Success of low-cost online gaming could figure in upstate casinos vote, says Anthony Marino

This development is very interesting and warrants discussion. But first let's review the numbers, all of which are from financial reports recently released by the New Jersey Division of Gaming Enforcement.

During the first half of 2016, online gaming win jumped 31.7 percent while onsite gaming win (aka, "brick and mortar" win) was up only 0.6 percent. Admittedly, the significant increase in online gaming win was on a much smaller base, approximately $72 million in the first six months of 2015 vs. nearly $95 million this year. But it amounted to a net increase of almost $23 million in new revenue while the onsite gaming win was only about $7.3 million more in 2016 compared to the same period last year, $1,151,748,761 vs. $1,144,476,848 in 2015, a 0.6 percent increase.

Total casino revenues from all sources, including third party sales, increased from $1,750,124,000 in the first six months of 2015 to $1,776,095 this year, an increase of approximately $26 million, or 1.5 percent over last year. Thus, the nearly $23 million contribution from online gaming was the primary driver of new casino revenues so far in 2016.

At least three major conclusions can be drawn from these numbers. First, online gaming has become a "virtual" ninth New Jersey casino. But unlike the eight existing Atlantic City casinos, the ninth casino has no walls, no restaurants and few employees. It is now contributing welcome new dollars to the casinos that have it - the Borgata, Golden Nugget, Caesars, etc. - and probably at a much more lucrative return on investment than its onsite, or brick and mortar, counterparts that have the major operating and maintenance costs of a labor intensive, fixed site, industry.

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With nearly $95 million in win through the first six months of 2016, online casino operations generated more gaming win than the onsite operations at Resorts ($79.7 million) and the Taj Mahal ($85.2 million) during this period

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And the onsite gaming win through the first six months this year at the Golden Nugget ($99.3 million) and Bally's ($101.7 million) may be overtaken by the second half 2016 online gaming numbers.

These numbers suggests two other issues. On the revenue side, as noted above, online gaming certainly helps the bottom line of the casinos that have vigorously implemented it. But the significant 21 percent jump in gross operating profits for the first half of 2016 apparently resulted not from the 1.5 percent increase in revenue but from major cost controls such as personnel reductions and benefit cuts.

Certainly, online gaming can grow revenues while reducing labor and maintenance costs associated with brick and mortar casinos, resulting in future higher operating profits that please shareholders. But most online players can gamble without visiting Atlantic City. So while shareholders benefit, non-casino establishments in the resort seem minimally impacted.

The third issue to consider is that since online gaming win is taxed at 15 percent instead of the 8 percent rate on onsite gaming win, the state gets a better share of gaming win from its new ninth virtual casino. That raises a question about gaming in North Jersey, which is on the November ballot. Still to be decided is the actual tax rate on those proposed casinos, with rates of 25 percent to 50 percent being debated.

Perhaps, with online gaming racking up double digit increases monthly and its ability to reduce costs and boost profits, the Legislature should consider raising the online gaming tax rate to 25 or 30 percent and the onsite rate to 20 percent in Atlantic City. Then voters would have the choice to raise more state revenues for senior citizen programs from the existing online and onsite casinos based here in South Jersey rather than from new ones up north.

Anthony Marino, of Egg Harbor Township, is a local market analyst and former executive of South Jersey Transportation Authority.