New Jersey began allowing Internet gambling on Tuesday in a much-watched bet that there are untapped sources of revenue on bedside iPads and cubicle desktops, and even among people checking their phones while they wait in line for coffee.Gambling analysts say it is the most significant development since casinos opened in Atlantic City over three decades ago, ultimately setting off what became a furious competition among states for a share of the take.
Eight other states have legislation pending that would allow Internet gambling. Delaware and Nevada began offering some online gambling this year. But New Jersey is considered the first true test case because it allows a full range of casino games — not just poker — and its much larger population offers the scale to see whether online gambling can meet the bold predictions for revenue and tap into a younger, more web-dependent demographic without stealing customers from struggling casinos.
Gov. Chris Christie, a Republican, who signed the legislation allowing Internet gambling this year, is counting on that gambling to generate $1 billion for the state’s casinos in its first year, bringing in $150 million in tax revenue to help balance the state budget.
Ratings agencies and gambling industry analysts said that estimate was hugely inflated; one forecaster, H2 Gambling Capital, predicted that online gambling will produce about $300 million for New Jersey casinos — or about $45 million in tax revenue.
But H2 Gambling Capital estimated that the market in the United States could be worth about $9 billion in the next five years, particularly if large states such as California that are now considering online gambling begin to allow it.
Analysts are watching to see not just whether New Jersey can make money, but also whether new technology can guarantee that bets are placed only within state lines and by people older than 21, as the legislation requires. They are also watching whether, as some fear, the online expansion will put gambling addiction a mere click away.
The official debut on Tuesday was only the beginning of what promises to be a political fight. Legislators are already pushing to allow international companies to operate in New Jersey; the current law allows Internet gambling only through a limited number of casinos.
On the other side, Sheldon Adelson, one of the largest casino operators in the world and a major Republican donor, has pledged to fight state and federal laws that would allow more Internet gambling — a stance that is bucking most of the industry.
“The Internet is the next frontier not just for gaming but for every industry,” said Geoff Freeman, the president of the American Gaming Association. “You can look at industries that have seized the potential of the Internet to leverage and grow their business. Then there are those companies like Blockbuster and Hollywood Video who tried to force people to consume their products how they wanted us to consume them, and went out of business.
“As an industry, the question is how do we get out ahead of this.”
Executives at online gambling companies argue that it exists illegally already and may as well be tapped for profit and tax revenues, and regulated to protect players.
Worldwide, online gambling is now a $33 billion market, and $3 billion of that comes from illegal bets placed in the United States, according to the gaming association.
“It’s a new era of using the technology to meet what regulators are concerned about, to protect our children and our data,” said Tobin Prior, chief executive of Ultimate Gaming, which is operating games through Trump Taj Mahal in Atlantic City.
Gambling online was largely accepted in the United States from the late 1990s until 2006, when Congress passed a law that made it illegal for gambling companies to accept bets online for “unlawful” transactions. Many companies left the market, leaving less well-regulated operators that in several cases turned out to be laundering money.
In early 2011, the Justice Department indicted the heads of three companies operating online poker in the United States. But later that year, the department issued a ruling saying that only sports bets were unlawful. States, already in a fierce competition for casino customers, moved quickly to take advantage of the new market.
The legislation signed by Mr. Christie was a lifeline to Atlantic City casinos, which have been losing customers to new casinos in New York and Pennsylvania. Under the law, online gambling companies have to operate through the casinos.
Seven casinos were approved for a “soft launch” that began last week, with a trial offered to invited guests. State gaming officials said they were surprised at how many people accepted those offers — about 10,000. Six casinos — all but the Golden Nugget — were approved for wider play starting on Tuesday..
The state and the casinos sent testers outside the state to test technology that is supposed to guarantee that bets come only from within New Jersey. None of those testers succeeded in breaking through, though casinos said some others did. Other gamblers in New Jersey tried to get onto the sites but could not. And some banks and credit card companies blocked customers from getting access.
“It’s taking a bit of time for these guys who exited in 2006 to be reassured that the players who are here now are bona fide,” said Brian Mattingley, chief executive of 888.com, which operates in all three states that offer online gambling.
David Rebuck, director of the State Division of Gaming Enforcement, said most of the bets during the trial period had been placed on computers, not mobile devices, and had been concentrated where the state expected, in cities in the northern part of the state, such as Hoboken, with its sizable population of people in their 20s and 30s. “We were inundated with people trying to get in,” he said.