New Jersey's gambling resurgence may only be temporary

Gambling revenue in New Jersey has rebounded in a big way behind sports betting and Internet casino play, but is this growth sustainable?

In recent months bettors wagered more in New Jersey than any other state

The biggest talking point in the gambling industry this past year has been about the resurgence of gambling revenue in the Garden State. Only a handful of years ago casinos in Atlantic City were shutting down in droves, racetracks were worried about their survival and many were questioning if the gambling industry in New Jersey was still viable.

After all, in 2006 New Jersey was generating over $5 billion in revenue and Atlantic City was still seen as the place to go in the northeast for gambling. Since then, however, revenue and profits have declined steadily. By 2010, revenue was down to about $3.5 billion and hit a low in 2015, when revenue came in at about $2.56 billion. The low figure was almost certainly due to the closure of five Atlantic City hotels in 2014, including the Atlantic Club, Revel, Showboat, Trump Plaza and Claridge, and the revenues were likely only saved from dipping below the $2 billion figure thanks to the introduction of online gambling in 2013. Since then, however, revenues have slowly risen each year and in 2018 revenues rose to almost $2.9 billion primarily due to the introduction of sports betting after the Supreme Court repealed PASPA.

Atlantic city casino revenueAlong with being a new betting opportunity, much of that sports betting took place at the racetracks in larger New Jersey cities, rather than in Atlantic City. Also helping revenue in 2018 was the opening of two new casinos in Atlantic City, namely the Ocean Resort Casino, which took over the old Revel building and land and the Hard Rock Casino, which took over the old Trump Taj Mahal property.

Impressive Gambling Revenue Numbers

The 2018 results have continued this year and the revenue figures have been remarkable. Along with sports betting, which has superseded wagering handle on sports in Nevada, Atlantic City revenues have risen each quarter with the nine casinos generating almost $1 billion in revenue in the third quarter of this year alone, up almost 3% from the previous year. Most of the revenue for the casinos was generated from online gambling at Borgata, Golden Nugget, Resorts Casino, Tropicana and Caesars Interactive, and the revenue at the two new casinos has been quite high, as is often the case when a new venture opens. 

Unfortunately for Caesars, the revenue and profits at its land-based casinos, namely Bally’s, Harrah’s and Caesars have declined. The only product that seems to be a bust and has never gained much traction in New Jersey is online poker. It seems the excitement for the product that was generated in the industry in the early 2000s, when the likes of Chris Moneymaker and Greg Raymond won millions at the World Series of Poker, after getting a seat via a small buy-in satellite, has waned. Much of this decline is due to the low volume at online poker games and the limited number of online tournaments, but it is also true that interest in poker has always gone in cycles. When Stu Unger and Doyle Brunson were winning tournaments in the 1980s poker interest was quite high, but it never really peaked again for close to two decades when Moneymaker won the WSOP.

Long term growth vs. revenue spike

The question being asked now is whether these new revenue figures are truly indicative of a new resurgence for gambling in New Jersey or whether it’s just a blip. I talked to a couple of gambling analysts who were not convinced this is sustainable. 

'Jack', who works in the industry in New Jersey was hardly excited:

"I kind of equate this to something like the donut industry. If I was a Dunkin Donuts franchisee who saw his revenues decline by almost 60% in ten years I’d be concerned and wonder about my future. I am not blind to the changing trend of avoiding high carb and high fat products so I would have to be wondering whether I should continue. I would be quite pleased if the parent company came out with new vegan friendly and non-carb options for those that don’t want to buy donuts. And I would be somewhat optimistic if those new products proved to be popular enough that I saw a 10% increase in revenue, but I would still have to wonder if that is enough and if it was sustainable.  How long it would be until Starbucks or other competitors came out with something similar that would eat away at those profits and more importantly is that 10% increase enough to keep my store a going concern? Only time would tell but I think deep down I'd know that it's not a long-term solution."

casino gambling New JerseyAnother analyst said he wants to see what happens when other states get on board to determine if it’s sustainable. 

"Unquestionably the Supreme Court decision to allow sports betting was a major boon to New Jersey and online gambling has been a true Godsend but the biggest competition to New Jersey, namely Pennsylvania has just got started and we’ll see where the two states stand 3 years from now. Pennsylvania has just begun offering online gambling and sports betting and I’m almost certain that there are many Pennsylvania residents who travel to New Jersey to wager because they still aren’t comfortable with the new product in Pennsylvania. The crazy taxes on sports winnings doesn't help either. But I’m relatively certain that over time Pennsylvania residents will get more used to the idea of staying in Pennsylvania to gamble and that will cut into New Jersey revenues. Even more concerning to New Jersey must be what will happen to the state when betting in New York starts. Most visitors to Atlantic City (and I’m certain to the racetracks to bet on sports) are from New York.  New York does not currently have an online betting option and casinos are few and far between. But the state has plans to develop casinos close to the Big Apple and when those are built, they will eat into Atlantic City revenues, particularly if they allow online casinos as well.  And don't forget the state has just come to an agreement with the Seneca Indians to allow sports betting at the Western New York casinos but it's only a matter of time before the state allows sports betting at casinos elsewhere in the state and at the racetracks like Belmont, Aqueduct, Saratoga, Yonkers etc. I almost guarantee you when that happens the sports betting handle in New Jersey will plummet. New Jersey also gets visitors from states like Michigan, Virginia, Maryland and Ohio and it’s only a matter of time before online gambling and sports betting is legalized in those states also. When all that takes place, I doubt many people will leave their own states to travel to New Jersey to gamble on what they can do it more comfortably at home."

Both analysts also pointed to growing pains and said they are certain that the high revenues from sports betting and online gambling are because they are new offerings. But, like with fantasy sports, revenues will decline when the novelty wears off. And the Ocean Resort and Hard Rock Casinos in Atlantic City are new and seen as the place to be. But over time those casinos will be just part of the landscape and interest in there will wane too. One must not forget that the Trump Taj Mahal was the place to go when it opened. Trump called it the 8th wonder of the world and the casino was packed with people who were curious. But over time people who wanted to see it had already gone and by the time the Taj Mahal closed its doors you could shoot cannons through the place. It's hard to see why the Hard Rock, who has taken over the venue with Rock and Roll themed designs won't suffer the same fate. 

Atlantic City gambling Las VegasOne question that I'm sure many are asking is why the doom and gloom predictions that many experts are making for Atlantic City has never really happened with Las Vegas. Simply put, you can't compare the two cities. Las Vegas is a true tourist destination that was built with the idea of bringing gamblers to the city and offering them a multitude of things to do when they aren't gambling. People come from around the world to see the numerous theme designed casinos, each a spectacle in its own along the various shows including concerts, magic acts, novelty shows, boxing matches etc. Plus, the convention business has been promoted to every large company, which in turn has spin off revenues as convention attendees gamble. And close to the city is the Hoover Dam and a major car racing circuit. The weather is generally warm or even hot year-round and almost every gambler and non-gambler alike agrees that it's a place one must go at least once in their life.

I don’t think many people have Atlantic City on their bucket list. The city is cold and often snowy in the winter, it’s misty and uncomfortable for the remainder of the year and there is really no “strip” per se where one can go from hotel to hotel to see different themes. As well the theater type sportsbooks that attract big bettors in Las Vegas for the Super Bowl and March Madness just can’t be matched at a small Atlantic City casino or at a racetrack. And attraction wise there is certainly nothing like the Hoover Dam. When one inputs the phrase “things to do in Atlantic City” into a search engine,  aside from the casinos and boardwalk (which as mentioned is nice enough in the morning but is extremely misty and uncomfortable later in the day), the next two items that come up are an outlet mall and an iMAX theater. That hardly compares to the Hoover Dam or even a short helicopter ride to the Grand Canyon. Furthermore, while both cities have high crime rates, most people still feel generally safe in Las Vegas as long as they stay on the strip, but not many venture out on their own in Atlantic City at night.

So, New Jersey casinos and the Division of Gaming Enforcement (DGE) are excited about the resurgence in revenue in the state over the last couple of years and rightly so. Gambling appeared to be a dying industry in the state just a few years ago, but now there is optimism and hope. At the same time, New Jersey officials have to realize that competition will be coming as other northern states start legalizing online gambling and sports betting and it’s likely that most of those in New York and Maryland who travel to New Jersey now to gamble at casinos and on sports will stay home if the have a similar option there. So, they can be optimistic but shouldn't set their expectations too high.

Still, there is money to be made in the state by concentrating on New Jersey residents and giving them a reason to wager more on sports, online and at Atlantic City casinos. After all, the gambling industry in the U.S. currently generates almost $150 billion and the American Gaming Association believes that the real value of the industry is likely double that when offshore gambling and illegal bookmaking is taken into consideration. The key to ensuring the industry stays fresh and bettors remain encouraged to wager in the state includes making the facilities attractive, offering more online gambling options for those who don't want to visit a land-based casino or racetrack and promoting the benefits of gambling in terms of how it helps with things like education, infrastructure and health care.

Any way you slice it New Jersey casinos and politicians have to be happy . . . at least for the moment.

Read insights from Hartley Henderson every week here at OSGA and check out Hartley's RUMOR MILL!

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