NJ iGaming Revenue Numbers Not As Bad As You Think

Ask people how New Jersey’s online gaming industry has fared over its first year and the answers would give you with the distinct impression that the sky was falling.

The public perception of New Jersey’s online gambling industry is one of abject failure. A disaster of biblical proportions. And on top of that you have the paltry markets in Nevada and Delaware.

On the surface the return of online gambling to the U.S. seems to be a lot more fizzle than sizzle.

All that being said, the public perception and the media narrative of iGaming in New Jersey are flat out wrong in my opinion.

Whose numbers are you using?

The media (no doubt spurred on by some behind the scenes cheerleading from iGaming opponents) would have you believe that the revenue numbers are so far off from the initial projections that the industry and those that sold it to us deserve our ridicule and scorn.

The truth is, all of those ridiculous billion-dollar industry projections from 2013 were offset by the more tempered analysts.

Unfortunately, the people with the biggest voices didn’t want to talk about low-end projections, they wanted to think big and sell iGaming as the cure for the state’s budgetary ills, and in doing so have tagged what has been a pretty successful launch of a new industry as a failure in the public’s eye.

Payment processing and other obstacles

It’s not simply crazy projections that have hurt the industry either.

This month’s revenue report (down 7% month-over-month) and the possible reasons behind it are a perfect example of the struggles New Jersey iGamning operators are dealing with. According to Chris Krafcik of GamblingCompliance:

This singular issue likely accounts for a significant amount of the 7% drop in revenue from September to October in New Jersey.

When we consider all of the different obstacles the market faces (Black Market sites, payment processing, geolocation, player verification) it’s not out of the realm of possibility to believe their removal could increase the size of the market 25% virtually overnight – or whatever number you’d like to plug in.

Disinterest in online gambling isn’t the reason for the underwhelming revenue numbers thus far, it’s a combination of regulatory roadblocks, lack of consumer education, lackluster software, and outside forces such as the policies of credit card companies and Paypal that are contributing to it.

NJ represents just 3% of the population

Furthermore, the revenue numbers aren’t that bad, it’s just a small market.

At G2E Sheldon Adelson scoffed at the revenue numbers produced by the New Jersey online gaming operators (as if this is a valid reason to prohibit an industry), saying he can make $10 million in 10 minutes in one of his casinos.

This is true, the online gambling revenue being generated in New Jersey is certainly underwhelming at this point, especially when compared to a destination casino’s earning power.

What Adelson is failing to mention is New Jersey and it’s 8.9 million residents represents less than 3% of the total population of the U.S.

Based on New Jersey’s numbers, if online gaming were legal across the country it wouldn’t be bringing in $10,000,000 a month in revenue, it would be bringing in about $350,000,000 a month in revenue, or $4.2 billion annually.

For comparison’s sake, Las Vegas Sands casino in Bethlehem, PA (Sands Bethlehem) managed to generate only about 1/10th that amount ($456 million) in 2013.

The entire Las Vegas Strip managed to pull in a similar amount, $496 million in the month of September.

Finally, nationalized online gambling (worth $4.2 billion annually) would generate more revenue than the entire casino industry in Pennsylvania or Atlantic City.

Yes, we can scoff at the numbers coming out of New Jersey, but when you put them in perspective they begin to tell a different story.

Bear in mind these are the numbers using New Jersey’s “disappointing” revenue numbers from Year 1 of its online gambling experiment. As the market matures (and obstacles are removed) these numbers are expected to rise.

A reasonable five year outlook

Unfortunately, it’s unlikely that online poker is going to suddenly be legal federally, and even if it is, states will have the option to “opt-out” which many will likely do.

But even more prudent models of iGaming expansion show the massive potential the industry has even if just a handful of new states expand into online gambling.

California alone would generate 4-5x the revenue of New Jersey – although it should be noted California is looking at poker-only expansion, giving the California online poker industry a valued of somewhere between $200-$300 million.

Even without California, an interstate agreement that combined New Jersey with Nevada, Delaware, Pennsylvania, Massachusetts, and New York, would create an online poker market that could draw from a population of over 50 million, 12 million residents beyond California’s current population.

While it may never grow to a $4 billion industry, there are many paths that would allow online poker and online gambling to become a multi-billion-dollar industry.

Ancillary markets

I keep making this point in column after column because I feel it is extremely important and an often overlooked aspect of the iGaming industry: The $10 million per month of official iGaming revenue in New Jersey is just a drop in the bucket.

I’ve seen information from an industry insider who wished to remain anonymous that showed $4.3 million was spent on TV advertising in March of 2014. Add in radio, Internet, billboards, and print advertising and we can conservatively estimate that at least $5 million per month is spent on advertising by the New Jersey economy by iGaming companies.

There is also the licensing costs associated with iGaming, not just for the half-dozen operators, but also for the dozens and dozens of third party vendors.

Furthermore, each site employees dozens of people in New Jersey and around the country. The online gambling industry in New Jersey is likely directly responsible for 300-600 jobs (depending on who you ask), and hundreds more who have been hired to analyze, report on, and act as affiliates in some way.

People are up in arms over the jobs lost every time a casino closes in Atlantic City, but has anyone considered the potential 1,000 jobs that could be lost or impacted if online gambling was somehow banned in the U.S.?

The economic impact of iGaming expansion is far larger than the official Gross Gaming Revenue numbers reported each month.

About the Author

Steve Ruddock

Steve is a seasoned veteran of the online gambling industry, having written about it from every possible angle in his many years as a freelance gaming writer. Based in Massachusetts, Steve especially focuses on regulatory and legislative news coverage pertaining to the U.S. market.