NJ Online Gambling On Target To Generate $35 Million In 2016 Tax Revenue
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Contrary To The Narrative, Tax Revenue From Online Gambling Has Been Huge For New Jersey

Thousands of shiny pennies
A lot has been made of the “disappointing” revenue the New Jersey online gambling industry has generated for the state.

This descriptor has been attached to the industry not because it has been a flop, but because of unrealistic expectations.

In reality, online gambling is one of the best performing new revenue streams for New Jersey. And if recent trends hold, it only stands to grow stronger in 2017.

Impractical projections placed industry at unfair disadvantage

Initial estimates had the market size ranging from $250 million to upwards of $1 billion. And it was the high-end numbers the state’s governor, Chris Christie, decided to tout — numbers some pushed back against.

When the market tallied just $135 million in Year One (Christie predicted tax revenue to be $160 million), the critics found their rallying cry.

Mainstream news sources were quick to point out the vast discrepancy between Gov. Christie’s projections and the actual performance of the industry. This fueled the narrative that the industry was a flop.

Despite its stigma as a failure, as Year Three comes to a close, New Jersey’s online gambling industry is flirting with $200 million a year, and it’s seeing average monthly revenue growth of about 35 percent over the course of 2016.

That trend began in 2015 and shows no signs of slowing down. This is a clear signal that 2017 will be even better on the revenue front.

Breaking down NJ online gambling revenue

How much money has online gambling contributed to state coffers?

During their three year existence, online gambling websites have contributed more than $66 million to the state of New Jersey through the 15 percent tax levied on NJ gross gaming revenue. The 2016 tally alone will be close to $30 million.

In addition to the 15 percent GGR tax, there is also a 2.5 percent tax on revenue that goes straight to the Casino Reinvestment Development Authority (CRDA), and it’s earmarked for redevelopment projects in Atlantic City.

Furthermore, per the 2013 law that authorized online gambling in the state, New Jersey online gaming operators (of which there are currently five: Borgata, Caesars, Golden Nugget, Resorts, and Tropicana) are required to contribute $250,000 annually toward compulsive and problem gambling research and treatment. This amounts to another $1.25 million.

Finally, there is also a $250,000 permit renewal fee that must be paid by each online gambling operator, resulting in another $1.25 million for the state.

2016 revenue

Here’s how it all adds up:

  • 15 percent online gambling tax revenue = estimated to be as high as $30 million
  • 2.5 percent tax to the CRDA = estimated to be as high as $5 million
  • $250,000 annual permit renewal fee = $1.25 million
  • $250,000 annual responsible gaming fee = $1.25 million

The grand total for 2016 will be at least $35 million, and perhaps as much as $37.5 million, depending on the November and December revenue numbers.

As former Illinois Senator Everett Dirksen (never actually) said, “A billion here, a billion there: pretty soon, you’re talking real money.” For online gambling in New Jersey it’s “a million here and a million there,” but the end result is the same: The industry is generating some serious money for the state.

It should also be pointed out that this tally doesn’t account for the jobs created, taxes on winnings, economic impact from marketing spend, or several other ancillary revenue streams the industry is generating.

Still better than mostly anything else

Even if you want to classify online gambling as disappointing, it still beats almost everything else that has been passed or even proposed. The revenue generated from online gambling represents (based on my research) the second largest new tax revenue stream in the state since the industry launched in late 2013.

So, while it may not be the billion-dollar industry the governor had hoped for, it’s still outpacing all but the recently enacted 23 cent gas tax, which is slated to generate $1 billion per year.

There is actually very little else to which to compare online gambling revenue on the tax front, as the Christie administration has been loath to raise or impose new taxes. But there have been a few legislative efforts that put the amount of money online gambling is generating into proper context.

In 2014, a bill that would have imposed a 75 percent tax on e-cigarette devices, as well as a tax increase from 30 percent to 68 percent on some tobacco products (including cigars, smokeless tobacco, and loose tobacco products), would have generated an estimated $22 million annually. The bill passed a committee before dying in the Senate.

A somewhat similar proposal was made by Governor Chris Christie that would have generated $35 million in new tax revenue. Christie’s proposed tax on e-cigarettes was never enacted.

Comparing online gaming tax revenue to existing tax revenue

Not only has online gambling been the single biggest source of new tax revenue in New Jersey, but it’s also a significant amount of revenue when compared to some of the longstanding taxes collected by the state.

If we compare the tax revenue being generated by online gambling to other, better-known sources of tax revenue, online gambling is less, but not by as much as one would expect.

According to official state documents:

  • Cigarette taxes add about $150 million to the state’s coffers annually; cigarettes are taxed at $2.70 per pack in New Jersey.
  • The state’s alcohol excise tax brings in about $110 million annually.

Upshot

Online gambling may not be the tax revenue panacea the state of New Jersey was hoping for, but its loss would be a significant blow to the state, especially considering the lack of new tax streams since 2013.

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Steve Ruddock
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Steve covers nearly every angle of online poker in his job as a full-time freelance poker writer. His primary focus for OPR is the developing legal and legislative picture for regulated US online poker and gambling.