Will New Jersey’s Online Sports Betting Market Eclipse Online Casino?

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The Garden State has had internet betting since late 2013, but it had to wait until this summer before being able to kick off on-site and mobile sports wagering. It was a major boost to the overall online gambling market, as sports betting is the hottest U.S. casino industry offering right now.

New Jersey’s gambling facilities took in $23.9 million in revenue from sports betting in September, the first month of the 2018-19 NFL football season. The state’s sports betting industry went live in June. Internet-based sports wagering yielded more than half ($12.55 million) of the total revenue last month, so it didn’t take long before retail betting took a backseat.

New Jersey regulators separate online sports betting revenue from online casino (not including peer-to-peer poker) revenue. Industry revenue from online table games and online slots was $24.1 million last month, up nearly 30% year-over-year. In other words, in one of New Jersey’s earliest sports betting months, online sportsbooks won close to half what was won from the other web games. Online poker generated a measly $1.6 million last month.

It’s worth noting that brick-and-mortar slot and table game winnings dwarf total sports betting revenue, so it’s becoming apparent online/mobile is a different world.

How large can online sports betting become?

New Jersey’s sports betting industry has retained nearly 8% of completed event wagers so far — fueled by a whopping 10.2% hold on football — a percentage that is somewhat higher than the 5-7% hold in Nevada, home to the nation’s only mature, full-fledged sports betting market.

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Nevada has mobile sports betting, but the state’s Gaming Control Board doesn’t give an official breakdown between retail and online. Nevada sportsbooks averaged just under $22 million in revenue over the 12 months prior to Sept. 1, according to the most recent state figures.

However, September is typically an extraordinary month for the books. Nevada’s books won $44.4 million off games and contests in September 2017, an 8.3% gain year-over-year. The Silver State books retained just under 8% of the handle in the form of winnings.

As far has handle goes, the total amount bet in New Jersey last month ($183.9 million) was about 41% of Nevada’s average over the past five Septembers.

New Jersey, home to three times the population, has plenty of room for growth if Nevada’s market can be viewed as a benchmark.

It’s worth noting that Nevada’s market can expand further thanks to regulatory moves to nix a requirement that gamblers must sign up for a mobile sports betting account at a brick-and-mortar casino. New Jersey quietly made history by becoming the first state to offer statewide mobile betting without an in-person registration requirement.

It’s also important to point out that New Jersey is already served by eight distinct sports betting apps. The Garden State is slated to get a ninth next month (and possibly more) with the launch of a product from Australia-based bookmaker PointsBet. It’s becoming apparent that New Jersey’s online gambling landscape is already more attractive than Nevada’s. It doesn’t help Nevada’s case that the only other internet gambling offering it has is peer-to-peer poker, which is not very popular.

New Jersey tax rates

The Garden State taxes internet sports betting revenue at 13% for casino licenses and 14.25% for horse track licenses, about double the rate in the Silver State. Nevada casinos paid about $15 million in taxes on nearly $250 million in sports betting revenue last year. New Jersey actually has a varied tax rate depending on the casino offering, which could play a role in determining which offering ultimately reigns supreme.

New Jersey taxes brick-and-mortar slot and table game winnings at 8%, while charging operators 8.5% on retails sports wagering. When it comes to the web, New Jersey bumps up the rate to 15% on online casino and, as mentioned, 13-14.25% for online sports gambling revenue.

Based upon how the law and regulations are written, those in charge of state coffers would like for as much sports betting to occur over the web as possible. However, that doesn’t take into account job creation with regards to retail vs. online. Atlantic City shed thousands of casino workers during a string of brick-and-mortar closings in 2014, and part of the reason for bringing games to the internet in the first place was to prevent further job losses.

Sports betting margins

Betting on athletic events and other contests is a low-margin business relative to the other casino games. Historically, Nevada sports betting hold is below the win percentage on slots (6.8% over the 12 months prior to Sept. 1) and the state’s two dominant table games. Blackjack and baccarat winnings were both more than 13% of the handle, per the most recent Nevada report.

Sports bettors are often more savvy than the players of other games, which doesn’t help the casinos. Still, the books almost always come out on top. The last time Nevada’s books lost on sports betting was in July 2013. New Jersey is bound to eventually have a losing month, but it will be a rare occurrence.

With that said, casinos don’t lose money on slots, blackjack or baccarat, so sports betting is technically a riskier offering.

Sports betting’s margins are the reason why the talk of a royalty for the sports leagues has been condemned as an absurdity.

When you look at sports betting from an EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) angle, the profit margins are even thinner. According to an April report from Global Market Advisors, sportsbooks generally retain about 40% of the revenue as EBITDA. That’s about 2% of the handle, which also motivates operators to turn to the internet.

“In Nevada, the more mobile the sports betting platform, the higher the margin,” the report said. “From this EBITDA, operations must then outlay the necessary capital to build the sportsbook, fit out the sportsbook, buy or lease the land/building where the book is located, and purchase the necessary computers and servers to effectively operate. In Las Vegas, the amount of revenue earned per square foot of a sportsbook is far less than the amount of revenue earned from slots and tables per square foot.”

What’s the verdict?

While online casino play is better from an operator standpoint, the growing popularity of sports betting and the revenue it generates is still of high interest to state officials. Why? Because the black market for sports betting is massive. The American Gaming Association estimates that gamblers across the country bet about $150 billion each year on sports, with all but about $5 billion coming outside of Nevada’s legal market. That was a figure often cited prior to the mid-May Supreme Court ruling.

Factoring in New Jersey’s population as a percentage of the U.S. population, the Garden State, prior to regulating sports betting, would have accounted for nearly 3% of the illicit bets, which would be around $4.2 billion worth of wagers. And while not all NJ bettors will transition from illegal to legal sites, regulation obviously can grow the market, and New Jersey is known as a gambling state with a rich sports culture. Not to mention, the market isn’t even close to reaching maturity, with upwards of 10 or even 20 more online sports betting apps poised to launch in the coming months and years, along with a couple more land-based books.

Another thing New Jersey’s online sports betting has going for it is that neighboring Pennsylvania’s upcoming market is in doubt thanks to the Keystone State eyeing a whopping 36% tax. New Jersey led the charge against the Professional and Amateur Sports Protection Act of 1992, and it should remain at the forefront of proper online sports betting regulation going forward.

Is it all enough for NJ online sports betting to chase down the state’s online casino industry, which itself is benefiting from crossover from sports bettors? That’s a tough sell, as during one of the best months for sports betting, the online books still only reaped slightly more than half of what online casinos managed. But at the very least, the gap should close significantly. Online casino will more than likely remain dominant for at least the next year, as even if New Jersey’s sports betting market quickly reached Nevada’s levels, online casino would still be ahead.

iCasino likely will generate around $300 million in revenue over the next 12 months, if not higher thanks to the crossover. As mentioned, Nevada’s entire sports betting market is less than that.

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Brian Pempus

Brian served as a senior reporter and online content manager for Card Player Magazine for nearly a decade before joining USBets in October 2018. He is currently focused on legal and regulated sports betting and online gaming. He's an avid jiu-jitsu practitioner in his free time.

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