Lesniak’s vision for an internet gambling mecca is puzzling

New Jersey, online casino gambling has been a success and Senator Ray Lesniak is looking to expand beyond the states' borders.

New Jersey looks for a global reach

Earlier this month, New Jersey Senator Ray Lesniak stated: "I've changed my mission from making New Jersey the Silicon Valley of Internet gaming to the Mecca of Internet gaming,"

While online poker has been a major disappointment for New Jersey, online casino gambling has been a success. Casino sites by Golden Nugget (Betfair), Caesars, Borgata and Tropicana, as well as a few others, have generated incredible interest with New Jersey residents betting almost $200 million on casino games like slots, blackjack and roulette. The success was inevitable and has helped boost the coffers of Atlantic City based casinos that are seeing less people go to their physical Atlantic City locations and more poeple play at home. That of course is the reason Sheldon Adelson has been trying to get online gambling banned in the United States, since he's aware that when online gambling does become legal everywhere in the U.S. more people will stay home to play from the comforts of their couch than venture out to a physical casino. Consequently, interest in his overpriced hotel rooms, restaurants and live entertainment options will dwindle, as well leading to a decrease in physical casino revenues. Nevertheless, people I spoke to at Tropicana and Golden Nugget in Atlantic City said that it was a fair tradeoff since it's all one pot, so they don't mind selling less hotel rooms if they can make a larger profit vis increased gambling action.

With that in mind, Lesniak is trying to create a bill to remove a section of the New Jersey law that permits online gambling in New Jersey only if the operators have a physical location in Atlantic City. Apparently Lesniak pitched the idea of setting up in New Jersey to foreign operators by partnering with Atlantic City casinos, as Betfair has, or buying an existing casino and setting up operations there, but gambling operators balked, saying it didn't make economic sense. But by removing the requirement of an Atlantic City presence, companies in other jurisdictions where online gambling is already legal will be able to allow their customers to make online bets in New Jersey and if they prefer, would also allow those companies to set up a base for their operations in N.J. from an office space in say Trenton or Jersey City.

New Jersey online casino gamblingWhile it may sound intriguing on paper it's hard to fathom what's in it for the foreign company or bettor. The only reason to seek out something different is if a company offers something you can't currently have. But in this case, that doesn't apply. Why exactly would a UK or Canadian resident who bets at Casino.com, Bet365 casino or 888 Casino want to bet at Golden Nugget casino in New Jersey? UK residents not only have the ability to play the same games that would be available from a New Jersey online casino, but the European based companies also have better payment options including credit card deposits and withdrawals, more e-wallet solutions and physical locations, like William Hill or Ladbrokes betting parlors, where they can go and make deposits and withdrawals in person. As well, UK based casinos have vastly better promotions and loyalty programs than New Jersey casinos. It's for that exact reason that legal online casinos in Canada like Playnow.com in B.C., the casino offered by Lotto Quebec, and Playolg.ca in Ontario are struggling. Canada does not have a law forbidding residents from betting offshore, so a vast majority of Canadian bettors have decided to stick it out with their offshore accounts, since those casinos are more reliable, easier to access and have better promotions than the Canadian sites do. While it's true that Betfair and William Hill came to the United States and set up operations, it was to eventually attract Americans to their UK-based operations, not visa versa.

When Betfair first bought TVG I met with a manager at the company who explained their thinking. According to the manager, who is no longer with Betfair, the company's hope was that by buying TVG it would get a foothold in the U.S. market and then they would be able to show the benefits to the industry by adapting their system. At the time horse racing was the company's biggest revenue generator and they believed that the reason online horse racing had been declining in the U.S. was that the pari-mutuel nature of horse racing in the U.S., along with the takeout associated with it, is a big deterrent to serious gamblers. Betting a horse at 10-1 five minutes before post time but only being paid 3-1 because of late bets was not something they believed most Americans wanted. While the UK offers tote racing, it is really only popular with exotic bets like the Scoop 6 or the jackpot (their version of the pick 6). For single bets like win or place they believe bettors want to know what odds they will be getting. And at Betfair bettors also have the ability to bet in play and to sell the bets at a profit in running via the betting exchange, which isn't possible in the United States pari-mutuel wagering system. All UK betting sites also offer match up bets and props which aren't available using the U.S. tote system. So Betfair was offering something unique to Americans with the hope that if and when U.S. laws are changed, American bettors would flock to their site to bet into a global pool, likely hosted on their UK servers.

But it wasn't just horse racing that Betfair and William Hill were interested in. Prior to the UIGEA the projection was that as much as $4 billion would be bet by U.S. residents online and at least $1 billon on sports and these companies wanted a piece of that action. Whether it was on NFL games, NBA games, Major League Soccer matcches or slot machines the UK companies knew that the U.S. market was just too big to ignore. The UIGEA prevented them from continuing to accept U.S. wagers at their European locations, but as long as they maintained a presence in the U.S. legally, they knew that once the law changed, and all UK companies were convinced it would, it would give those companies with a physical U.S. presence a head start, since all the systems would be in place for the integration to the UK sites. That is also one of the reasons that Betfair partnered with Golden Nugget to create a New Jersey casino.

With that in mind, if Lesniak is successful the courts will likely require reciprocation meaning that while U.S. based companies will be able to take global action from countries where it's legal, the foreign based companies will be allowed U.S. betting as well in jurisdictions where it's legal as well. For states that's actually written into the constitution via the commerce clause. That means Americans would be able to bet at companies based in the UK, Canada, Antigua, Costa Rica and various others. Plus, Americans will be able to play at the large volume PokerStars site based in the Isle of Man rather than the New Jersey based PokerStars site which is struggling due to lack of players. And if one believes it would all work out for New Jersey if states all bandied together, just look at the pact between Delaware and Nevada that allowed a common poker pool that since 2014. According to Pokerscout.com numbers there are more people that attend Tampa Bay Lightning games than play at a poker site daily in those states.

Without question Antigua, Curacao, Costa Rica and other countries will be following this development and rooting for Lesniak to succeed. Antigua recently hired Calvin Ayre as an Economic Development advisor with the goal of creating a crypto gambling economy, but they would obviously prefer to go back to the late 1990s and early 2000 years where gambling companies could take U.S. action with fiat currency unhindered. So what Antigua has fruitlessly been fighting for since 2003 would be realized thanks to an amendment introduced by a state Senator hoping to help his constituents.

For that reason, Lesniak's goal is puzzling. Whether he wants to admit it or not New Jersey has nothing unique to offer foreign bettors that would lure them there. This after all is online betting. The Taj Mahal Casino is a gorgeous physical entity and the boardwalk on the Atlantic Ocean is worth seeing. But who cares if one is betting on blackjack or playing Cleopatra slots from a UK server or a New Jersey based one? As a gambler, I hope Lesniak is successful because I believe Antigua, Kahnawake and Costa Rica have been wronged by the UIGEA and the pursuit of foreign casino management by the FBI. But if Lesniak believes New Jersey will become the Mecca of online gambling just because they no longer require a physical Atlantic City presence, he's sadly mistaken.

Read insights from Hartley Henderson every week here at OSGA and check out Hartley's RUMOR MILL!

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