Companies & Industries

New Jersey's Casinos Are Sinking Faster Than Online Gambling Can Rise


An Atlantic City casino

Photograph by Spencer Platt/Getty Images

An Atlantic City casino

Six weeks into the era of legalized online gambling in New Jersey, the state has released the first data (PDF) about how much people are gambling on the Internet. Casinos brought in $8.4 million from Nov. 21, the day of online gaming’s soft launch, through the end of the year. This added $1.2 million the state’s coffers. But even with the addition of online gambling, the state’s casinos brought in less money in December than they did in December 2012.

New Jersey is one of three states to have legalized online gambling and it’s the biggest market for it in the U.S.. The launch got off to a shaky start, marred by some technical glitches and patchy marketing. Forecasts about the level of activity ranged widely; industry blog Online Poker Report estimated last week that the first six weeks would bring in $10.5 million. The consensus seems to be that the numbers were at least mildly disappointing.

The brick-and-mortar casinos hoping to shore up operations with online games continue to flounder, however. Excluding online gaming, Atlantic City, N.J., casinos brought in $2.9 billion in 2013, down from $3.1 billion the year before. It’s the seventh straight year the industry has made less money than the year before, and total revenue is down 45 percent since 2006, according to the Center for Gaming Research at University of Nevada, Las Vegas. If the business at the physical casinos shrinks at the same rate this year, the online business would have to approximately double in size to keep up.

That’s not a ridiculous thought. Tech products usually aren’t perfect at launch, and marketing deals such as those signed by the 76ers and New Jersey Devils will probably help. But it’s unclear how much online business will come from people who stay home from casinos, rather than those who weren’t gambling at all.

Mark Lipparelli, a former chairman of the Nevada State Gaming Control Board, says online gambling shouldn’t threaten physical casinos. “Their audiences are quite different,” he says—at least for now. Lipparelli says it’s hard to tell how tastes for gambling will evolve over decades, rather than months.

Still, online gambling is only the latest incarnation of a widespread trend that is undermining casinos. New forms of legal gambling are flooding the market. New Jersey’s casinos used to be able to reliably draw people across state lines. As more states have been seduced into liberalizing their own gambling rules by the promise of easy tax revenue, the industry has suffered. There ay be a limit on how much people want to gamble.

What’s more, New Jersey’s online gambling is designed less to draw people from other states than it is to convince local residents to play from home. Pennsylvanians can’t simply log into the website of a New Jersey casino and place wagers from the couch. Soon they might not want to; rumor has it that lawmakers in Pensylvania may be next to try to squeeze tax dollars from Internet gaming. It’s not clear whether the odds are in their favor.

Brustein is a writer for Businessweek.com in New York.

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