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Intra Jersey Approved

First state in U.S. to approve online gaming, regs still to be determined

Intra Jersey Approved

 Just weeks after the failure of a federal bill to legalize online poker, New Jersey became the first state in the nation to legalize intra-state online gaming in January. The state legislature overwhelmingly approved the bill along with a package of bills to benefit Atlantic City (see Dateline USA) and all the bills now await the signature of Governor Chris Christie. The governor is likely to sign the online gaming bill, as it will be a catalyst for job growth and economic development in Atlantic City. The bill’s sponsor, Senator Ray Lesniak, expects the governor to sign the bill because of the overwhelming support it received in the legislature.

Another reason the governor would be likely to sign the bill is that it includes benefits for state racetracks that do not require subsidies produced by the land-based gaming industry in Atlantic City. Under the bill, the servers would be located inside Atlantic City casinos (the only legal venue to bet in New Jersey, one reason a constitutional amendment is not necessary to legalize online gaming). Atlantic City casinos would presumably operate the online casinos, but even that is unclear at this point. Vendors will be forced to adhere to New Jersey’s strict licensing procedures.

Players will be required to visit Atlantic City to sign up for an online gaming account so their age, residency and other documents can be verified. Still unclear is how money will be deposited into online accounts. While players could surely make a deposit in person in an Atlantic City casino, it’s uncertain how subsequent deposits (and withdrawals) could be made. The only gray area in this legalization is how online financial transactions for the New Jersey web casinos would be conducted and still not violate the UIGEA restrictions put into effect at the federal level in 2009.

The bettors’ locations will be ascertained by geo-tracking. Bets could be made via computers or mobile devices within the borders of New Jersey. The actual tax rate computation is a bit complicated. To start, there’s a gross tax on wagers of 8 percent (same as for land-based gambling). In addition, however, there is a 30 percent “investment alternative tax” and a 15 percent investment alternative, which works out to a 52 percent effective tax rate. Some of that revenue will be dedicated to increasing purses at racetracks in New Jersey.

If and when sports betting is implemented in New Jersey—a referendum on the wagering was approved by the legislature in November—the effective tax rate would drop to a more reasonable 23 percent, when subsidies to the tracks would end. The stipulation pits casinos against racetracks when considering the legalization of sports betting.

While some proponents say online gaming could produce as many as 1,500 jobs and $300 million in gross gaming revenue, the reality is unclear. Frank Catania, the president of Catania Gaming Consultants, a former New Jersey regulator and internet gambling expert, says the jobs will likely be in the hundreds, not the thousands.

“But nobody knows for sure,” he says. “No one can tell how many players we currently have in New Jersey. But we’ll never know until we audit it, and the only way to audit it is to license and regulate it. Then we’ll know for sure. Whatever happens, it’s going to be an improvement because money is going to come in.”

Joe Brennan, president of the Interactive Media, Entertainment and Gaming Association, believes the state will become a mecca for online gaming companies.

“We were certain New Jersey was going to embrace this bill,” he says. “The focus was on creating a good home for the industry in the U.S., one that had the infrastructure, workforce and gaming regulators that combine to make the best ecosystem for i-gaming firms. The Atlantic City casinos provide an excellent foundation and potential partners. The state will see this become an engine for job creation and investment. It’s a win-win.”

While the regulations have yet to be written, it’s likely that the state’s strict licensing guidelines will go into effect for this form of gaming, giving slot companies with an online component, such as IGT’s WagerWorks, an immediate advantage since it is already licensed to do business in the state. But unlike U.S. Senator Harry Reid’s federal bill, there is no prohibition on offshore gaming companies getting involved immediately, as long as they are able to be licensed.


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