New Jersey Aims to Become “New Antigua” in North America

Keeping the action in-state isn’t enough; New Jersey lawmakers want to issue licenses to foreign iGaming companies serving gamblers worldwide.

Last year governor Chris Christie signed a bill legalizing online gambling and several months later New Jersey joined Delaware in launching the first-ever online casinos in America. While early figures on revenue haven’t been as impressive as lawmakers and investors had hoped, some in the state are already pushing for something even bigger: an international internet casino licensing system.

Regulators lawmakers and investors in the state are looking to take a page from “offshore” gambling hubs like Antigua, Gibraltar and Malta and create their own licensing regime for international operators. This week the state Senate opened debate on a bill sponsored by Ray Lesniak, the same senator who sponsored New Jersey’s online casino legalization bill.

How a New Jersey licensing regime would work

If passed, Bill-S9890 would allow the state Division of Gaming Enforcement to issue licenses to international online casino companies. In order to stay kosher with federal gambling laws banning the use of foreign gambling sites by US citizens, the bill would allow these sites to serve only IP addresses coming from outside of the US and state with legalized online gambling. It would also include only online casinos, as online sportsbooks in America are prohibited from operating anywhere but Nevada due to federal law.

• State lawmakers in New Jersey want to make the state a hub for international internet gambling operators

• If passed, Bill-S9890 would allow the state to issue licenses to foreign companies, who could then serve gamblers overseas and in US states with legal online gambling

• However, powerful lobbyists like Sheldon Adelson are pushing for a federal ban on all forms of internet gambling

The State of New Jersey would have to reach agreements with the foreign jurisdictions served by the online casinos hosted there. This would be with the purpose of ensuring that regulatory standards in the state are up to par. The agreement would also allow these companies to serve gamblers in other states with legal online gambling including Delaware, Nevada and potentially states like Illinois which are mulling the idea of legalization.

Companies currently operating the state’s 15 online casino sites would also be eligible to apply for licenses allowing them to serve overseas gamblers. This would be a cash cow for firms like Wynn and Caesar’s Entertainment, which operate some of the state’s biggest online casinos. You can bet that casino execs are foaming at the mouth for the right to serve gamblers from all over the world.

Potential benefits

Lesniak and other supporters of making New Jersey a host for international online casino companies see it as a way to bring high-tech investment to the state: “this could help make New Jersey the leader in online gaming, across the country and around the world…We could be the ‘Silicon Valley’ for high-tech gaming. We should take advantage of this dynamic opportunity for a business sector with enormous growth potential.”

One immediate way in which a licensing regime would help New Jersey is that companies based there would pay the 15 percent sales tax on online gambling services to the state government. This will help plug holes in the budget deficit, a big part of the reason that the state legalized online casinos in the first place. Econconsult Services estimated that annual revenue could top $5 billion. The bill also would require that any companies based there would have to sign partnerships with brick-and-mortar casinos, potentially bringing much-needed investment to Atlantic City’s flailing casino market.

Potential problems

One question that bears asking is: why would a foreign company want to obtain licensing in New Jersey in the first place? Clearly the 15 percent sales tax is higher than those which would be paid in low-tax jurisdictions like Antigua and Gibraltar (although companies would be credited for taxes paid in other countries). Officials in New Jersey seem to think that foreign companies will flock to their shores immediately after licenses become available. Optimism seems to be predicated on the hope that more US states will legalize online gambling, increasing the size of a market which these companies would have exclusive access to. There is reason to be optimistic, but for now it’s all speculative.

In addition, there is always the threat that the heavy-handed people in Washington will change course and introduce a nation-wide ban on internet gambling. The Justice Department only recently changed its interpretation of the 1961 Wire Act to allow states to create online casino markets. It’s not outside the imagination that it could reverse course and take a prohibitive reading of American gambling laws. Las Vegas Sands CEO Sheldon Adelson has made it is personal mission to lobby the government to pass a blanket federal ban.

South Carolina Senator Lindsey Graham, who is reported to be close to Adelson, is sponsoring a bill which would reinforce the Wire Act to override the Justice Department’s decision. If passed, the online casinos and poker rooms operating in New Jersey, Delaware and Nevada will be forced to close, and all other states will be prohibited from creating legal, regulated markets.