There seems to be some mixed messaging coming out of Trenton as it relates to Atlantic City casinos and New Jersey online gambling.
On one hand, the State Legislature has taken extraordinary steps to ensure the viability of AC’s nine casinos. The 2016 casino payment in lieu of taxes, or PILOT, program was presented to the public as a necessary measure toward accomplishing that goal. The 10-year PILOT was amended in 2021 in such a favorable manner that two separate legal challenges to the state’s changes have made headway in the judicial system.
A major component of the court-rejected PILOT amendments was the elimination of online gambling revenue from the casinos’ tax payment formula. That move alone would have saved Atlantic City casinos millions of dollars annually because internet gambling has been outpacing land-based growth for years and is taxed at a higher rate than in-person revenue.
Yet on the other hand, lawmakers inexplicably reduced a noncontroversial extension of NJ online casinos, which, to be clear, is the fastest-growing and highest tax-producing segment of the state’s legal gambling industry. Instead of another decade of legal internet gambling, elected officials opted for a five-year continuance that sunsets in 2028.
If stabilizing the state’s gaming industry is the goal, then why intentionally create instability? Why put online casinos back on the legislative agenda in a handful of years when it is the most consistent segment of the state’s gaming industry?
None of it makes sense, really.
NJ casino PILOT faces scrutiny in Atlantic City
The PILOT was (and remains) deeply unpopular in Atlantic City and Atlantic County. Although it put an end to the casinos’ costly municipal property tax appeals, the PILOT was largely viewed as a political gift to the gambling industry.
Given the uncertainty surrounding AC casino property tax before the PILOT, putting a dollar amount on the collective benefit to the gambling industry is difficult. However, without the 2016 PILOT, industry executives and local officials have publicly stated that neither Hard Rock Hotel & Casino Atlantic City nor Ocean Casino Resort would have opened in 2018.
The 2021 PILOT amendments, spurred by COVID-19’s economic impact on the industry, tilted the scales too far in the casinos’ favor, according to a state Superior Court judge.
One lawsuit, brought by Atlantic County, has already been settled. A payment arrangement borne from the original PILOT remains in place, guaranteeing the county a set percentage of tax revenue for the life of the program.
The other suit was filed by a South Jersey non-profit called Liberty & Prosperity 1776. The organization, founded by attorney and frequent political candidate Seth Grossman, challenged the constitutionality of the PILOT. Grossman’s group earned a key victory in Superior Court last year.
The state is reportedly working on an appeal.
Atlantic City casinos haven’t rebounded from COVID
Despite the state’s efforts, the Atlantic City casino industry is not performing as well as it can. While other domestic gambling jurisdictions, such as Las Vegas, Pennsylvania, New York and Connecticut, all experienced a strong post-COVID rebound, Atlantic City is stagnant.
Only Hard Rock and Ocean have been steady performers in a post-COVID world. The other seven casinos are treading water, with some properties struggling to match 2019 (pre-COVID) numbers.
Legal online sports betting in NJ went live in 2018. More than 90% of the state’s sports betting is being done on smartphones and computers. Land-based sports betting at AC casinos and NJ racetracks only generates a small fraction of revenue and taxes.
New Jersey online casinos are state’s most productive gaming vertical
The only reliable and consistent segment of the state’s gambling industry over the last several years has been NJ online casinos.
Since being legalized in 2013, online gambling has generated more than $928 million in taxes. From January 2019 through May 2023, internet gaming (excluding sports) has produced nearly $64.3 million more in tax revenue for the state than all nine Atlantic City casinos.
Online gaming taxes have exceeded in-person revenue taxes generated at AC casinos each year since 2020. Taxes from iGaming ($117 million) are outpacing AC gambling taxes ($70.5 million) so far in 2023, as well.
Since approving the five-year online casino bill on June 30, not one elected official in NJ has made any attempt to explain the reasoning behind changing the terms of the extension.
Reduced NJ casino extension is questionable
All of this taken together makes the state’s actions that much more of a head-scratcher. Why are NJ politicians working so hard to ensure the stability of AC casinos, while simultaneously taking actions that go against that goal?
It’s the billion-dollar question in NJ right now, and no one seems to have any answers.