Bloomberg News

New Jersey’s Debut of Online Betting Marks Test for U.S. Casinos

November 26, 2013

Caesars Palace Hotel and Casino Stands in Las Vegas

Hotel owners such as Caesars Entertainment Corp. plan to use their marketing muscle, including loyalty programs and casino perks, to cross-promote online and in-person wagering. Photographer: Ronda Churchill/Bloomberg

New Jersey resident Trever Walton has been visiting casinos from Atlantic City to Las Vegas for more than two decades.

Now that the Garden State has legalized online gambling, he can wager from the comfort of his own home as well.

As the most populous state to allow residents to place bets over the Internet, New Jersey will test whether virtual and land-based casinos can thrive side-by-side. Gambling companies in Atlantic City, where revenue has shrunk for almost seven years, and their online partners lobbied for legalization, arguing that Web-based poker, blackjack and slots would bring in fresh revenue and bolster their properties.

“This is going to be lucrative for the casinos,” Walton, a 44-year-old technology manager from Westfield, said in an interview. “You can win money online and then go cash in. You tell yourself, ‘I have $500 now to go to the Taj Mahal.’ You feel like it’s a free trip.”

Hotel owners such as Caesars Entertainment Corp. (CZR:US) plan to use their marketing muscle, including loyalty programs and casino perks, to cross-promote online and in-person wagering. The companies will advertise on TV and even on room keys to reach New Jersey’s 8.9 million residents, as well as visitors.

“You’re going to see a lot of integration, a lot of tie-ins to land properties,” said Mitch Garber, chief executive officer of Caesars Interactive Entertainment.

Six casinos, including ones owned by Boyd Gaming Corp. (BYD:US), Tropicana Entertainment Inc. (TPCA:US) and Trump Entertainment Resorts Inc., received permission to offer Web-based betting, according to the state’s website.

Player Demand

State officials are optimistic. New Jersey, which began testing on Nov. 21, has been inundated with players, David Rebuck, director of the state’s Division of Gaming Enforcement, said on a conference call with reporters yesterday. More than 10,000 players registered in the first three days, he said.

In March, Governor Chris Christie forecast $1.2 billion in online revenue for the operators this fiscal year and $180 million in tax collections. That compares with a Bloomberg Industries estimate of $425 million in revenue for New Jersey in calendar 2014, or 83 percent of the U.S. total.

The market faces obstacles, including opposition from Sheldon Adelson, founder and CEO of Las Vegas Sands Corp., the world’s biggest casino operator. He is campaigning for federal legislation to ban Web betting.

Adelson said in a June opinion piece on Forbes.com that losses to land-based casinos “could be substantial and even lead to their eventual demise.” He has also raised moral objections to online betting, and has argued casino patrons are more easily monitored than someone playing at home.

Wrong Location

Technical kinks also have to be worked out. Bank of America Corp. (BAC:US), Wells Fargo & Co. (WFC:US) and American Express Co. (AXP:US) are refusing to allow their credit cards to be used for online gambling, and some would-be players have experienced problems signing up for trials casinos have run since Nov. 21.

Dennis Lopez, 35, of Somerset, New Jersey, said he had difficulty registering for the Caesars and Borgata Hotel Casino & Spa sites when the software incorrectly identified him as outside the state and ineligible to play. Lopez, who runs the repair department of a camera manufacturer, eventually joined a poker tournament, got kicked off and had smoother service after logging on again.

“I would definitely play online more, but I would still go to the casinos,” Lopez said in a telephone interview after being reached through PocketFives.com, a website for poker enthusiasts. “I like the feel of playing in a live atmosphere, talking to people.”

Rebuck, the state gaming official, said his office was in talks with software companies to solve location errors.

Revival Hopes

Reviving the state’s casino industry was a key part of New Jersey’s decision to legalize Internet wagering for visitors and residents within its borders in February.

Gambling revenue in Atlantic City fell 40 percent to $3.05 billion in 2012 from a 2006 peak, as neighboring states such as Pennsylvania expanded their offerings. The New Jersey law signed by Christie, a Republican, requires computer hardware to be located in Atlantic City casinos.

State Senator Raymond Lesniak, a Democrat from Elizabeth who sponsored the bill, has proposed expanding the legislation to allow firms to take bets from international customers.

Peak Time

New Jersey is introducing online betting at the peak time for players -- during the winter, when people stay inside -- according John Shepherd, a spokesman for Gibraltar-based Bwin.Party Digital Entertainment Plc, which is supplying the technology for the Borgata, which is owned by Boyd Gaming (BYD:US) and MGM Resorts International (MGM:US)

Bwin sponsors World Poker Tour events at casinos in Europe, with players chosen in online qualifying rounds. The company plans similar events at the Borgata.

Golden Nugget Atlantic City, a division of Houston-based Landry’s Inc. (LNY:US), has limited permission to operate, according to Rebuck. The company is preparing a TV campaign for December, said the casino’s vice president of marketing, D’ann Glenn. The ads, built around the slogan “For people who love New Jersey,” will feature people playing on laptops and mobile devices in places reconizable to natives.

Casino employees, meanwhile, are being told to talk up online products such as a “Ghostbusters” slot-machine game. “There’s lot of buzz throughout the city,” Glenn said.

Watching Jersey

Other states will be watching New Jersey, with an eye to following suit if online betting takes off, according to Robert Heller, president of Spectrum Gaming Capital, a consulting firm based in New York.

Of the two other states that have legalized online gambling, Nevada only allows poker. Delaware’s is run by the state, with horse-race tracks that operate small casinos.

In Europe, where Internet gambling is a $15 billion business, casinos are smaller and less dependent on slots, according to Brian Mattingly, chief executive officer of 888 Holdings Plc, the Gibraltar-based online-gambling company working with Caesars.

As many as 18 states may legalize Web betting by 2018 -- depending on how New Jersey fares, Heller said.

“New Jersey is important,” Heller said. “It’s a big bet.”

To contact the reporters on this story: Christopher Palmeri in Los Angeles at cpalmeri1@bloomberg.net; Elise Young in Trenton at eyoung30@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net; Stephen Merelman at smerelman@bloomberg.net


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Companies Mentioned

  • CZR
    (Caesars Entertainment Corp)
    • $16.98 USD
    • -0.14
    • -0.82%
  • BYD
    (Boyd Gaming Corp)
    • $10.95 USD
    • -0.19
    • -1.74%
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