New Jersey’s online gambling industry recently celebrated its fifth anniversary.
Throughout those five years, the industry has grown from quaint little product offering to a juggernaut, with annual revenues of more than $250 million.
New Jersey also dispelled many online gambling myths that have been repeatedly used to derail legalization efforts in other states. The long-touted concerns about cannibalization or easy access for underage and problem gamblers have not come to pass.
The truth is, NJ online gambling has been a tremendous success.
· The state of New Jersey has received some $175 million in tax revenue from online gambling operators.
· Atlantic City’s land-based casino operators have found a new revenue stream and are attracting a new, younger clientele.
· Consumer protections are far more robust than in black markets, with firm age and location verification, as well as self-exclusion and other responsible gaming features.
But let’s stop living in the present. The question this article will attempt to answer is where does the industry go from here? And what do the next five years have in store for New Jersey?
Here are our best guesses:
The inevitable end to growth is a ways off
At some point, the NJ online casino market will reach maturity, but precisely when that moment occurs is anyone’s guess. We wouldn’t count on it happening anytime soon.
New Jersey’s online casino industry has been growing at a sustained rate since its inception. The industry has yet to experience a year-over-year decline in any month, and as the chart below indicates, that growth has been in the double digits in almost every instance.
The chart does show that the growth percentage had been slowing down before a recent spike in year-over-year revenue growth.
So what’s causing the recent growth?
One explanation is the two new casinos in Atlantic City, both of whom launched online gambling sites.
Another explanation is the launch of NJ sports betting. But not because NJ sports betting revenue is being lumped in with online casino and poker revenue. Rather, sports betting is likely funneling new customers into these other products.
Which brings us to our second prediction.
Cross-selling will extend the growth phase
Without question, the recent uptick in year-over-year revenue gains can be traced in part to the addition of online sports betting.
4/4 As almost everyone expected, sports betting in NJ is looking like a boon to online casino revenue. Online casino very strong y/y and m/m, with operator commentary suggesting cross-sell is happening. Of course, we only have a few sports brands online, so more to come.
— Chris Grove (@OPReport) October 12, 2018
Further, the amount of cross-selling should increase as more of the existing NJ online casino operators launch online sports betting products and incorporate shared wallets across all online gambling verticals.
That could help them cut into the overwhelming online sports betting market share DraftKings and FanDuel currently possess — or conversely FanDuel and DraftKings could use their sports betting supremacy to cut into the casinos’ online casino market share.
2/ When it comes to online, there’s @DKSportsbook at about 65% share, @FDSportsbook as 22%, and the rest is spread out. Of note in that final tier: @PlaySugarHouse punching above its weight at about 5% share.
— Chris Grove (@OPReport) October 12, 2018
Once sports betting gets its sea legs under it, operators will be plying their sports betting patrons with NJ online casino and poker promotions that should raise the current ceiling on NJ online casino revenue, and extend the growth phase for quite some time.
That could also lead to consolidation around specific operators that are better equipped to introduce shared wallets and offer competitive products across all verticals.
And that brings us to our final prediction.
A winnowing of operators is likely for NJ online gambling
DraftKings and FanDuel aren’t content with sports betting.
Both operators have signaled their interest in the online casino market. And then there are the several Pennsylvania casinos that are targeting New Jersey as that state prepares to launch its PA online gambling industry.
That means the already competitive market is going to get even more crowded. Perhaps too crowded, as the market looks headed toward 25 or so unique brands, not counting sportsbooks.
When market maturity is reached, we wouldn’t be surprised to see several non-Atlantic City casino operators tamp down or even shutter their online gambling websites in New Jersey.
To date, only a single operator has pulled up stakes in New Jersey, the short-lived Ultimate Gaming. Over the next five years, we’d expect to see several others get pushed out.