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New Jersey Study finds that iGaming is “detrimental to the economy”

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Despite its significant tax contribution, an analysis of New Jersey’s gaming market found that the industry was “detrimental to the economy” despite the high level of revenue generated.

National Economic Research Associates conducted the research. The Campaign for Fairer Gambling had previously requested the research.

New Jersey has legalized online gaming since 2013. Sports betting has been legalised by the state since the Professional and Amateur Sports Protection Act was repealed in 2018.

The research by NERA found that the industry was “net-negative”. The increased cost of gambling addiction largely offsets its tax contribution.

This study revealed that igaming is a much smaller industry than land-based casino gambling, and the wages of employees are also lower. The resulting decrease in employee’s wages was reinvested back into New Jersey.

NERA: Igaming does not contribute to the “cycle” wage

The research states that New Jersey’s igaming sector has grown “exponentially” in revenue since 2016, with quarterly highs for igaming ($469.6m/PS368.2m/EUR428.4m) in Q3 2023.

NERA reports that despite the growth of online gambling, there are not enough human resources to manage the business. This means the revenue generated does not flow back to the New Jersey economy in the form of wages or income spent.

NERA’s model breaks each dollar down into igaming (online gambling), land-based casino gaming and other recreational activities. These sectors were responsible for 4C/,12C/ and39C/ of the total wage.

NERA determined that the low number of employees involved in online gaming is related to significantly lower economic activity per dollar generated, as wages are not invested back into local economies. NERA calculates that online gambling causes a new expenditure of 0.9C/ for every dollar. This jumps up to 8.3C/ for alternate recreational activities.

NERA estimates that igaming will generate $110m of total wage income by 2022. In the report, it is estimated that consumers could have generated $1bn if they spent their money on other leisure activities.

The money spent on igaming is also less in other industries that are more labour intensive, where wages make up a larger percentage of the revenue, as opposed to igaming, which has less than 5%.

Reduction in tax contributions due to problem gambling

NERA recognized the tax advantages of igaming and praised its “positive impact” on the amount the New Jersey government collects annually in first-category income tax.

Three other reasons were also brought up by the research company for igaming tax advantages. New Jersey imposes certain taxes that are only applicable to igaming. Second, igaming has a high profit margin due to the low cost.

Final reason: igaming is more efficient than land-based casino in getting winners to pay their taxes. The Internal Revenue Service does not require land-based casino to report table game winnings. However, igaming must do so if the winnings exceed $600 in a calendar year.

NERA used the UK to illustrate how tax advantages of igaming could be offset by the cost fiscal associated with problem gambling.

The study used findings from another UK-based problem gambling study to calculate the value of the costs associated with healthcare and social welfare. NERA said that this equates to PS1.4bn out of UK gross gambling revenue of PS9.9bn.

The social costs in New Jersey of gambling addiction were “similar to tax revenues paid by this sector”.

Land based casinos are not considered harmful

Land-based casinos in New Jersey provide additional revenues that would otherwise not be available.

NERA determined that it could not judge the impact of land-based casino gambling on New Jersey’s economy as detrimental to igaming. It is because of their history in New Jersey and increased contribution to the economy.

The casinos require a much larger number of staff to operate. The employees then spend the wages they receive, re-injecting the funds into the economy of the state.

NERA noted that the casinos in Atlantic City are a magnet for tourists who want to gamble. New Jersey benefits from the money that tourists spend outside of New Jersey.

The casinos are also closely linked to the local hospitality industry, as they “depend on gambling’s existence there”.

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