Despite legalized sports betting in New Jersey kicking off with plenty of wagers, the numbers will likely only translate into small tax gains for the Garden State, according to analysts.
New Jersey recorded $57 million in sports bets through July after opening for business on June 14 at some Atlantic City casinos, three racetracks and online sports books, Fitch Ratings analyst Marcy Block said in a report released Tuesday. While the bets led to $7.3 million in gross gambling revenue, only $620,000 in tax revenue was garnered for the state.
Block noted that New Jersey is projecting $25 million in sports gambling tax revenue for the 2019 fiscal year that commenced July 1 from $233 million in industry gambling revenues, which equates to a “negligible” amount in contrast to a $37 billion budget. The state levies an 8.5% tax rate on in-person bets and 13.0% rate for online wagers.
“Yet, to the extent sports gaming boosts other consumption, the increase in gaming could modestly benefit Atlantic City's economy and finances, while boosting related state and local tax revenue,” said Block in her report. “The city and gaming revenue recently benefited from the opening of two new casinos, although revenue losses were recorded in July at the seven existing casinos as the new properties siphoned customers.”
New Jersey
“Monthly activity will need to grow by about 3.5x to translate into the state’s annual estimated tax revenues,” said Fabian. “Expansion of betting locations will certainly help grow revenues, but until there is an internet component it will be challenging to reach this target.”
Additional sports betting parlors are slated to open later this year with five applications submitted by Atlantic City gambling companies on July 16, according to the Division of Gaming Enforcement. New Jersey is seeking new revenue to aid years of structural budget deficits that combined with a heavy pension burden have led to the state’s bond ratings dipping to the second lowest among U.S. states. The state has bond ratings of A3 by Moody’s Investors Service, A-minus by S&P Global Ratings and A by Fitch Ratings and Kroll Bond Rating Agency.
Atlantic City casinos reported an 11.7% drop in first quarter profits prior to sports betting legalization and the opening of two new gambling venues. The city doesn’t directly collect on sports betting, but parts of the Investment Alternative Tax redirect New Jersey revenue to pay down its debt service under a state takeover plan that took effect in November 2016. Atlantic City has deep junk debt ratings of Caa3 with a positive outlook from Moody’s Investors Service and CCC-plus from S&P Global Ratings.
“Sustaining visitor and revenue growth is likely to become more difficult post-opening of the new casinos and as summer ends and beach/boardwalk vacation traffic wanes,” said Fabian. “This could make it difficult for nine casinos to thrive.”
