Betting on the Future of Gambling in New Jersey

Tara Nurin | August 6, 2012 | More Issues
Racinos, pop-up casinos, sports betting, Internet action, and mobile apps -- gaming in the Garden State could wind up meaning much more than Atlantic City

During a season that’s brought Jimmy Buffett to Atlantic City to announce the addition of the music superstar’s Margaritaville mini-casino complex to the market, the future of gambling in New Jersey continues to take center stage for industry leaders and lawmakers in Trenton and Washington, D.C. Over the past several months, state and national legislators have drafted more than a dozen bills to expand gaming in the state to include sports betting, gambling via the Internet and mobile apps, and wagering at horsetracks and at special events. Some of these activities are already being implemented at the state level despite violating federal law.

As new casinos in New Jersey’s border states rapidly siphon off gamblers who until recently had few options outside Atlantic City for spending their dollars, elected officials are desperate to recoup fortunes that continue to dwindle at alarming rates. This is despite the disappointing opening of the $2.4 billion Revel resort in May and the recent launch of the $150 million Atlantic City Alliance (ACA), founded to promote the city’s non-gaming activities. Over the year that ended in June 2012, Atlantic City’s gaming revenue dropped nearly seven percent, according to the Atlantic City Convention & Visitors Authority, and in the same month, the official visitors center booked hotel rooms for 77 percent fewer nights than it had the year prior.

Meanwhile, Pennsylvania, which licensed its first casino in 2006, has emerged as the nation’s second-highest grossing gambling destination behind Nevada. And the nine-month-old Resorts World New York City in Queens, NY, which houses slots and electronic table games, celebrated a $57 million month in May, earning it a higher monthly profit than any other casino in the nation. The company reports that the Queens property, casually known as “Aqueduct,” contributed $40 million to New York’s tax coffers in May, while the month prior, the combined total of tax receipts paid by the 41 casinos on the Las Vegas strip amounted to $30 million. At the same time, Atlantic City’s gambling properties paid a total of $18 million. Observers credit the population density around Aqueduct for the staggering gains.

Perhaps it is this dire financial portrait that has reframed the debate about legalizing new forms of gambling in New Jersey: no longer do lawmakers bother to challenge them on the grounds of moral ambiguity, their addictive allure, or their potential threat to the financial well-being of families. Now the arguments begin and end with economics. However, that does little to make the issue less controversial.

Firing the Starting Gun for Racinos

The most fervent — and divisive — movement is the one to end Atlantic City’s monopoly on gaming by spreading it to the state’s racetracks, with a push to construct a full-scale casino at Meadowlands Racetrack that would ostensibly provide a more convenient venue to New Yorkers wishing to idle away a few hours at the slots or tables. While leaders in the northern part of the state float proposals though legislative channels in an effort to pry open the gates to these so-called “racinos,” Gov. Chris Christie and his southern allies flatly oppose any action they say would diminish Atlantic City’s chances for recovery.

Christie and Senate President Stephen Sweeney (D-Gloucester) have repeatedly refused to consider legislation before the termination of a five-year timeline to test the success of the ACA’s marketing initiatives. Various bills to allow slots and video lotteries, plus others seeking to initiate study groups, pilot programs, and constitutional amendments for racetrack wagering have all stagnated in committee with Christie promising in his characteristic bluster at the announcement about the arrival of Margaritaville, “I can guarantee you that there is no way that if anybody in the Assembly or any place else puts some bill up to have gambling in any place other than Atlantic City, that it will go to die in the state Senate. Between the two of us [Sweeney and himself], Atlantic City is going to have exclusivity.”

But as Atlantic City’s prospects wither so do those of the state’s horse racing industry. The $30 million annual contribution from the Casino Reinvestment Development Authority (CRDA) to fund the ACA was diverted from a subsidy for racing and leaves the state’s four racetracks as the only ones within a five-state region to receive no state support. Racetrack operators say New Jersey’s once-dominant horse racing and breeding industry has nearly collapsed without purses sizable enough to attract top talent, but insist they could recoup many of their losses with a boost from gambling revenue that would at the same time refill the state’s tax coffers.

Jeff Gural, who took over as operator of the Meadowlands in January after a decision by Christie to privatize the tracks, estimates he’d accrue $750 million annually from an on-site casino. He’s offering to pay the same 55 percent tax imposed on Pennsylvania casino operators if he receives the state’s blessing, which would, according to his projections, translate to $350 million each year for the state’s coffers. Gural expects Atlantic City casinos, taxed at a rate of 8 percent, to generate just $250 million for the state this year.

Though he doesn’t disagree that the ACA’s plan should be given time to succeed before legislators green-light racinos, he feels two years is enough to keep taxpayers and gamblers in North Jersey and New York waiting.

“The effect of having a casino at the Meadowlands would be minimal on Atlantic City,” said Gural. “Daytrippers want to go to the closest place and Atlantic City is 130 miles from the Meadowlands. It certainly makes sense to protect jobs in Atlantic City but racing creates jobs, too. And here at the Meadowlands we already have the infrastructure in place.”

“This is not an anti-AC position,” adds Assemblyman Ralph Caputo (D-Belleville), who has sponsored several bills to allow gaming outside of its current stronghold. “AC will be a destination and a resort but we need to offer convenience gambling to offset the unimaginable accumulation of revenue in Pennsylvania and New York. The only way to stop this is for locations across the state to co-exist.”

But Sen. Jeff Van Drew (D-Cape May), who objected to an Assembly Regulatory Oversight and Gaming Committee hearing that took place at the Meadowlands two weeks ago, is one of many South Jersey officials who don’t want to wager on those odds.

“There’s only so much gaming to go around,” he said. “Casinos at racetracks would cannibalize profits and reduce investment in Atlantic City.”

Pop-Up Casinos

In an effort to raise the public’s comfort level with gambling outside of Atlantic City, Assemblyman Timothy Eustace (D-Bergen) and Sen. Loretta Weinberg (D-Bergen) are both striving to advance the concept of the “pop-up” casino. Following the trendy pop-up restaurant and boutique model and the more time-tested example of special-use permitting, these legislators are hoping to introduce separate bills this summer that would allow for temporary casinos at major events. While Weinberg intends to propose a pop-up exclusively for the 2014 Super Bowl to be played at the Meadowlands, Eustace’s bill will be more inclusive of additional crowd-drawing festivities like Wrestlemania at MetLife Stadium in April 2013 the Formula One Grand Prix race anticipated for Weehauken next June.

To improve its chance of passage, Eustace will write few parameters into his bill, though he speculates a pop-up casino could take form under a large tent managed by an existing license holder, or maybe one day, even the Meadowlands itself.

“I would love for it to be a Meadowlands casino. That would be wonderful but I’m more pragmatic than that. If we get it to work who cares who the operator is?” he said.

Eustace says he’s received preliminary support from one South Jersey lawmaker and one member of the gaming commission — both of whom he declined to name — but for his part, Van Drew opposes the concept because he “doesn’t want to go down that slippery slope.”

Betting on Sports

At the federal level, sports betting is illegal in all but four states. New Jersey is not one of them (the legal ones). However, Christie and Trenton lawmakers are encouraging casino and racetrack operators to launch sports betting activities in defiance of federal laws in hopes that the U.S. Justice Department or the National Football League, which opposes betting on its games, will bring them to court and lose. So far, according to published news reports, only The Revel and Monmouth Park have admitted to pursuing or contemplating the action; the others, although in favor, are waiting for someone else to make the first move.

“From my perspective, if and when it gets sorted out it, it will be a big plus for Atlantic City and the racetracks, which have been struggling for years,” said Tony Rodio, president of the Casino Association of New Jersey and the president and CEO of Tropicana Entertainment, who’s waiting for the issue to be resolved federally before rolling the dice. “It could certainly give a tremendous boost. In Las Vegas the books drive considerable amount of traffic every Sunday and the other three days a week football games are being played. Here in Atlantic City, given our proximity to New York and Philadelphia, I think it could be an even bigger draw.”

Las Vegas generates $75 million in sports betting annually, and Rodio believes AC could take in two-to-three times that amount in gambling revenue, before even adding in the profit made from ancillary spending on dining, entertainment, lodging, and other gambling. It is primarily for this reason that Christie signed sports betting into law in New Jersey after lawmakers were informed by the federal courts that they could not sue the government to change federal statue. Instead, New Jersey entities would have to serve as defendants, and only after a violation took place. In November, legislators, who are constitutionally required to hold a statewide referendum on any change to gaming laws, put the sports betting question to voters, who approved it by a margin of 2-1 for pro games, as well as college games that are played outside of the state with no Jersey teams. The Division of Gaming Enforcement issued its draft regulations in early July. The division expects to start processing applications this fall at the conclusion of a 60-day public comment period.

But most operators are still hesitant to provoke federal regulators, especially if they own properties outside of New Jersey. Both Monmouth Park and The Revel are independent properties with no out-of-state ownership ties.

“I certainly don’t want regulators in other states who review our licenses to see that we went against the federal law, which could possibly cause them to have a negative view of our suitability as license holders,” Rodio said.

While New Jersey tries to get the matter tried in court, U.S. Congressmen Frank LoBiondo (R-1st) and Frank Pallone Jr. (D-6th) are working to change the national laws. Pallone has introduced a bill to exempt New Jersey from the ban, and LoBiondo has introduced one to temporarily re-open the window that closed in the early 1990s for states to apply to sponsor sports betting.

Sen. Raymond Lesniak (D-Union), who cosponsored the state’s sports betting bill, says though he’s very confident New Jersey can win a lawsuit and has volunteered to be the first person to place a wager, “If we had to rely on Congress I wouldn’t be confident at all.”

The congressional bill could face difficulties in the Senate, whose president, Harry Reid, represents Nevada.

Internet and Mobile Gambling

In May, a Fairleigh Dickinson University PublicMind poll found that 58 percent of the state’s population disapproves of Internet gambling, and last year, Christie vetoed a bill to legalize it. Yet the issue is moving forward in Trenton once again, with the Assembly passing a bill in June, and Lesniak, who sponsored last session’s bill, waiting on the okay from the governor to revive his chamber’s present version. In a concession to Christie, this session’s bills exclude racetracks and others businesses to allow only casino license holders to initiate Internet gaming sites, which means all gaming revenue will remain in Atlantic City.

Said Lesniak of Christie, “He gave indications earlier this year that he would support it this time around. Then he backed away, now it’s my understanding he’s back on board.”

Gov. Christie told reporters in January that he believes New Jersey should be “the epicenter” of the industry.

As was expected, in December, the Justice Department issued an opinion that re-interpreted the Wire Act of 1961 to ease restrictions on Internet gambling, and states have been rushing to be among the first to legalize it. Delaware was the first with Nevada closing in on second place. Though for the most part players must stay within the borders of the state providing the software they’re using, states that offer legal online gambling can enter into compacts with one another to share players and profits.

The American Gaming Association reports that in 2010 Americans spent more than $4 billion placing illegal bets to offshore Internet gambling companies, which are legal in 85 countries. The Wall Street Journal reports that online gambling could produce up to $7 billion in gross revenue and $472 million in tax revenue for New Jersey.

“Atlantic City’s casinos desperately need the revenues to survive,” said Lesniak. “These players go offshore to these illegal internet gaming sites … and I fear a couple of casinos will close unless they get additional revenue.”

Meantime, Lesniak also expects the governor to sign a bill that introduces mobile gambling into casinos. Permitted for use only by players on casino grounds, these casino-generated mobile applications would allow visitors to place bets while strolling around individual casinos’ properties.

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