Online bets drive New Jersey's sports gambling tax revenue growth

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An immediate commitment to online betting helped New Jersey take the lead among states that have legalized sports betting.

The financial bump it has generated, while nice to have, remains a drop in the bucket compared with the state government's fiscal challenges, particularly its underfunded employee pension system.


New Jersey jumped into sports betting on June 14, 2018, shortly after winning a U.S. Supreme Court case that struck down a 26-year federal ban on such wagering. The state has taken in $194.1 million of revenue with $22.6 million of taxes collected as of May 31, according to figures released June 12 by New Jersey’s Division of Gaming Enforcement. The state now offers 14 sportsbook apps as well as 10 retail books at Atlantic City casinos along with the Meadowlands and Monmouth Park racetracks.

Delaware rolled out sports betting the same month as New Jersey, but through April had only reported $13.7 million of taxable revenue. Neighboring Pennsylvania netted $242.4 million of sports betting revenue five months after debuting legalized wagers in November, while Rhode Island reported just $1.8 million in that same time frame. The southern states of Mississippi and West Virginia received revenues of $25 million and $10 million, respectively, through April 30 after legalizing sports wagering last summer.

One factor sets New Jersey apart.

“The entire reason that New Jersey has fared better than other states has to do with the availability of and access to online and mobile betting,” said Dustin Gouker, lead sports betting analyst for Play NJ, an online guide to New Jersey's internet gambling sites. He said online bets have accounted for around 75% to 80% of all wagers in most months.

In May, gamblers in New Jersey bet more than $263.5 million on sports online, and less than $55.4 million in person, according to the monthly Division of Gaming Enforcement report.

“Any state that thinks it's going to capture meaningful revenue via land-based sports betting only is going to be sorely mistaken,” he said.

"The evidence strongly suggests Nevada and New Jersey are collecting the most tax revenue from sports gambling because they allowed widespread online gambling and the other states did not," according to a May report by the Urban Institute. Geolocation systems on computers and smartphones are intended to prevent gamblers from placing bets outside the state they are in.

Pennsylvania and West Virginia also allow legalized online sports betting, but neither has fully launched yet as they iron out complexities with vendors.

Gouker added that other states considering taking up sports betting, including Illinois and Iowa, have made it much harder to generate revenue because of barriers to online wagers. The two Midwest states both passed restrictions last year requiring in-person registration for a period of time. New York lawmakers have also debated adding legalized sports betting this year, but Gov. Andrew Cuomo has said he would like to limit wagering to four upstate casinos.

The New Jersey sports betting law established an 8.5% tax on revenue generated at land-based venues and 13% for mobile or online wagers. The $22.6 million of state tax revenue garnered since last June’s rollout puts New Jersey above a $13 million forecast State Treasurer Elizabeth Muoio estimated in May 2018 for the 2019 fiscal year that started July 1.

“The new tax revenue from sports betting, while small compared to the size of the New Jersey budget and its structural gap, is a modest incremental positive for the state,” said Lisa Washburn, managing director at Municipal Market Analytics.

Sports betting is one of a number of new revenue sources New Jersey lawmakers have sought in recent years to combat past structural budget deficits that along with a heavy pension burden contributed to the state’s general obligation bond ratings falling to second lowest among U.S. states. New Jersey sports betting tax revenue is on track to account for only about 0.07% of the state’s current $37 billion budget, according to Washburn.

It's a long way from making a dent in the state's pension liabilities — even the higher $3.2 billion pension contribution proposed in Gov. Phil Murphy's fiscal 2020 budget falls more than $2 billion short of what's required to fund them on an actuarial basis.

Even in states that have better-than-expected revenue from sports gambling, the revenue is relatively minor compared to lotteries, according to the Urban Institute's report. "As such, politicians should not over-promise what the revenue will do for state budgets, and legislators absolutely should not make critical spending programs dependent on that revenue," the report said.

New Jersey’s general obligation bonds are rated A3 by Moody’s Investors Service, A-minus by S&P Global Ratings and A by Fitch Ratings and Kroll Bond Rating Agency. Only Illinois has lower-rated state GO debt.

New Jersey also is trying to use sports betting to support the troubled gambling resort of Atlantic City through legislation Murphy signed in the fall directing 1.25% of sports wagering revenues toward the state’s Casino Reinvestment Development Authority. A five-year state takeover of Atlantic City that took effect on Nov. 9, 2016 redirected the state’s casino investment alternative tax from the CRDA toward Atlantic City debt service.

The CRDA has parking and hotel room fee bonds rated junk-level Ba3 by Moody’s. The state agency was established in 1984 to collect and distribute certain taxes and fees paid by Atlantic City casinos for development projects.

Washburn noted that while the popularity of New Jersey’s online sports betting platform benefits the state because it draws more betters who generate a higher tax rate than land-based venues, it also creates a barrier for the Atlantic City gambling business because people don't have to go there to place bets. She said the competing interests of offering online sports betting products and driving more casino traffic is among multiple challenges future states seeking sports betting bills will need to wrestle with.

“Other states looking to generate revenues similar to New Jersey and Nevada will likely need to offer a robust online offering and balance the tax rates so as to not compromise the economics for entrants and to capture a high percentage of the illegal market,” Washburn said. “The flip side to this is that to maximize tax revenue potential, a state needs to get more citizens betting and losing money, which may concern policy makers in some states.”

Atlantic City’s casino industry has seen overall growth since sports betting took effect with the total yearly gambling revenue up 27.3% through May compared to the same five-month period in 2018, according to New Jersey DGE data. After the closure of seven of its 12 casinos between 2014 and 2016, Atlantic City gained two new casinos in June with the opening of Hard Rock Hotel & Casino and Ocean Resort Casino.

An improved casino industry was cited by Moody’s Investors Service as an important factor for upgrading Atlantic City’s GO bonds four notches in November to B2 from Caa3. The improved Moody’s mark, which is still five notches below investment grade, put Atlantic City on par with S&P Global Ratings shortly after it boosted the city’s debt two notches to B from CCC-plus.


Former State Sen. Raymond Lesniak, D-Elizabeth, who spearheaded New Jersey’s efforts to offer legalized sports betting after filing a lawsuit in 2009, said including online betting was crucial not just for tax revenues but to aid Atlantic City casino operators. Revenue during the first year has been in line with what Lesniak forecasted and he now expects Atlantic City to soon surpass Las Vegas as the nation’s sports betting capital because of its proximity to the major pro sports cities of Philadelphia and New York City.

“We are passionate about our sports teams and that translates to placing bets on those teams,” Lesniak said. “I can’t say enough about how successful sports betting has been in the first year.”

New Jersey has generated $2.9 billion in bets in the 12 months since launching including $318.9 million for May alone. Last month’s active betting month positions the Garden State to overtake Nevada as the nation’s largest sports betting market. Nevada, which doesn’t release its sports betting data until later in June, had a near-record $315.5 million handle in May 2018.

“We knew that sports betting in New Jersey would be successful, but it is fair to say that so far it has exceeded our expectations,” Gouker said. “$3 billion in bets in 12 months is an impressive milestone by any measure, and in just a year, New Jersey is set up to become the nation’s largest legal sports betting market.”

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