To be or not to be….

January 24, 2011
by Neil Fairweather

This is the question on a lot of peoples lips in the discussions and forums surrounding the likely change in egaming legislation in the US state of New Jersey. It surrounds the pending decision from Governor Christie on whether he will pass the “Lesniak Bill” in the coming weeks.

Following Wednesday’s insightful webinar by Joe Brennan of Imega surrounding the changes to New Jersey online gaming regulations, I felt it only right to share the knowledge and potential impact of such a long awaited advancement.

Imega have been heavily involved in the process and are in a great position to provide insight into not only what the next steps are but also what the likely implications of such a change will have within the US online gaming market in the future.

Although the key figureheads within this bill are Senator Leniak and now Governor Christie (who has to make the final decision), support has come from a variety of sources (such as Imega) and is being closely monitored by significant interested parties such as Party Gaming, Playtech, Micro-Gaming, Dragonfish (888) and Sportech. They will all be watching closely the decision from Governor Christie in the coming weeks.

This whole process initially started in 2001 and has gathered pace and significant support once it was backed and supported by New Jersey State and Senator Lesniak. The bill gained so much support based on the research and insight provided to back such a bill (by Econsult and other research documents) that it passed through with a significant majority with over 30 votes to 3 ‘for’ the bill.

The Econsult report in June 2010 indicated the significant scale of this opportunity and the highlights can be seen below taking into account both the short term and long term impact of such a change. The key figures here that ensured its progression is the number of jobs it is likely to create for the state, although the tax revenue will certainly help in times of financial difficulty!!!

Initially
- $210-$250million in Gross Igaming yield
- 1,500 – 2,000 new jobs for the state
- $47 – $55million in tax revenue
Long Term
- $2.7 – $7.1 billion Gross Igaming yield
- 21,000 to 57,000 new jobs
- $205 – $472 million in tax revenue

So where is the process at now?

As discussed above, the Lesniak bill has been passed through to Governor Christie who now has 45 days decide whether to sign off the bill. Ignoring all the debates on what Governor Christies motivation will be and who will be influencing him in his decision, the four possible options he has are:

Sign the bill.
Veto the bill completely.
Conditionally Veto it with amends to be made.
Leave it on his desk for the full term and will go back in for review (not a likely decision).

What will happen if it is passed?

I feel that with budget decisions pending at the moment and the positive research conducted by EConsult showing the potential tax revenue and jobs that will be created, that the result will be a revolutionary and hard fought victory for the bill!

If the bill is passed it will mean that all games currently offered by land based casinos will be legalised. Joe Brennan gave a special mention to a huge Bingo phenomenon in other European countries (specifically the UK) being one of the games that could be opened up by the passing of this bill.

In my understanding of how licenses will work over there (please correct me if I have misunderstood), the licenses will automatically fall to those who currently have them for land based casinos. The key consideration here are that they are not likely to be equipped/have the infrastructure to manage and operate these games online. They will therefore look to utilise the online specialists to run these using their licenses.

When it comes to targeting customers and who will be allowed to take advantage of the change in legislation, as you can imagine the state will ensure strict guidelines and monitoring is in place to ensure customers hold a state issued ID and are over 21. There will be more to follow though surrounding monitoring and regulation once we have a decision from Governor Christie.

Imega’s thoughts and one I share as well on what this means for other states if the bill is successful, is that they will now have a real tangible case as to how this will operate and already have the supporting research to aid its success when proposing to their own state parliaments.

I strongly recommend taking a look at the following link from the IGaming Business site (only an exec summary) to gather an idea of which states may be next. To pre-empt this, places such as California, Florida, and Iowa were strongly linked based on what stage there are currently in at reviewing such legislation.

The biggest question and one debated and discussed within the webinar is the potential impact of this on creating a federal bill, although there are still more questions than answers on this topic. What will help though as noted above is that the sign off on the “Lesniak Bill” will give them a real case to debate.

How will the Industry be taxed?

Joe proceeded within the webinar to take us through one of the most significant elements that was debated ahead of sign off and amended a couple of times (due to the initially proposed lower taxing of online gross revenue) with land based Casinos having a lot to say on this matter.

Therefore for the first 5 years, tax rates will be in line with land based Casinos at 8% gross internet wagering revenue and although this cost raised questions from key operators as noted by Imega, it is not going to be changed. Alongside this 30%, alternative investment tax will be used to fund the states racing industry and other projects within the state. If the US state does pass this bill and start receiving tax revenue from internet gambling, you can be sure they will ensure it survives!

Where next for Imega?

Imega have been heavily involved in the above and no matter what decision is made, will be involved further from establishing a Gambling Commission equivalent and moving onto progressing further changes to sports betting. This will be heavily supported by invested parties in ‘Soccer’ such as Will Henry and the Glaziers.
Following what should be success in New Jersey you can be sure more states will follow suit.

So in answer to the title of this post: