NJ Gambling Regulation and Taxation – 2017 Guide and FAQ

While the US Department of Justice (DoJ) did its best to shut down the major offshore online gambling operators in 2011, on a day known as Black Friday in the industry, others remained, and have continued to take bets up until this very day. These websites operate totally outside of the reach of the US government and provide absolutely no protections for consumers who choose to gamble there.

This lack of oversight is one of the main reasons why New Jersey chose to legalize iGaming in 2013. Now, Garden State gamblers can play on a number of different licensed NJ online casinos, and can rest assured that their deposits will be fully available for withdrawal at any time and that the games they play are spread fairly. In this guide, we’ll introduce you to the regulators who watch over Atlantic City’s online and off-line casinos and explain what their duties entail.

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Casino Control Act

In the first few decades of the 1900s, Atlantic City made a name for itself as the Playground of the World by brazenly flouting alcohol and gambling prohibition laws. By the 1960s, however, the city faced an economic downturn, one which they hoped to solve by formally legalizing casino gambling in the state. In a 1976 referendum, the Casino Control Act (CCA) passed by the slim margin of 1.5 million votes to 1.14 million votes, and would allow casinos to operate in Atlantic City only.

To ensure fairness and deter organized crime figures from participating in the nascent industry, two regulatory bodies were created, the New Jersey Casino Control Commission (CCC) and the Division of Gaming Enforcement (DGE).

Casino Control Commission

The Casino Control Commission is the agency responsible for licensing New Jersey casinos and key industry employees. It also hears appeals from decisions made by the Division of Gaming Enforcement. The commission, headquartered in the Arcade building at Tennessee Avenue and Boardwalk, consists of three members which are appointed by the state governor. Commissioners serve five-year terms and, in the interest of fostering a balanced environment, cannot all be members of the same political party.

One member of the commission is appointed by the governor to oversee the Casino Reinvestment Development Authority (CRDA) as well. The CRDA is a body founded in 1984, tasked with using mandatory annual contributions from state casinos (1.25% of gross revenue) to fund projects that benefit the public good.

In 2010, New Jersey lawmakers voted to deregulate the casino industry in order to better compete with recently-opened casinos in nearby states. The bill removed the requirement for casinos to have a commission employee on-site around-the-clock, a burden which once caused all of the city’s casinos to close shop for several days due to a government shutdown. The bill also transferred the responsibility of registering casino employees and industry vendors to the DGE.

MGM Resorts and Pansy Ho

In one notable case, the CCC blocked MGM Resorts from reentering the AC market due to its ties with Pansy Ho, a Macau gambling tycoon whose father allegedly had ties to organized crime. Only when Ho was no longer a majority stakeholder in her venture with MGM was the company allowed back into Atlantic City.

Division of Gaming Enforcement

The Division of Gaming Enforcement was the second regulatory body created under the Casino Control Act. The agency’s mission is to “protect the public interest by maintaining a legitimate and viable industry, free from the influences of organized crime, and assuring the honesty, good character and integrity of casino owners, operators, employees and vendors.”

The DGE is responsible for the following:

  • License investigations: The DGE investigates potential licensees to verify their honesty and integrity, then passes the results and a recommendation to the CCC. The commission can then make a decision themselves whether to grant or deny a license.
  • CCA enforcement: The agency continually examines every aspect of AC casino operators, looking out for violations. These can include infractions involving gaming equipment, advertising, game rules, self-exclusion, underage gambling, IT systems, security cameras and more.
  • Technical Services Bureau (TSB): The TSB is a lab where the DGE inspects electronic gaming equipment, such as slots, to ensure compliance with CCA regulations. Before a game can be placed in a casino, TSB agents must verify that the odds advertised by the maker are accurate and that the machine is fair. They also serve to verify large jackpot payments to gamblers lucky enough to hit one.

In addition, the DGE coordinates with the New Jersey State Police and with attorneys from the Division of Criminal Justice to combat a wide array of casino-related crimes big and small.

Online Gambling

The DGE plays a big role in the regulation of NJ online casinos. Regulators subject potential online gambling operators to a grueling investigation, which includes inquiries into company executives’ past.

Before a site can open up to the public, it must undergo a “soft launch,” a weeklong period during which only a limited number of users can access the site. During that time, DGE reps make sure that all regulations are being followed to the letter. If they are satisfied, they will grant a “transactional waiver,” which gives casinos the green light to open up shop while their license application is finalized. These waivers must be updated every six months until a full license is issued and can be revoked at any time.

PokerStars and Isai Scheinberg

When PokerStars first applied for an NJ online gaming license, it was initially denied due to the fact that the company founder, Isai Scheinberg, was still involved in the company. Scheinberg was one of the gaming executives indicted by the US Department of Justice on Black Friday, and was accused of allowing PokerStars to take bets from US players after the Unlawful Internet Gambling Enforcement Act was passed.

The poker giant solved this problem in 2014 by selling itself to Amaya Gaming for $4.9 billion. The transaction removed Scheinberg and his son from the company completely, thereby putting the business into clean hands. With the Scheinberg’s out of the picture, the DGE granted the hard-won license, and PokerStars reentered the market in 2016 through a partnership with Resorts.

Taxation

The Garden State’s successful gaming industry boasts revenues in excess of $2.5 billion for both 2015 and 2016 — a figure to which online gambling sites contributed $148.9 in 2015 and $196.7 million in 2016 — but that doesn’t necessarily equate to a tax windfall for New Jersey. Due to gaming taxation rates that are tempered compared to those in other states, New Jersey brought in $237 million from land-based and online operators in 2015, a robust figure that nevertheless pales alongside figures from nearby New York, Pennsylvania and Maryland.

New Jersey casinos pay an 8 percent tax on gross gaming revenue and an additional community investment alternative tax of 1.25 percent. Looked at alongside Pennsylvania’s 55 and 16 percent tax on slots and table games, respectively (which led to $1.37 billion in total casino tax revenue in 2015), or New York’s 31-41 percent rates on casinos, New Jersey’s numbers are a relative bargain for the state’s operators.

Rumblings About Tax Increases

That has some, such as Assemblyman Chris Brown and Meadowlands owner Jeff Gural, calling for revising the tax code to bring it more in line with neighboring states.

However, Assemblyman Vincent Mazzeo, a supporter of the industry who even sponsored a bill in late January urging the Trump Administration to not interfere with New Jersey’s regulated online gaming industry, emphasizes that as Atlantic City and the casinos that operate within it continue to fight to gain economic stability, the last thing needed is a hit to their bottom lines.

Conclusion

With online gambling now legal in New Jersey, Garden State gamblers have an alternative to playing on unregulated, grey market online casinos. The Casino Control Commission and Division of Gaming Enforcement apply the same strict standards to the state’s Internet casinos as they do to brick-and-mortar establishments. Those protections should give peace of mind to players who, in the past might have viewed online gambling in a suspicious light. The New Jersey model could be a template for other states should they want to provide the same sort of regulated environment to those who are currently taking major risks with offshore operators.