On February 26, 2013, the New Jersey Legislature legalized online gambling within its borders through the passage of bill A2578. The legislation was the brainchild of Sen. Ray Lesniak, who pushed the bill as a way to stimulate Atlantic City’s ailing economy.
The final version of the bill, sponsored by John J Burzichelli, Vincent Prieto and Ruben J Ramos, passed the Assembly by a margin of 68-5, and the Senate by a vote of 35-1. Chris Christie signed the bill into law later that day, calling it a “responsible yet exciting option that will make Atlantic City more competitive while also bringing financial benefits” to the state.
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Licensing, Fees and Taxes
A2578 gives New Jersey’s land-based casinos the opportunity to apply for an online gaming permit and to partner with an iGaming software provider or operator (e.g. GameSys, FanDuel, 888). Casino applicants are required to pay a nonrefundable deposit of $100,000 to fund the application process. If approved, that money is applied towards the $400,000 cost of the actual gaming license.
Approved casinos are also obligated to pay a $250,000 renewal fee along with an additional $250,000 annual fee, which goes towards the state’s compulsive gambling treatment programs. In addition, iGaming operators pay a tax rate of 15% of their gross gaming revenue, and 2.5% of GGR to the Casino Reinvestment Development Authority (CRDA).
Aside from casino permits, there are three types of iGaming licenses available:
- Casino Service Industry Enterprise License: pertains to the software partners of brick-and-mortar casinos, and to those who provide customer lists of players who have previously gambled online.
- Vendor Registrants: companies that provide services which are not specifically meant for online gambling, such as telecommunications.
- Ancillary Casino Service Industry Enterprise License: includes marketing affiliates, junket operators, and companies who provide payment processing, age verification, geolocation verification and customer identity services.
Regulation
Online gambling falls under the purview of the Division of Gaming Enforcement (DGE), which is responsible for the following:
- Vetting license applicants
- Assuring the “honesty, good character and integrity of casino owners, operators, employees and vendors”
- Making sure that casino games are fair
- Monitoring for exclusion list violations
- Information systems integrity
Path from License to Final Approval
Before a casino can open up its online gaming operation to the public unrestricted, it must first obtain a “transactional waiver” from the DGE. This temporary permit allows the site to essentially hold a practice run called a “soft launch,” during which time the site is opened to a limited number of players for a limited number of hours per day. During this phase, regulators further scrutinize the site, ensuring that it is safe for consumers and that it follows all applicable laws. Once the DGE is satisfied, the site receives its final authorization and is free to open its doors to the public.
Who Can Play
New Jersey regulators tightly restrict and monitor who can gamble at NJ online casinos. Here’s what you need to know about who is eligible to play:
- Only users 21 years of age and above can gamble for real money
- Players must be physically inside the state of New Jersey
- Users not required to be a New Jersey resident to play
- Players can create and fund an account from anywhere in the world, but can’t play until inside the state
Operators are tasked with enforcing the above requirements and are serious about verifying the age and location of each user before allowing them to gamble. These critical details are established through geolocation software, which can pinpoint exactly where a user is playing from, and by crosschecking users’ details with public databases and credit reporting agencies.
Which Games are Allowed
A2578 allows operators to offer poker, slots, blackjack, craps, roulette, video poker and numerous other casino games, and leaves room for future games to be added as well.
Roulette, baccarat, blackjack, craps, big six wheel, slot machines, mini baccarat, red dog, pai gow and sic bo; any variations or composites of such games, provided that such variations or composites are found by the [DGE] suitable for use after an appropriate [test period]; and any other game which is determined… to be compatible with the public interest.
One example of a format that has been added since NJ online gambling went live is skill-based games, which are currently available in select Atlantic City casinos and may find their way online.
Problem Gambling Measures
To combat compulsive gambling, all licensees must prominently display the contact information of an organization where players can turn to seek help. The DGE is tasked with submitting a yearly report to the governor which includes an investigation of the impact that the iGaming industry is having on problem gambling. Furthermore, the state collects a $250,000 annual fee from operators that is allocated to the Counsel on Compulsive Gambling of New Jersey and other addiction programs.
The Path from Draft to Law
Initial Push
New Jersey’s push to legalize in-state online gambling began in January of 2010, when State Sen. Ray Lesniak (D-Union) introduced bill S 3167, a measure which would allow licensed Atlantic City casinos to offer online poker and online casino games to those inside the Garden State.
The legislation was part of an effort to revitalize New Jersey’s brick-and-mortar casinos, which faced a prolonged decline in revenue due to an economic downturn and competition from neighboring states. To become regulated, iGaming operators would need to pay a $200,000 licensing fee, a yearly payment of $100,000 and would be taxed at a rate of 20%.
In November, S 3167 passed through the Senate by a wide margin of 29-5, but was not put up to a vote in the Assembly that year due to the addition of a last-minute amendment. At the beginning of 2011, the revised bill was passed by both the Assembly (63-11-3) and the Senate (34-2), but was subsequently vetoed by New Jersey Gov. Chris Christie, who worried about the expansion of gambling outside of Atlantic City.
Lesniak, however, claimed the governor’s decision was influenced by casino giant Caesars Entertainment, which was opposed to online gambling at the time.
The Need to Protect Consumers
On April 15, 2011, a day known as Black Friday in the industry, the US Department of Justice successfully blocked the top four online poker sites (Absolute Poker, UB, Full Tilt and PokerStars) from accepting American customers.
When the finances of Absolute Poker, UB and Full Tilt were laid bare, it was revealed that the operators of those sites had not segregated player deposits from operating expenses. As a result, millions of dollars owed to players simply disappeared.
PokerStars, which was the only site targeted by the DOJ that was able to cash out its US players, went on to make a deal with federal authorities to buy Full Tilt and make whole its player base. Absolute Poker and UB players spent more than 6 years waiting for payments, with reimbursements finally beginning on September 29th, 2017.
DOJ Opinion Paves the Way for Online Casinos
In December, with the outlook for US online gambling looking as bleak as ever, the Department of Justice issued a critical opinion on the Wire Act, legislation created in 1961 that had been used, somewhat creatively, as the basis to block iGaming in the country. The ruling essentially stated that online betting unrelated to sporting events should not be considered illegal under the legislation.
With the green light from federal officials, Gov. Christie reversed his opposition to iGaming, and Sen. Lesniak got back to work on new legislation. This time around, Lesniak took into account some of Christie’s suggestions, like housing all computer equipment and servers inside Atlantic City-based casinos and outlawing Internet gambling parlors, in crafting his bill.
Final Push and Enactment
Lesniak, along with Senate colleague and cosponsor James Whelen (D – Atlantic City) soon introduced SB S1565 and its companion, AB A2578. The two bills kept the earlier $200,000 licensing fee and $100,000 annual charge, but slashed the tax rate in half to 10%.
In April of 2012, the Senate bill cleared the State Government, Wagering, Tourism & Historic Preservation Committee. Due to a lack of Democratic votes and wavering by Christie, however, Lesniak announced that the bill likely wouldn’t move until the fall.
On December 17, the New Jersey Assembly passed A2578 by a margin of 48-24. A few days later, the Senate approved its companion by an overwhelming 33-3 vote. In February, Christie conditionally vetoed the bill, requesting that lawmakers increase the tax rate, and provide more funds for gambling addiction programs.
Revisions were made to the bill, including increasing the tax rate from 10 to 15%, and it was again passed by the Assembly (68-5) and the Senate (35-1). That same day, Chris Christie signed the bill into law, making New Jersey the third state, behind Nevada and Delaware, to legalize online gambling.
