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Nevada and New Jersey Race to Online Gambling Supremacy

Feb.08, 2013 12:47:PM
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While New Jersey Governor Chris Christie conditionally vetoed the state’s online gambling bill, it is well on track to become law next month.  Nevada has already passed online poker regulations, but delays in software testing are preventing it from going live.  While Nevada had a head start, New Jersey seems poised to be a serious competitor in Nevada’s hope to rule the US online gambling landscape.

State Online Gambling Regulations

Nevada lost its bid to become the lead in the US online poker landscape by default as the Reid/Kyl bill failed to become law.  The poorly marketed bill was neither pushed as an anti gambling bill, nor sold to gambling friendly states as a gateway to what they wanted.  This has left online gambling decisions up to the states.

Having always been a renegade state, Nevada went ahead with their intent to be the pioneer of legalized online gambling in the US before it was a popular position.  The state already legalized online sports betting in 2010, but this helped the state little with facilitating other state’s online gambling expansion as it is currently illegal for any other state to offer the types of sports betting already legal in Nevada.

The Nevada Gaming Control Board cautiously passed online poker regulations in December 2011.  This allowed the state’s powerful casino industry to offer online poker within the state’s borders.  A bill is being considered that would allow Nevada casinos to offer interstate online poker as well.  Casino games are noticeably absent from all Nevada online gambling regulations.

New Jersey pushed the issue a bit further.  After Governor Christie vetoed an online gambling bill in 2011, a similar bill looks to be a sure thing today.  The New Jersey bill not only allows online poker, it also allows all online casino games.  While online casino games are a huge gamble, it will give New Jersey an advantage when courting other states that are hungry for fresh tax revenue.

Advantage: New Jersey

Interactive Taxes

Nevada and New Jersey are the lowest tax states for brick and mortar casinos.  Nevada casinos pay a 6.75% tax on gross gaming revenue.  New Jersey casinos pay an 8% tax and must also reinvest 1.25% of their gross gaming revenue on property improvements.  While Nevada’s interactive gaming tax would match their brick and mortar tax, the online gambling bill in New Jersey that Governor Christie conditionally vetoed made the tax 10% on internet wagers, but Governor Christie wants that number to be 15%.

Advantage: Nevada

Income Taxes

New Jersey taxes corporations at a rate of 9% and individuals between 1.4% and 8.97%.  Nevada has no corporate or personal income taxes.  This may not seem like an issue, but some corporate income earned will not be considered a gaming win.  The lack of state income tax may also attract corporate talent to work in Nevada where employees will not pay income taxes.  Most current regulations and proposed legislation will require employees to live in the state where they provide the service and taxes are always a consideration when accepting a job.  If taxes are a deciding factor, then Nevada is the clear choice.  This does not take into account cost of living expenses, where Nevada will clearly win as well.

Advantage: Nevada

Player Base

The estimated population of New Jersey on July 1, 2012 was 8.8 million.  Nevada’s estimated population is about 2.8 million.  It will also be easier for potential online poker players to move to New Jersey and still be close to the major metropolitan centers of New York City and Philadelphia.  There are no major metropolitan areas that extend near any major city in Nevada.  Not only is New Jersey three times larger, they have the potential of drawing players from two major cities that might be willing to move for the sole purpose of online poker as long as they have access to these large cities.

Advantage: New Jersey

Potential Expansion to More States

Nevada has only passed online poker regulations.  Under current law, the state would be unable to enter interstate compacts with states interested in online casino games.  New Jersey’s legislature has passed both online poker and casino games and this part of the bill was safe from Governor Christie’s veto.

Advantage: New Jersey

Experience

Nevada was the pioneer in the US casino industry.  Casinos have been legal in Nevada for over 80 years.  New Jersey has  been in the casino business for less than half that amount.  Still though, brick and mortar gambling experience does not equate to online gambling experience.  Caesars Entertainment, Golden Nugget, Tropicana Entertainment and Boyd Gaming own casinos in both Nevada and New Jersey.  The tiebreaker here goes to the potential entry into Atlantic City by the Rational Group, parent company of PokerStars.  This gives a major online poker force a voice in the Atlantic City market.

Advantage: New Jersey

First State Live

Nevada appears to be in a position to bring online poker live first.  While there are software testing delays, a live Nevada online poker room is likely to be just a few months away.  New Jersey may not even have their revised bill signed into law by then.  Even a year of being live before New Jersey could be a huge difference in negotiations with other states to join the Nevada online poker pool as opposed to New Jersey’s pool of players, especially early on.

Advantage: Nevada

Reputation

Neither state can really claim its reputation as a selling point to the average lawmaker in a neutral state.  Nevada has always been a renegade.  Nevada’s casino industry was born from Hoover Dam construction workers looking for a few nights of sin away from Boulder City.  The city was also run by mobsters in its early days.  They were also the first state to allow divorce and sports betting.  Nevada is also the only state with legalized prostitution.

While not on the same level, New Jersey has its own reputation for organized crime and sin.  The difference here may be the involvement of PokerStars.  While this gives New Jersey an edge on the experience side, many state laws will exclude companies that accepted US online poker and casino wagers after the Unlawful Internet Gambling Enforcement Act went into law.  This clause may give states a reason to outright exclude New Jersey partnerships, especially if PokerStars turns out to be the market leader there.  Considering most of the other New Jersey properties are owned by Nevada companies, this could be a negative.

Advantage: Nevada

Location

States are more likely to enter into negotiations with their neighbors.  Bordering states have often had to work closely with economic, environmental and transportation issues.  This gives New Jersey a clear edge.  Neighboring Delaware has already passed online gambling regulations.  Pennsylvania will discuss online gambling during this year’s legislative session.  New York already has close ties with New Jersey.  All of this is likely to help New Jersey gain pacts with their border states.

Nevada does not border a state that is likely to pass online gambling regulations any time soon, nor do they work closely with their neighbors on anything.  There is no shared infrastructure between Nevada and its neighbors.  Arizona has proposed a toll on drivers traveling between Nevada and Utah on I-15, causing bad blood between these states.

California seems unlikely to pass any online gambling legislation due to disagreements between commercial and tribal gaming interest.  Even if they do, California online poker rooms would have enough liquidity to keep online poker intrastate.  California’s economy would be ranked 8th in the world if it were its own country.  The state’s population is comparable to Italy.

Oregon and Idaho have not had any serious online gambling discussions.  Utah has outright banned online gambling, a position that is unlikely to change.  Many Utah residents feel that Nevada is an unfortunate neighbor to have due to Utah’s strict religious beliefs and Nevada’s legalized sin.

Advantage: New Jersey

What About Delaware?

While it has already legalized online gambling, Delaware is one of the smallest states in terms of both geographical size and population.  The state relies on its lottery monopoly for all gambling and has little in the way of gambling innovation.  Delaware will be a follower and not a leader in the US online gambling market.

Does it Matter?

Some of these points may not mean anything when the time comes to expand online gambling into other states.  Restrictions will be lifted as online poker and casino games become widely accepted.  Some states may only legalize online poker, an easier issue to push past conservative lawmakers and voters.  States may look for the best available deals available and the Nevada tax situation could put companies there in a better position to compete on price points.

Many software and casino companies will operate in New Jersey, Nevada and beyond.  This will force states to address how taxes will be collected.  Taxes on interstate gambling over the internet have yet to be addressed in current regulations, making how states deal with interstate taxes a deciding factor.

Nevada and New Jersey may also find a way to coexist.  If that is the case, none of this matters as both are sure to be co-leaders.

It is far too early to decide what states will be the leader in the online gaming industry.  If I had to pick between Nevada and New Jersey, I feel that New Jersey is a slight favorite to be the powerhouse in the regulated US online gambling market.