John Brennan was the first I saw to question New Jersey’s official estimates regarding online gambling revenue.
As Brennan and others have noted, there’s a considerable gap – nearly a billion dollars – between what the state is projecting for first-year online gambling revenue ($1.2 billion) and forecasts from analysts.
So who’s right? And what exactly can we expect in terms of online casino revenue – and therefore tax revenue – in the initial year of regulated online gambling in New Jersey?
Before I take a whack at that question, a few important notes:
Let’s start with a quick comparison of New Jersey’s estimates and a selection of industry research reports.
That’s a pretty broad range.
Eliminate the NJ projections (because they just restate Wells Fargo), add up all the other scenarios and you’re looking at an average estimate of about $412mm in GGY for New Jersey’s first calendar year offering online gambling.
Chuck out NJ, the highest and lowest projections and the consensus forecast for year one online gambling GGY for New Jersey operators becomes $261mm.
GamblingData, sister site of information provider GamblingCompliance, based its New Jersey report on data from the Italian market. So I thought a back-of-the-napkin modelling of New Jersey based on the UK gambling market might provide further context for the above projections.
This is obviously a very crude analysis. But it nonetheless indicates that high-end estimates for New Jersey are not supported by comparisons to mature, online gambling markets with high participation rates.
The clear conclusion at this point: New Jersey’s official estimates are inconsistent with both analyst estimates and data from comparable markets.
But there are additional arguments supporting a GGY projection on the low end of – and perhaps even lower than – consensus projections:
Of course, there are some reasonable points that can be raised to support a higher-end estimate for the first year of regulated online gambling in NJ (although not enough to lend credence to New Jersey’s official projections):
I agree with (just about) everyone else – New Jersey’s official estimates are driven far more by political need and budgetary magic math than by sober, rational analysis of the market.
But how far off are they? Two important conditions impact that answer.
First, I believe that PokerStars will have a material impact on the size of New Jersey’s online gambling market. The company has the software, the expertise and the customer list to immediately command substantial market share in New Jersey. But I think PokerStars also expands the market; the interest in their return, the pressure PokerStars places on competitors to offer more value to players and their proven marketing savvy all suggest PokerStars can bring players into the market that might otherwise pass.
Assuming PokerStars gets the nod from regulators, and that the launch of real-money gambling takes place within a month or two of the start of the fiscal year, I think we can reasonably expect a $250mm -$300mm GGY for New Jersey’s first year.
Those are both big assumptions. The bigger of the two is that the state of New Jersey will be ready to launch real-money online gambling by (or near) to the start of their 2014 fiscal year in July 2013.
I don’t have any first-hand information regarding how far along regulators are in New Jersey, but from a public perspective a July launch seems implausible at best. No licenses have been issued and regulations have yet to be promulgated, reviewed & adopted. In fact, we don’t even know what games are approved for online play in New Jersey.
Every month that NJ delays beyond the start of the fiscal year chops somewhere between $20mm – $25mm from their GGY potential for (fiscal) year one.
New Jersey certainly has the potential do $300mm+ in the first calendar year following launch. If PokerStars is part of the equation, I could see that number moving up toward $330mm.
But on the question of the likely GGY for fiscal year 2014, I’d imagine we’ll end up looking at a number much closer to $150mm – $200mm. Given the progress to date, I just can’t see a full-fledged launch until fall 2013 at the earliest. And even that could prove optimistic.
In this scenario, the State of New Jersey is overstating expected revenue from online gambling for FY 2014 by roughly $1b, and, ergo, overstating tax revenue by about $150mm.