Why experts feel online sports betting will be better than (marginally successful) online gaming

Rush Street’s Schwartz: ‘Globally, online and sports betting represent about half the revenue, in most markets’

By Anjalee Khemlani
Atlantic City | Jun 13, 2018 at 10:16 am

Sports betting in New Jersey comes just in time for Atlantic City, which is preparing for the opening of two casinos this month.

How the online component stacks up remains to be seen.

But, unlike the launch of online gambling, which targeted traditional gamblers and tried to capture the younger audience, sports betting is generating a different kind of buzz — mostly because it’s a new market segment altogether, industry experts said.

“Online are typically a little older and skew toward the female demographic, and sports betting is younger and male,” said Richard Schwartz, president of Rush Street Interactive.

RSI is the operator behind playsugarhouse.com, the online casino for Sugar House in Pennsylvania, operating under Golden Nugget’s license in New Jersey — which is leading in internet gaming revenues consistently month-over-month, according to New Jersey Division of Gaming filings.

The company is simultaneously preparing to enter the international market this week, Schwartz told ROI-NJ.

“It’s a new product category altogether and it’s a very proven category,” Schwartz said of sports betting, citing the success in Europe, where he has previously worked.

And, with the countless bachelor (and bachelorette) parties that take place in Atlantic City every week, it is sure to result in a boost to the casino revenues for those who participate, according to Schwartz.

Even former Casino Reinvestment Development Authority Executive Director John Palmieri agrees.

Palmieri, who served between 2011-2016, and is now working in Ras Baraka’s administration in Newark, told ROI-NJ that online gaming wasn’t the life raft the casinos and the state had originally hoped.

“Online gaming had been seen as kind of a panacea, and it didn’t work out that way,” he said. “During my tenure at the CRDA, the state was enjoying maybe $80 million or $90 million in revenue. Which is substantial, but a lot less than they predicted or first thought in the industry. I think sports wagering is going to be much bigger, frankly. I think it’s going to be a pretty good revenue stream for the industry.”

Because of this, there figures to be an emphasis by the state to bring the existing underground economy into the regulated market.

This is going to be beneficial for tax collection in the region, especially since the casino payment in lieu of taxes in Atlantic County was enacted in 2016, according to Assemblyman Vince Mazzeo (D-Northfield).

Schwartz agreed.

“It’s a win-win for the state, because you are going to protect customers (with regulations) and you are going to generate tax revenues for an activity that was previous illegal and existed without taxing ability,” he said.

And, because New Jersey’s tax rates for both in-house and online bets is under 15 percent, it is likely to draw the underground players above ground, Schwartz said, citing international studies on the topic.

“Traditionally, sports betting generates similar revenues to online casinos,” he said. “Globally, online and sports betting represent about half the revenue, in most markets,” he said.

A good expectation would be $250 million or more. Online casino revenues are north of $20 million per month, so it’s reasonable to expect equivalent or greater interest in sports, he said.

The only area where the underground will continue to thrive is for high school and college sports in New Jersey, which are restricted in the law. While bets can be placed on other NCAA and high school teams, any team in New Jersey is off the table.

“There are some people in the industry that have noted that, when you restrict a game the legal site can offer, all the illegal sites will offer those, and consumers will be tempted to play on the illegal sites because they have a greater variety of options,” Schwartz said. “Clearly, there’s a good reason to do that, legislatively, but the consequence is, if you can bet on those on sites that are not regulated, you give the consumer a reason to continue playing on those sites.”

And, while the casinos and racetracks will start as early as tomorrow, RSI still needs to wait until the state establishes regulations, and then will have to build the platform based on those rules, Schwartz said.

“The pace of the land-based racetracks opening up is going to be a little bit quicker than it will be for the online sports books to be able to get up and running,” he said. “In a land-based environment, it’s anonymous betting, primarily, so you don’t have to have the same levels of accounting in your systems.”

In addition, the law prevents online from entering the market until after 30 days from the date of signing.

Schwartz is confident that the experience RSI has since launching in September 2016 in the New Jersey market will help it succeed in the new line of business.

“A lot of it comes down to investing in the technology and tools,” he said. “It also comes down to offering unique types of games that others don’t have, like games that allow players to get large jackpots.

“We certainly want to be a thought leader in the segment, and part of that is having the results to justify it and trying to stay ahead of the curve. We’re ready now.”

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Anjalee Khemlani | akhemlani@roi-nj.com | AnjKhem