Legalization of Internet betting in several U.S. states is turning the gaming industry on its head and turning some states, like New Jersey, into a case study for the promise and pitfalls inherent in Internet disruption of status quo businesses. New Jersey's gaming companies have emerged as pioneers in online gaming—Nevada and Delaware are the only competition—but the Garden State's big online bet is still stuck somewhere between cutting-edge technology and desperation in what has been a slowly dying market.
Many casinos never fully recovered from the Great Recession. A report released by the Nevada Gaming Control Board last week showed the state's largest casinos are $1.35 billion in the red for the most recent fiscal year—a loss for the fifth straight year.
But for New Jersey's Atlantic City, the downturn was compounded by Tropical Storm Sandy.
In this November 2013 photo, an elderly couple plays slot machines at the Tropicana Casino and Resort in Atlantic City, N.J.Wayne Parry | AP
Gaming industry leaders are eager to come up with innovative ways to generate new revenue. "I believe that online gaming will evolve to become a major part of the American gaming industry," said David Schwartz, director of the Center for Gaming Research at the University of Nevada Las Vegas. "I see it as a shift in the way that people gamble, comparable to the change from table games to slot machines, which happened in the 1970s and 1980s."
The early results from New Jersey's entrance into online gaming are, not surprisingly, inconclusive, showing a struggling industry overall and a boost from online revenue that is modest. Atlantic City casinos reported a loss for the seventh straight year, with revenue falling below $3 billion in 2013 for the first time in 22 years, according to a report last week from New Jersey's Division of Gaming Enforcement.
Internet gambling revenue totaled $8.4 million in New Jersey from Nov. 21, 2013, when it began, through the end of December, according to the report. That's much less than the amount deemed necessary to reach the state's ambitious forecast of $1.2 billion by the end of the fiscal year, or even its more conservative forecast of $300 million.
(Read more: Delaware considers its option to revive gaming industry)
Betting on the Internet to transform a legacy business is clearly easier said than done.
"Operators and suppliers are going to have to reinvest capital and come up with new games and new ways to attract players to the New Jersey gaming market," said Lisa Spengler, spokesperson for the New Jersey's Division of Gaming Enforcement.
"The industry needs to stay aggressive to attract new customers both to land-based casinos as well as to Internet game play," said Spengler.
