The research was carried out by the National Economic Research Associates (NERA). It was previously commissioned by the Campaign for Fairer Gambling (CFG).
Online gaming has been legal in New Jersey since 2013. Sports betting was legalised in the state following the repeal of the Professional and Amateur Sports Protection Act (PASPA) in 2018.
NERA’s research found the igaming industry to be “net negative”. This is because the increased fiscal cost of problem gambling largely cancels out its strong tax contributions.
The study also revealed that significantly fewer people are employed specifically for providing igaming services in comparison to land-based casinos, as well as the resulting drop in employees’ wages being reinvested into the New Jersey economy.
NERA: igaming doesn’t contribute to ‘cycle’ of wages
The research states that New Jersey’s igaming sector has grown “exponentially” in revenue since 2016, with quarterly highs for igaming ($469.6m/£368.2m/€428.4m) in Q3 2023.
According to NERA, despite this growth the lack of human resources needed to run an online gambling company means that revenue is not being fed back into the economy through wages and subsequent income spend in New Jersey.
NERA used a model that incrementally breaks down each dollar spent on igaming, land-based casinos and non-gambling recreational activities. It found these sectors contributed 4¢, 12¢ and 39¢ in wages respectively.
NERA found that the small number of employees in igaming is connected to the significantly less economic activity on each dollar of revenue, with wages not reinvested back into the local economy. When consumers gamble online, NERA estimates they cause 0.9¢ per dollar in new spending. On alternate recreation, this jumps to 8.3¢.
In 2022, NERA estimated igaming created $110m in total wages. However, in the report it estimates that $1bn could have been generated if consumers’ money was spent on other recreational activities.
Money contributed to igaming also means less spent on other, more labour-intensive industries where a higher percentage of revenue is devoted to wages, compared to igaming’s less than 5%.
Tax contributions offset by problem gambling costs
NERA acknowledged the strong tax benefits of igaming, lauding its “positive effect” on the amount of first category income tax (FCIT) the New Jersey government collected annually from the sector.
The research firm also highlighted three key reasons for igaming’s tax benefits. The first was that New Jersey levies certain taxes, some of which apply only to igaming. The second is that igaming is a particularly high-margin business due to its low costs.
The final reason is igaming’s efficiency over land-based casinos in prompting winners to pay what they owe in tax. While land-based casinos aren’t required by the Internal Revenue Service (IRS) to report winnings from table games, igaming reports player’s winnings through Form 1099 if the amount exceeds $600 over a year net of losses.
But despite igaming’s tax benefits, NERA cited the UK as an example to show how the fiscal cost of problem gambling could cancel those out.
It used the findings of another study on problem gamblers in the UK and looked at the subsequent value of costs such as healthcare and welfare payments. NERA stated that these work out as £1.4bn of the UK’s gross gambling yield of £9.9bn.
With those numbers translated to New Jersey, $350m on social costs of those suffering from problem gambling in the state were estimated to be “similar in scale to the additional tax revenue paid by the sector”.
Land-based casinos not deemed “detrimental”
While igaming doesn’t contribute much to the cycle of wages and takes money away from more labour-intensive industries, land-based casinos provide New Jersey with additional revenue it would not otherwise receive.
NERA concluded it couldn’t judge land-based casinos to be “detrimental” like igaming for the New Jersey economy. This is due to their long-time standing in the state and the increased financial contribution.
This is largely down to the much higher numbers of employees needed to run the casinos. Employees then spend their wages, cycling the money back into the state’s economy.
NERA also noted the allure of Atlantic City’s casinos to tourists looking to gamble. Out-of-state tourists contribute money to New Jersey’s economy that they would otherwise have spent elsewhere.
Land-based casinos in New Jersey also have deep links with local hospitality businesses, which “depend on the existence of the gambling industry there”.
Original article: https://igamingbusiness.com/gaming/online-casino/new-jersey-study-finds-igaming-detrimental-economy-tax-benefits/
