New Jersey: what now that the “casino civil war” is over?

The recent referendum question on a potential expansion of casino gambling into Northern New Jersey resulted in an emphatic “no” from voters. Larry Gibbs of US Gaming Services reviews why, and more importantly, asks if there were any real winners given the urgent need for an effective state-wide business plan to revive its casino industry.

In iGaming Business North America issue 24 I wrote a doomsday article fearing a “civil war” brewing between divided factions in New Jersey over an upcoming November referendum question, potentially expanding casino gaming in the state.

On one side, a struggling Atlantic City facing bankruptcy and severe job losses with casinos shutting down, on the other, a determined Northern NJ group, promising to dramatically increase needed tax revenue, create ancillary jobs and cooperatively reward Atlantic City as part of their plans.

As we now know, a huge majority, 78% of all state voters, adamantly said “no” to referendum Question #1 on the ballot. This enormous landslide not only delivered the answer but called into debate whether the issue could ever be presented again for public vote.

And if so, how could the question be altered to make it a basis for fair discussion? After all, when more than three in four people say no to anything it’s difficult to support the idea of bringing it back to the table.

So, what went wrong, or perhaps the way voters decided, what went right? And more importantly, where does the state of New Jersey go from here with respect to the many critical areas affected by this vote? How will Atlantic City repair itself without the promised approximate 25-40% revenue share within the referendum question?

And even now the threat of casino competition from Northern NJ locations has receded, how will they repair huge losses from the five major casino hotels closed in the last three years?

As was also highlighted via the millions of dollars spent in pro-Northern NJ ads, how will New Jersey continue to compete against its close casino neighbors in Pennsylvania, Delaware and the soon-to-expand industry in New York state?

Did anybody really win the war?
What everyone can reasonably and objectively agree in response to that question is another flat-out “no”. The referendum generated an astonishing US$24m in campaign spending by both opponents and proponents, according to a report by the New Jersey Election Law Enforcement Commission.

Candidates for major US elections often do not raise that kind of financial support. Around the middle of September, the biggest financial backers of the proposed expansion—billionaire investor Paul Fireman and Jeff Gural, real-estate tycoon and owner of The Meadowlands Racetrack,mannounced they were abandoning their campaign to get the ballot question passed.

Viewing its prospects as hopeless, the two men targeting casinos to be built in Jersey City and the Meadowlands announced polls showing the ballot measure had absolutely no chance of passage. This was likely the final signal to any voter who hadn’t made their mind up before entering the voting booth on November 8th.

What wasn’t anticipated was how badly the referendum question would be defeated among New Jersey voters. The ballot question failed by more than 1.5 million votes, making it the largest margin of defeat for any referendum the state has ever seen, destroying the referendum mark set in NJ in 1987 when a plan to build a new baseball stadium at the Meadowlands site fell by nearly a half million votes.

Overall, the final total was “no” 78%, “yes” 22%.

No champagne celebration on the Boardwalk
With that kind of triumphant victory you would be forgiven for assuming that a celebration would be next for chief proponents against the referendum. That would include all factions involved in Atlantic City, who from the late 1970s until the 1990s held a monopoly with Nevada on legalized US casino gaming, until many US states embarked on aggressive legalised gambling expansion.

Yes, a win in the referendum vote was a much-needed battle win, but not a victory signalLing immediate relief from its ongoing woes, and certainly not prospective gain.

Not dissimilarly to the basic principle of the game of Monopoly, Atlantic City is facing potential bankruptcy. More than 3,000 jobs were lost in October 2016 with the most recent closure of the latest victim, Trump Taj Mahal.

In fact, a key compromise over potential compensation to Atlantic City may have been largely ignored by the voters. It was never clearly settled by legislators how much exact percentage share was going to be granted in aid to Atlantic City casinos to compensate for the granting of licenses to two Northern New Jersey casinos.

Perhaps only the referendum’s legislated 72-mile distance of these casinos from Atlantic City seemed the clearly written and understood issue by voters as they made their decision. Also, where Atlantic City casinos currently pay a 9.25% tax rate, it was voluntarily suggested by Gural to pay New Jersey near 50%, close to what neighboring Pennsylvania casinos provide for their state.

The referendum question itself only had room for so many words on the ballot. Implicit within the massive advertising campaigns were emotional pleas asking New Jersey residents to pick a side rather than evaluate the many issues put before them.

‘Our Turn NJ’ vs. Trenton’s Bad Bet
The volume of media attention generated around this specific voter issue in New Jersey was of a level usually reserved for political candidates for an election. As the secondary feature on the ballot, it was already a foregone conclusion that Hilary Clinton was going to win the state’s electoral votes for President.

By October, the remaining suspense wasn’t whether the proposition was going to lose, but by how much.

“When is it our turn New Jersey to protect our seniors?” asked an ad from the Our Turn NJ campaign to build two new casino sites in Northern New Jersey. Another major theme highlighted that “neighboring states have been stealing our revenue for nearly 15 years”.

Countering that plea came strong, united opposition forces backing southern New Jersey, sponsoring Trenton’s Bad Bet. They asked voters: “Are you willing to roll the dice on your family’s future?”, implying that more gambling would result in further job losses, increased social problems and most importantly, not enhanced tax growth but further cannibalization of Atlantic City revenues.

Their television commercial made the case that voters had no reason to trust the lawmakers in Trenton to get this issue right, citing the state’s ongoing problems with public-employee pension debt and high property taxes.

“The politicians are stacking the deck so their rich, special-interest friends win big,” was a featured strapline in the ad. The result? Fuelled by the powerful Malaysian casino group Genting, Trenton’s Bad Bet out-spent the strong forces from OuR Turn NJ and basically outgunned them. 

Their message resonated more with the voters but their motive was undoubtedly more personal and business-oriented. Genting owns the very successful Resorts World New York, adjoining Aqueduct Race Course in nearby Ozone Park, NY, but does not currently own a casino in Atlantic City.

If any source was indeed “stealing revenue from New Jersey”, it would be strong competition like Resorts World, only a half hour away from the proposed Northern NJ casino sites. It’s difficult to make a case that Genting’s large investment was in sympathetic support for Atlantic City.

As for “protecting families”, that is strictly another separate, subjective debate. But the bottom line here is reducing these issues to by-products of an inner-state war over casino territory when the entire state of New Jersey needs to create more jobs, more incremental tax revenue and foster growth as soon as possible.

Location, location, location
What really divided the state (and the vote) wasn’t differing assessments of the potential positive and negative benefits. It was deciding which side would come off worst and suffer the most casualties on the battlefield. In essence, who had more to lose rather than win. 

Hindsight would surely have seen the Northern NJ side focus voters on their overall strategic advantage as a world “destination” attraction, utiliSing the two new proposed casino sites as the alluring centerpiece of a comprehensive economic plan.

After a construction hiatus, the multi-billion-dollar American Dream Meadowlands entertainment and shopping mega-plex is scheduled to be opened in 2018. Only a few miles away from Manhattan and nearby Newark International Airport, it will provide New Jersey with a unique destination site alongside the recently remodeled Meadowlands Racetrack.

By comparison, Atlantic City has largely become a “convenience” gaming resort due to increased competition from across the state borders, drawing a high percentage of locally-based residents. The two named casinos, including the other proposed location in nearby Jersey City, could have augmented other planned civic ambitions, including a large international convention center.

Another issue given less prominence than it should have been in this “ casino civil war” was the continued progress of the competition from across the border. In the most recent Pennsylvania Gaming Control Board report from October 2016, the state announced a stunning 5.35% year-on-year increase in gross table game revenue to  US$71m, whci represented a rise of US$3,6m on October 2015.

Pennsylvania is now eclipsing Nevada as the nation’s highest state casino tax revenue producer. With Maryland and Delaware also directly competing with New Jersey and New York now building new casinos to open in the near future, there should surely have been some middle ground between the two proposals up for discussion.

New Jersey – the igaming state
Whatever position you may personally take on this issue, New Jersey voters, their legislators and lobbyists deserve respect for pioneering the expansion of gaming in the United States. This was the first state to break ground on legalising land-based casino gambling in the US outside of Nevada in 1978.

And in 2014, initially sponsored by State Senator Raymond Lesniak and signed into law by Governor Chris Christie, New Jersey broke important ground legalising online gaming.

Currently New Jersey is the clear leader of the three states including Delaware and Nevada that have offered US citizens the legal right to gamble online. Although well below pre-market projections, revenue figures currently averaging $14m per month significantly eclipse those in the other two states and are steadily climbing.

As our earliest studies conducted at US Gaming Service concluded and have since been proven correct, online gaming has not eroded or cannibalised online gaming revenue within a state’s boundaries.

In fact, with clever marketing efforts and incentive solutions, igaming has built overall gaming revenue in New Jersey akin to a brand new retailing strategy. How this might have applied to New Jersey adding two large casinos in the state’s largest population hubs with short access to New York City, we won’t know, at least for now.

Would it have indeed further jeopardised Atlantic City’s future or could a cooperative business plan have been effective in helping build it into the giant state tax generator it was intended to, a win-win, providing solutions for both sides? 

Overall, how many crucial new jobs would have been created in one area versus those lost in another? To pre-empt concerns around the potential increase of problem gambling associated with additional New Jersey casinos, should more funds have been earmarked for advertising around this, or wording on this issue been included in the referendum ballot question itself?

All these questions will remain unanswered for now as the voters from New Jersey have clearly and decisively spoken on the expansion issue in this latest November referendum. What now continues unabated is an Atlantic City facing potential bankruptcies and the threat of further casino closures and job losses, and in desperate need of a fresh, effective turnaround plan.

Without question, it will be some time before an updated referendum question on casino gaming in Northern New Jersey will be included as a ballot measure. The pressure to find a solution and learn from past mistakes will fall upon the shoulders of the governor replacing the soon-to-depart Governor Christie.

Hopefully, they will now understand that dividing a state over such complex and important issues solves nothing and that no casino stakeholder in the Garden State ultimately walks home a winner.

Larry Gibbs is vice president of US Gaming Services, a full-service consulting and marketing research organisation with 15 years of experience in US online gaming; working across government, lobbyist and casino industry sectors.