During its first full year, the New Jersey online gambling industry failed to live up to the state’s early revenue forecasts. However, this was the fault of the projections and not the industry.
Based on highly criticized analysis by Wells Fargo, New Jersey Governor Chris Christie predicted the industry would generate $1,200,000,000 in revenue in its first year, a number that overshot conservative estimates by gaming analysts by close to a billion dollars in some cases.
And even though the final tally had similar numbers to Christie’s prediction – it started with a 1 and a 2 and had a bunch of zeroes at the end – the $123,000,000 the industry generated in 2014 missed Christie’s projections by a factor of ten.
These projections were of course patently absurd.
The use of the faulty Wells Fargo predictions, instead of more reasonable projections made by gaming analysts, has led to a number of unintended consequences for the state’s iGaming industry and operators.
And the folly of the projections – nor the availability of other, more reasonable projections – hasn’t stopped online gaming critics from highlighting the industry’s massive “failure” every chance they get.
The good news is that this attack is playing itself out and is now starting to be drowned out by a positive development in New Jersey – a continued and sustained rise in revenue as the market continues to mature.
On pace for 13% increase
New Jersey is currently on pace to post a 10% to 13% year-over-year increase:
|YoY New Jersey iGaming Revenue|
|Jan 2014||$9.46 million||Jan 2015||$11.56 million||+18%|
|Feb 2014||$10.3 million||Feb 2015||$11.9 million*||+13%|
|March 2014||$11.87 million||March 2015||$13.16 million||+9%|
|April 2014||$11.42 million||April 2015||$12.69 million||+10%|
|2014 Total||$43.05 million||2015 Total||$49.31 million||+13%|
*The $1.5 million jackpot that was paid out in February 2015 has been added to total revenue, counting this payout the market is on pace for 10% YoY growth.
Golden Nugget iGaming Chief “$180M a Possibility in 2015”
However, if the current trend line holds, the industry could experience an even larger year-over-year bump.
Thomas Winter, the Head of Online Gaming for Golden Nugget, feels the trend line could be as high as $180 million by the end of the year, according to comments he made at the C5 Online Gaming Conference in New York City on May 14.
It should be noted that Winter was not saying the industry would reach $180 million in revenue in 2015; he was saying that by the end of the year the industry could be trending towards this number.
It would take monthly revenue of $15 million for the industry to reach Winter’s $180 million trend line.
This would likely require two key events to come to pass:
- Dramatically improved payment processing (better credit card success rates and the involvement of PayPal).
- The introduction of PokerStars to the market.
$150 million in 21015 is a reasonable target
The industry is currently on pace to reach $140 million in revenue in 2015, but my feeling is the industry will reach $150 million this year.
For $150 million to be possible, New Jersey iGaming operators will have to avoid the seasonal lull that hampered the industry in 2014.
As seen in the chart below, the precipitous drop began in April and lasted through November (click chart for larger view):
*Red data points indicate adjustments for 7-figure jackpots hit in that month (a $1.3 million slot jackpot in June 2014 and a $1.5 million table game jackpot in February 2015).
So far the industry has evaded this drop-off in 2015, and would need to average about $12.5 million per month through December to hit $150 million.
The combination of new credit card codes, more operators deciding to only collect the final four digits of registrants’ Social Security Numbers, and the expected launch of PokerStars may stave off a seasonal lull.
If the industry realizes $150 million in 2015 revenue, it would mean 18% growth in Year 2. This is a solid and marketable number that should prick up the ears of lawmakers in other states considering online gaming expansion.
Near 20% YoY growth would likely silence the critics harping on the industry’s failure to live up to the early estimates.
What’s the market cap for NJ online gambling?
In addition to the industry posting $15 million months, Winter also made another optimistic prediction at C5, stating he felt the market cap in New Jersey was around $250 million.
The industry’s best chance for continued growth seems to be from online poker. New Jersey online casino revenue is already rising, while online poker revenue in New Jersey has degraded.
Online poker revenue in New Jersey is currently around $2 million, but we’ve seen online poker’s monthly revenue totals as high as $3.4 million in the past.
If the industry can push iPoker revenue above $4 million – and perhaps as high as $5 million during top months – and if online casino revenue continues to grow at a reasonable rate, the $250 million cap Winter estimated remains a stretch, but not out of the realm of possibility.
Still, the revenue numbers Winter deems possible will likely not be realized until all barriers are removed, and the market boasts:
- Payment processing success rates above 90%.
- A continued crackdown on offshore operators.
- The launch of PokerStars.
- Improved online poker software from the state’s other providers.
- More proprietary online casino games.
- Increased involvement of affiliates.
- Interstate agreements with other states that boost online poker liquidity.