New Jersey relaxes online gambling laws in test case for America
New Jersey governor Chris Christie hopes to make the state a hub for gambling regulation across America. Photograph: J. Scott Applewhite/AP
America is poised to take a significant step towards permitting online gambling this week when New Jersey tests the waters by liberalising strict laws governing internet poker, blackjack and slot machines.
A new wave of officially sanctioned online gambling sites will be opened up to the public on Tuesday, ending years of controversy over rogue offshore websites flouting warnings from federal authorities that their US activities were illegal.
While New Jersey is not the first state to legalise and license online gambling – Nevada and Delaware already have licensed operators – it is seen as the first with a population of a scale likely to attract the critical mass of players needed by large, profitable sites.
More than 9 million people live in the east coast state, and governor Chris Christie, seen as a possible Republican White House contender for 2016, hopes to make it a hub for gambling regulation across America.
Christie, who is forecasting game-changing tax dollars to flood in from the liberalised industry, is already pushing federal authorities for further liberalising measures, specifically around illegal sports betting.
France, Italy and Spain have all introduced similar licensing and taxation regimes for online gambling. Britain, the biggest European market, is also considering reforms in this area.
Online gambling operators hope the success of poker sites in New Jersey will galvanise nearby populous states to follow suit. On the west coast, meanwhile, Californian politicians are also considering moves to open a market for licensed online poker. “That’s the real brass ring we’re all looking to capture,” said one official at a leading poker website.
Another official at a second poker site said: “The US tried prohibition [from 1920 to 1933] … it didn’t work. Even today, the black market is worth about $3bn.”
The New Jersey move will mean the return to the US market of PartyPoker, which had been the biggest site in the world until it quit the US overnight in 2006 following George Bush’s Unlawful Internet Gambling Enforcement Act (UIGEA), losing FTSE 100 parent group PartyGaming more than three-quarters of its revenues at a stroke.
It is not the first time New Jersey has turned to the gambling industry to boost local investment and taxes. Rundown Atlantic City was transformed into a casino resort in the 1970s, bringing a much-needed economic boost – though not without opponents who argued it was very much a mixed blessing. In recent years, however, the draw of the remaining dozen or so casinos on New Jersey’s Boardwalk has been fast fading, in part as neighbouring states such as Pennsylvania and New York have opened up rival gambling resorts.
Conspicuously absent from the list of websites approved to start operating this week in New Jersey is Isle of Man-based PokerStars, the world’s biggest poker site.
It became market leader after refusing to leave the US in 2006 following the passing of UIGEA. In the following five years, together with Alderney-based Full Tilt Poker, PokerStars ran a near-duopoly in America, to the fury of the federal authorities.
But in 2011, both sites were shut down by the US department of justice after the FBI discovered a complex network of bogus retailing websites the two poker sites were using to ensure credit card companies could not detect that transactions were linked to illegal gambling.
The revelations finally led to US authorities successfully blocking the last two major rogue operators. They also exposed a $350m (f215m) black hole in Full Tilt’s books, effectively pushing the business into bankruptcy. The brand has since been taken over by PokerStars.
Full Tilt founder Ray Bitar, who is in poor health, returned to the US last year and in April pleaded guilty to criminal charges relating to illegal gambling .
Isai Scheinberg of PokerStars is wanted by the FBI on charges linked to bank fraud, money-laundering and online gambling offences.
The company has said he has stepped down as a director but his family still owns the business.
The value of UK online gambling is put at around f1.2bn annually.
$32.8 billion: size of online gambling globally in 2012
New Jersey casinos have seen revenues fall from $5.2 billion in 2006 to just over $3 billion last year.