New Jersey is home to Atlantic City, one of the top gambling destinations in the United States. Atlantic City's casinos rake in an average of $200–300 million monthly.
Why, then, you may wonder, did New Jersey legalize online gambling in 2013 when it already had such a lucrative association with physical casinos? Why did legislators feel the need to add online gambling to their menu of available gambling opportunities?
A Legal LoopholeAt the turn of the 21st century, the growth of online gambling created a legal problem in the United States. In general, online gambling was legal because no law technically forbade it.
Even states that had anti-gambling laws on the books didn't have specific prohibitions against online gambling, as it was a completely new industry not foreseen by previous generations of lawmakers. To complicate matters, the Federal Wire Act prohibited betting across state lines, creating legal confusion.
The main reason New Jersey legalized online gambling, of course, was to make money.
Online gambling is incredibly lucrative. Before it became legal in New Jersey, the state only allowed casino gambling in Atlantic City. This was understandably limiting, requiring travel and accommodations.
While there are plenty of excellent casinos, hotels, and restaurants in the city, requiring people to be there in person to gamble physically does represent a barrier to access for a large percentage of the population interested in gambling.
There were other reasons for New Jersey to consider legalizing online gambling apart from the money-making opportunities.
In the early 21st century, a prominent online gambling market existed in other countries, including Europe. This availability of gaming outside the United States through the Internet created a black market in online gambling that was growing in size every year – and it was completely unregulated and untaxed at the time. It did not take long for state legislators to recognize how much money their states were losing out on.
In late 2010, New Jersey Senator Raymond Lesniak sponsored a bill that would allow online gambling by any resident of the state who was over the age of 21.
The bill specified that the gambling websites' online servers would be located within Atlantic City's licensed casinos so that they would work within the existing gambling legislation set by state law.
It also worked around any federal concerns by ensuring only bets placed within the state would be allowed.
New Jersey Governor Chris Christie vetoed the legislation in early 2011 over concerns it would allow other businesses, such as nightclubs, to run online gambling sites.
Later that year, new legislation was drafted to address that concern, limiting the location of online gambling and their advertising to only Atlantic City casinos.
In February 2013, the new bill was approved and signed into law, and New Jersey became the second state after Delaware to legalize online gambling.
New Jersey's new gambling law allowed online casino gambling for a ten-year trial period, setting a 15% tax rate on online casino revenue. The first online gambling sites opened that November.
When the law to legalize online gambling passed, officials estimated that the new industry would provide a casino with additional annual revenue of up to $400 million.
Within the first month of legal online gambling, the five existing license holders generated just under $1 million in revenue and just under $150,000 in taxation for the state.
Within five years, twelve online casino brands offered customers in New Jersey hundreds of options for online gambling and a wide variety of games.
At the time, it was estimated that New Jersey gained more than $100 million in tax revenue from its new online gambling industry.
By 2017, revenue from online casinos exceeded that of some physical casinos in Atlantic City, with monthly gains well into the millions of dollars.
In October 2018, New Jersey's two dozen online gambling sites saw their largest month, making nearly $27 million in revenue alone, generating more than $4 million in taxes for the state.
By that October, the year-to-date revenue was edging up towards $250 million, and the overall revenue in the state hit the billion-dollar mark in December.
Today, New Jersey is considered the model for regulating online gambling. The state has a large population, a history of casino gambling, and an organizational infrastructure that has made online gambling a considerable success.
New Jersey legalized online gambling to capitalize on the burgeoning digital gambling market and to bring additional revenue into the state. Despite Atlantic City's success in physical casino revenue, the state recognized the limitations of requiring physical presence for gambling. It sought to remove these barriers, allowing more comprehensive access to the gambling market.
The drive to legalize online gambling in New Jersey was primarily motivated by the financial benefits. Online gambling was a lucrative market that could significantly increase the state's revenues. Additionally, it aimed to curb the growing black market of unregulated and untaxed online gambling accessible to residents through international platforms, ensuring these funds stayed within the state.
New Jersey navigated the legal complexities of online gambling by ensuring that all online gambling servers were located within Atlantic City's licensed casinos, aligning with state gambling laws. This setup also addressed federal concerns by restricting online bets within state lines, avoiding interstate betting issues.
Governor Chris Christie initially vetoed the online gambling bill over concerns that it could allow businesses outside of Atlantic City, like nightclubs, to run online gambling operations. Subsequent legislation was amended to restrict online gambling licenses and advertising strictly to Atlantic City casinos, which addressed these concerns and led to the bill's approval.
Since the legalization of online gambling, New Jersey has seen a substantial increase in state revenue from this sector. Within the first month, online gambling generated significant profits, and by 2017, online casino revenues sometimes exceeded those of physical casinos in Atlantic City. By 2018, online gambling revenue in New Jersey reached nearly $27 million in a single month, highlighting the significant financial impact of this industry on the state's economy.
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