” or undergo a complete review after 10 years, for the licence fees to be doubled, and that state-elected officials disclose their past and present representations of entities seeking or holding internet gaming licences.
It is expected that these amendments will be made within the next few weeks and that the bill will be presented once again to Christie for approval.
More broadly, the news is a significant breakthrough for the US online gaming market. With just Nevada and Delaware passing regulation to allow for operators to establish an online gambling business, hopes have for some time rested upon the emergence of federal law in order to spark the industry into life.
Yet with Senate Majority Leader Harry Reid’s federal bill – criticised heavily by Lesniak for taking away states’ constitutional right to regulate their own gambling industry – failing to even make an appearance in last year’s Congress, it looks increasingly likely that a patchwork of state laws will emerge.
New Jersey is, along with Nevada, one of just a few states with a long history of regulated gaming and a reputation of strict licensing and suitability standards. And with a population four times that of Nevada, the opportunity for gaming operators – especially given casino games such as slots will be legal – is instantly more attractive than in the Silver State.
H2 Gambling Capital estimates that under a scenario where all products are permitted, the market could reach a gross win of $913m by year three, growing to $1.14bn by year five.
Compare that to the Nevada, where just online poker has been made legal is estimated to be worth $164m by year five of operations, and it becomes clear why New Jersey is such a significant jurisdiction in the embryonic US market.
As Simon French, an analyst with Panmure Gordon said this morning: “We view this as a watershed moment for state regulation of online gaming in the US. Operators who are able to establish initial market share will be well positioned for further growth in both New Jersey and other regulating states. We expect this to lead to urgency amongst other states to join New Jersey, Nevada and Delaware in regulating. In particular we would highlight California, Florida and Connecticut as likely to be amongst the next wave to follow suit.”
Who are the winners?
Democrat Senator Lesniak has long led the fight to regulate online gambling in New Jersey, having first introduced an unsuccessful bill in January 2010. And until yesterday many had expected this year’s effort to meet the same fate.
The majority of the state’s land-based casinos including those owned by Caesars Entertainment and Boyd Gaming, since they are already licensed by the New Jersey Casino Control Commission, should all be able to obtain an online licence with ease. Much of the support behind Lesniak’s bill was due to its ability to offer Atlantic City’s casinos a much needed boost in revenues and job creation. In March 2012, the New Jersey Casino gross win was US$9.5m – a decline from $12.7m in 2011 and $14.1m in 2010.
Tony Rodio, president of the Casino Association of New Jersey, said in a statement: “Our industry believes that internet gaming is essential to the continued stabilisation, development and success of Atlantic City through the generation of meaningful revenue, jobs and resultant tax revenues – objectives the Governor has always facilitated.”
All eyes will be on the Atlantic Club Casino Hotel, subject to a takeover from PokerStars parent company Rational Entertainment, to see whether the regulator will firstly allow the acquisition to take place and secondly allow the prospective buyer to apply for an online licence too. Prior to Black Friday PokerStars was the clear leader in the US online poker market and therefore a huge threat to competitors should it be allowed re-entry.
The news will also have been welcomed at online gaming suppliers and operators seeking an entry into the US market. In Nevada bwin.party, 888, Bally Technologies, 3G Studios, Barriere and Fertitta Interactive have all entered into partnerships to provide land-based casinos with gaming software, and the competition to do so in a lucrative market New Jersey will be fierce.
After Christie’s announcement, bwin.party’s share price leapt by 17.6p to 134.3p – a 15% rise, while 888′s share price was up by more than 15% this morning to 133.72p.
Neighbouring state Delaware, itself hoping to have live online poker and casino gaming in 2013, could benefit from regulation in New Jersey. With a population of less than a million, sharing player liquidity across the states’ borders (an action allowed under its state law) could ensure a successful and sustainable online gaming market.
Who are the losers?
Proponents of federal online gambling legislation argue that the proliferation of state-by-state frameworks will ultimately be damaging for the long-term future of the industry. It’s no secret that the likes of Caesars and Boyd, along with the American Gaming Association, have lobbied hard to ensure that the likes of Lesniak were unable to get their legislation over the finish line. As more states pass such legislation, it will become increasingly more difficult for any blanket rules to be put in place.