When Chris Christie took office as governor in New Jersey one of his first acts was to veto a bill that was passed by New Jersey legislators to allow online gambling in the state. Many believed Christie vetoed the bill because he was planning to run for the 2012 presidency and didn't want to be seen as the Republican governor that was the first to legalize online gambling in a state. However,  his official declaration was that he was concerned the law could be unconstitutional since only Atlantic City casinos were permitted to take bets and he didn't buy that someone betting on a machine in their home in Trenton was actually betting at an Atlantic City casino. Moreover he was concerned that if bets were made at internet cafes and nightclubs on their computers it would create gambling hubs around the state. In addition, he was concerned about the effectiveness of geo-location devices. But sources close to the New Jersey government told me that Christie's main motive for vetoing the bill was to buy time to examine more closely what effect it would have on Atlantic City land-based casinos and whether online gambling would truly bring in a lot of new revenue.

Apparently after Christie had time to listen to analysts and hear reasons why online gambling was a worthwhile venture, he changed his tune. While somewhat skeptical, Christie did eventually accept the view of analysts who contended that online gambling would have limited effect on current Atlantic City casinos since online gamblers and those who frequent land based casinos do so for different reasons. And as for revenue he was convinced that online gambling would bring up over a billion dollars in revenue each year and tax income of close to $200 million. In fact when announcing these figures Christie seemed to indicate it would be a savior to the state. At the same time Christie asked for some amendments to the bill before he would pass it and legislators agreed to add some conditions to their original bill as requested by Christie requiring that bets would only be made through Atlantic City casinos, that advertising only be done in Atlantic City and that geo-location software was improved. With the new concessions Christie signed the new bill into law although still somewhat reluctantly.

Now several months into the online gambling venture it seems Christie may have had some reason for skepticism. The most optimistic analysts predicted that revenue would exceed $1.2 billion in the first fiscal year while the biggest pessimists predicted $200 million. It seems clear that neither will materialize. In the first month after launch the state only raised $7 million in total revenue, a far cry from expectations. And while it increased by 28% in January to $9.5 million in actually only rose by 9% in February. Expectations were that revenues would continue to grow exponentially each month but clearly that isn't happening.

As a result of the slow growth in New Jersey Christie announced that his new tax revenue predictions for the first year would be well under $100 million from the $180 million he predicted and more or less promised. Worse than that, many of the concerns he had have materialized. The state has had issues with many people not being geo-identified properly. Even though some people reside in New Jersey on a border close to another state, they have been identified as residing outside of New Jersey and thus have been blocked from registering for online gambling. This has been overcome thanks to Atlantic City casinos who have been sending these residents adapter cards to strengthen their Wi-Fi signal to identify them as residing in New Jersey but there is some concern that if this can be done to help New Jersey residents, there are probably some methods that will allow out-of-state residents to appear to be in New Jersey and thus in violation of the law. More concerning than that, however, it appears that online gambling has potentially cannibalized Atlantic City's land-based gambling revenues. Gambling revenue in New Jersey has been declining for some time so it's impossible to determine whether the drop in the last few months has been a result of online gambling or poor weather but land-based revenue is definitely down from the same period in the prior year.

Despite the lackluster results, state gaming regulators expressed cautious optimism with the initial launch and contended that a possible reason for the small amount of play (currently about 200,000 New Jersey residents have signed up for online gambling) relates to problems with payment processing – an issue that many Americans with offshore accounts can identify with. While laws permit banks to process transactions for legal online gambling only a handful of credit card companies and their corresponding banks are actually doing so. American Express contends that it never allowed gambling transactions, legal or not, to be done with their cards and many banks like J.P. Morgan Chase said they don't want the hassle of possibly having gambling transactions disputed. Moreover, they said for the few that want to gamble it's immaterial and not worth the amount of administration that would be required. Ironically this is the same contention that the horse racing industry has had with several states saying that certain credit card companies refuse to process transactions for online horse race betting even though it is clearly legal pre the Interstate Horse Racing Act and the UIGEA. Mind you the government may have the feds to blame for the inability to convince banks to process gambling transactions. When the UIGEA was passed in 2006 it specifically allowed intrastate online gambling but when the rules were written the following year by the Treasury and Attorney General they left it up to the banks to ensure that no illegal gambling transactions were processed. The banks asked for a list of companies that they should not process transactions for but the Attorney General told the banks to figure it out themselves although they could be heavily fined if they process illegal transactions. Not surprisingly, the majority of banks decided to simply block all gambling transactions to make sure they weren't in violation and unfortunately a lot of legal transactions were blocked as well. David Rebuck, a New Jersey gambling regulator indicated to the media that the issue was being resolved but if the banks don't want to process gambling transactions there's no way of forcing them to.

As for the future of online gambling in New Jersey as a whole, the optimism depends on who you talk to. Mitch Garber, the CEO of Caesars Interactive Entertainment indicated that his company was pleased with the initial rollout of online poker in New Jersey and indeed WSOP (Caesar's online poker site) in both New Jersey and Nevada seem to be leading the way. But others I have spoke to in the state have shaken their heads and said they are very worried because they were relying on online gambling to be the savior of the state but the early rollout numbers gives them no reason to be positive. Other states who are watching New Jersey and Nevada must also be wondering if the venture is worthwhile.  After all if revenues are going to be low or if it's going to cannibalize their existing gambling operations then what's the point?

That all being said it is still very early since the rollout of online gambling in New Jersey and Nevada so everyone will have to give it some time to determine if it is truly a boom or a bust. But we'll be watching and providing regular updates.

Contact Hartley via email at hartley[at]osga[dot]com.

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