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March 26, 2014

New Jersey Online Gambling: How did we get here? And what’s next?

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2013 saw an important milestone for New Jersey’s gambling culture. On November 26th, New Jerseyans were able to gamble for real money over the internet, eliminating the need to leave their homes to play poker, slots, and other casino games. New Jersey’s entrance to the world of legal online gambling was a long, arduous process that spanned over five years and continues to develop today. Existing laws had to be altered to include references to internet gambling, and every proposed bill and revision had to pass through New Jersey legislature to ensure that any and all changes were made in accordance with New Jersey’s state constitution.

The Casino Control Act

The law that needed to be amended to allow online gambling was the Casino Control Act. The Casino Control Act was enacted in 1977 and outlines all operational regulations for the casino industry in New Jersey.

In the 1970s, casino gambling was a novel idea for New Jersey. It had only been done in a few places in the United States and New Jersey lawmakers and voters were cautious, yet optimistic. For the new casino industry’s own safety, the Casino Control Act contained strict rules about how Atlantic City’s casinos could be run. Any violation of the Casino Control Act could lead to a casino losing its license.

When New Jersey was the only place to access casino gaming on the east coast, nobody questioned the rules in the Casino Control Act. Those were the rules, and any person or company that wanted to operate a legal casino in Atlantic City needed to adhere to them. For decades, the Casino Control Act went unchallenged in New Jersey while other states adopted their own gambling laws, allowing casinos to open outside of New Jersey and compete with a rapidly aging Atlantic City.

Senator Lesniak’s Bill

Enter Bill S3167, sponsored and promoted by New Jersey Senator Raymond Lesniak in January 2010.  This bill was largely created to make Atlantic City casinos more competitive with New York and Pennsylvania casinos by deregulating them. New Jersey’s long history of legal gambling is fraught with government regulations, many of which were deemed by the bill’s authors inefficient for today’s gambling climate.

Lesniak sought to amend the Casino Control Act by adding language that includes games of chance played on the internet as legitimate casino games. In his original draft of the bill, any area used to run an internet gambling operation would be considered a restricted casino area. That meant the room where a gambling website’s server was stored or where its IT team managed the daily operations of the site. It required all casino areas related to online gambling to be located in Atlantic City, New Jersey.

New Roles and Responsibilities for New Jersey’s Existing Regulatory Agencies

The proposed changes also included updated responsibilities for New Jersey’s existing casino regulation agencies, the Division of Gaming Enforcement and the Casino Control Commission, to include roles associated with online gambling.

The New Jersey Division of Gaming Enforcement was created in 1977 to regulate the casino industry in New Jersey. It is part of the New Jersey Department of Law and Public Safety, which oversees the alcoholic beverage, horse racing, and legal gaming industries in the state as well as providing legal services to other New Jersey agencies. It ensures the safety of the public and enforces laws related to consumer rights.

The Casino Control Commission is the other New Jersey agency in charge of the state’s casinos. Like the Division of Gaming Enforcement, the Casino Control Commission was founded in 1977 with the passing of the Casino Control Act to regulate Atlantic City’s fledgling casinos. In 2011, the responsibility to regulate casino activities was transferred from the Casino Control Commission to the Division of Gaming Enforcement as part of the New Jersey State Assembly’s approval of Lesniak’s revised bill.

These agencies work together to handle the regulation of New Jersey casino gambling operations. All reports of fraud and misconduct related to legal gambling are reported to the Division of Gaming Enforcement and, if appealed, brought to the Casino Control Commission to resolve.

Hurdles for Online Gambling

Despite approval of Lesniak’s bill by both the New Jersey Senate and State Assembly, Governor Christie vetoed it in March 2011, calling for a voter’s referendum the following November.

One month later, the online gambling movement faced another hurdle. United States vs. Isai Scheinberg, founder of pokerstars.com, was decided and Full Tilt Poker and Pokerstars were shut down due to their violation of the Unlawful Internet Gambling Enforcement Act as well as money laundering and bank fraud on their owners’ part. This decision came to be known as Black Friday and set a precedent for online poker in the United States.

The Wire Act After Black Friday

Concerns about online gambling, fueled by Black Friday, spurred a closer inspection of the Wire Act. The Wire Act prohibits betting and wagering on sporting events through the use of wired communication.

When the Wire Act was enacted in 1961, nobody dreamed that we’d someday place bets and collect payment through the internet. Nobody had even heard of the word “internet.” The Act was created to outlaw international and interstate betting on sporting events and contests through wired communication, which at the time referred primarily to telephones. It was enacted in an effort to quell organized crime activity in the United States, which turned a large profit from illegal interstate and international gambling operations.

In September 2011, the United States Department of Justice concluded that anything other than sporting events or contests is not under regulation by the Wire Act. This was a narrow legal definition – the Department of Justice concluded that a “sporting event or contest” meant only that: baseball, football, racing, basketball and other endeavors of skill. This did not include games of chance, such as poker or roulette.

“I think New Jersey should be in that business.”

Following the voter’s referendum in 2011, Governor Christie stated that the adoption of legal online gambling would be a good thing for Atlantic City and New Jersey.

That year, revised internet gambling bills S1565 and its equivalent, A2578 (both backed by Senator Lesniak) were put through the New Jersey Senate and Assembly to address previously stated concerns about online gambling’s effects on existing business and the public’s health. Under these new bills, internet cafes could not advertise themselves as online gambling hubs or otherwise advocate gambling on their premises in any way.

Progress for New Jersey

The New Jersey Senate’s State Government Wagering, Tourism and Historic Preservation Committee approved of S1565, a bill sponsored by Senators Lesniak and Whelan, to allow online gambling. Following this was A2578, which would amend the Casino Control Act to allow internet gambling operations to begin. It passed in the Senate, and New Jersey was one step closer to legal online gambling.

Governor Christie vetoed the bill, but with the intention of approving it after a few edits. The bill’s authors quickly edited it to require the state to take 15%, instead of 10%, of gambling revenue as an operational tax. It also made the bill, if signed into law, only valid for ten years following its approval.

Governor Christie Approved.

Once the bill was approved and signed into law, the casinos wanted in. Companies partnered with Atlantic City casinos to provide online gaming and testing began to make sure everything was ready for November, when gambling websites could go live.

In November 2013, the newly amended Casino Control Act allowed New Jerseyans to legally access online poker, slots, baccarat, blackjack, roulette, and other games for the first time. This was the beginning of the ten-year trial period. Until 2023, online gambling in New Jersey will be closely monitored and, if necessary, subject to revised laws.

Challenges of the Future

Politics is a game of tug of war. Laws are created, and opposing groups try to pull these laws to align closer with their ideologies by trying to change their wording and interpretation. An example of this is the Internet Gambling Control Act. Sponsored by Las Vegas casino mogul Sheldon Adelson, it seeks to change the Wire Act by making the Wire Act’s definition of “wire communication” include any activity that involves the internet, making “any sporting event or contest” include all types of games of chance, and “wire communication facility for the transmission in interstate or foreign commerce of bets or wagers” include use of the internet as a transmission form.

It’s up to the governing bodies to maintain a fair interpretation of existing statutes and altering them so they remain fair to all of society’s changing needs, rather than the needs of just certain groups.

As New Jersey’s ten year probationary period for online gambling continues, lawmakers and the public will see what works and what doesn’t, working out the snares and kinks as they come up. No United States law is unchangeable, and this will likely not be the last amendment to the Casino Control Act.

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