Is Pennsylvania Online Gambling Expansion Going To Hurt New Jersey?

Updated on September 21, 2022
online gambling

Is gambling expansion in Pennsylvania going to have a negative effect on New Jersey online gambling and the Atlantic City casino industry?

Probably not, since most of the damage was already done years ago.

In 2005, long before legal and regulated online gambling was a thing, the Atlantic City casino industry peaked, pulling more than $5.9 billion in gambling revenue.

Atlantic City’s then 11 casinos pulled in record revenues that year, but immediately began a downward spiral that would last a decade.

It just so happens that the neighboring state of Pennsylvania had legalized slot machines at existing racetrack and new casino facilities a year earlier.

Pennsylvania gets its gambling game going

The state’s first slots casino, Mohegan Sun at Pocono Downs, didn’t open until November 2006 at the Wilkes-Barre harness track. However, it started a wave of casino construction in PA that did major damage to the Atlantic City casino industry’s bottom line.

In January 2010, Pennsylvania passed a law authorizing table games at the state’s licensed racino and casino properties.

By 2012, as PA’s 11th casino opened up, Pennsylvania moved passed New Jersey becoming the second-largest gambling revenue-generating state in the country, behind only Nevada.

Gambling revenues in Atlantic City had dropped all the way down from that $5.9 billion peak to $3.1 billion, a $2.8 billion decline. With neighboring Pennsylvania and its new casinos posting $3.2 billion in gambling revenues that year, it was easy to see where the money had gone.

The opening of the grandiose $2.4 billion Revel Casino Hotel that same year was supposed to help the Atlantic City casino industry turn itself around. However, things got even worse just a couple of years later.

Online gambling comes to NJ

In February 2013, New Jersey lawmakers passed legislation authorizing the issue of licenses for NJ gambling websites partnered with Atlantic City casinos.

The first 13 legal and regulated online gambling sites in New Jersey launched that November. However, a bit of a slow start for the sites ensured the continued decline of the Atlantic City casino industry.

In 2014, with revenues continuing to climb in Pennsylvania and decline in the Garden State, four of Atlantic City’s then 12 casinos, including the once vaunted Revel, shut down.

Two years later, in September 2016, the most successful casino in Atlantic City history, Trump Taj Mahal, also closed down in the midst of a labor dispute. However, the news wasn’t all bad that year.

Turning around a decade of declines

In fact, in 2016, New Jersey online gambling sites posted record revenues of $196.7 million. A number that helped push total Atlantic City gambling revenues back up to $2.5 billion and turn around a decade of declines.

Pennsylvania, which now had 12 casinos and plans to build a 13th in Philadelphia, continued to hold onto that Number 2 spot behind Nevada in 2017. In fact, it posted $3.2 billion in revenues. However, the slight revenue increase PA enjoyed no longer appeared to be coming at Atlantic City’s expense.

In 2017, for the second consecutive year, the city’s seven remaining casinos saw revenues increase. In fact, an almost 25 percent jump in online gambling revenue to $245.6 million helped the Atlantic City casino industry post $2.6 billion in total gambling revenues.

Two years of revenue increases have Atlantic City back in the game, but now comes the threat of another gambling expansion in Pennsylvania.

PA’s online gambling expansion

PA lawmakers passed a comprehensive gambling expansion package in October 2017 that will soon see online slot machines, online table games, and online poker sites launched throughout the state.

Other gambling expansion initiatives that are part of the package include:

  • Up to 10 satellite casinos
  • Online lottery
  • Video Gaming Terminals at qualifying truck stops
  • Tablet Gaming in select airports
  • Daily fantasy sports
  • Sports betting

However, only five of the 10 satellite casino licenses have been bid on and it appears there’s very little interest in any more than that. Plus, although the online gambling and sports betting license application processes are now open to any of PA’s 13 casino license holders, only one so far has applied (Parx Casino).

In fact, it looks like the expansion won’t be half of what it was originally thought to be. Plus, there are those who think it’ll be more of a threat to the PA gambling market than AC.

What the credit rating agencies think

The Moody’s Investors Service credit rating agency was among the first to say as much. It said the expansion will most likely hurt revenues at PA’s own casinos.

Moody’s also said the state will likely see some benefit. However, it wasn’t clear if those benefits would be extended to the state’s casinos.

However, Moody’s also suggested the expansion is also likely to hurt Atlantic City. Although, the only evidence seems to be the damage done when Pennsylvania legalized gambling.

On the other side of the fence, Fitch Ratings credit rating agency actually claims the opposite is true.

In fact, Fitch says Pennsylvania’s gambling expansion will not have a major impact on gambling revenues in Atlantic City.

This is partly because the satellite casinos won’t be built in densely populated areas close to Atlantic City, such as Philadelphia. But mostly because the 54 percent tax rate on online slots proposed by PA lawmakers is more than triple NJ’s. NJ operators pay just a 17 percent tax on online gaming revenue.

According to Fitch, online slot revenues account for as much as 70 percent of all revenue in New Jersey. Plus, its favorable tax rate makes it a lot more attractive to operators.

Fitch says operators who don’t want to pay the 54 percent tax simply won’t jump in the PA market, which could explain why none have applied for a license so far. If enough go that route, Pennsylvania’s online gambling market will simply be too small to compete.

Plus, the Atlantic City casino industry is hardly taking a wait and see approach to any threat Pennsylvania may pose.

An Atlantic City resurgence

On June 28, the shuttered Taj Mahal reopened as Hard Rock Hotel & Casino Atlantic City. The Revel reopened as Ocean Resort Casino on the same day. Many of Atlantic City’s now nine casinos also have plans to jump into the newly legal sports betting market.

The NJ sports betting market is a place where the tax rate is even more favorable to operators, especially more favorable than the one they are pretty much avoiding in PA.

From the looks of it, the New Jersey online gambling and Atlantic City casino industries aren’t taking things lying down. In fact, they are facing Pennsylvania’s gambling expansion with an expansion of their own.

Only, the NJ expansion has already provided tangible results. Meanwhile, the only thing going on in PA is efforts to get the state to rethink its tax rates.

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