Casino Enterprise Management

If you have been to Atlantic City lately, or have recently read any articles about the condition of gaming (and if you haven’t read any gaming articles recently, why are you reading this one?), then you are aware that a combination of factors has produced a decline in business in Atlantic City. You are probably also aware that this is somewhat of an understatement. But, just like the early 1970s when Atlantic City was also in decline, those who care about the place are working hard to introduce innovations that, if achieved, may help bring the town back again.

In the 1970s, it was casino gaming itself that served as the catalyst to restore the “Queen of Resorts.” Now, many believe that new forms of gaming, if allowed in those casinos, will bring people back, even if not physically, at least electronically. Either way, with their return, Atlantic City has a chance to again renew itself, to reinvent itself as it did almost 40 years ago. The specific mechanisms this time are, first, Internet gambling, and second, sports betting. Will either of these prospective offerings ultimately find their way into New Jersey’s law and Atlantic City’s casinos? And if they do, will they work the magic that their promoters hope they will?

Among my many limitations is my inability to foresee the future. (Luckily, I share this limitation with most people.) So, if you skip down to the end of this article, do not expect to find the answer to either of the questions that I have just posed. They won’t be there. What you will find instead will be a description of the backgrounds of both the online and sports betting proposals, and a brief summary of each, to help you better understand the situation and possibly make your own predictions. However, events are moving rapidly in these areas, especially online, and it is possible that, by the time you read this, we may already know whether or not the New Jersey Internet gaming law was passed. Then again, we may not. As of this writing, no such passage has occurred.

Online Gambling Efforts
At present, the only mention of Internet gaming in the New Jersey Casino Control Act is a requirement that the state’s gaming regulatory agencies, the Division of Gaming Enforcement and the Casino Control Commission, establish an Internet gambling public awareness campaign. This campaign is not in effort to alert New Jersey residents of the progress of legalization attempts. Rather, it is to warn the public about the risks of Internet gambling. The warnings must include information about how Internet gaming can cause people to be defrauded or have their identity stolen, or how their minor children can be enlisted to participate. (See N.J.S.A. 5:12-76.1.)

Regardless, efforts were made in the past to authorize Internet wagering, and these efforts are being continued now. However, this authorization faces two major hurdles. One of them is legal and the other is political.

The Legal Hurdle
The legal hurdle is found in the state’s constitution. In particular, the constitutional provision that authorizes casino gambling in New Jersey expressly limits it to the boundaries of Atlantic City:

“It shall be lawful for the Legislature to authorize by law the establishment and operation, under regulation and control by the State, of gambling houses or casinos within the boundaries, as heretofore established, of the city of Atlantic City, county of Atlantic …” Article IV, Section VII, paragraph 2(D).

The self-evident legal question, then, is whether or not Internet gambling takes place outside of Atlantic City if a portion of the activity can be conducted anywhere within the state.

The first bill that would have legalized Internet gambling, Senate Bill No. 490, was passed by the legislature on Jan. 10, 2011. That bill would have allowed Internet wagering only on an intrastate basis. It would have required all players to be located within New Jersey in order to play. The games would have had to have been routed through the casino licensees in Atlantic City, and in an attempt to address the constitutional geographic limitation, it would have deemed all wagers to have occurred in Atlantic City when accepted by the casino. However, access to the games could have been obtained anywhere—homes, bars, 7-Elevens—anywhere. When this bill went to Gov. Chris Christie’s desk, he vetoed it. Among the reasons for his veto was the legal, constitutional question. The governor’s veto message said, in part:

“S-490 is designed to foster convenience gambling by permitting people to wager at a time and place of their choosing. However, nothing contained in the legislation would prohibit commercial establishments outside of Atlantic City such as nightclubs, bars, restaurants, cafes, amusement parks from offering gambling opportunities in order to attract patrons or customers, potentially leading to the creation of commercial gambling locations outside of Atlantic City.”

The governor also noted:

“In my view, the creation of the legal fiction deeming all wagers to have ‘originated’ in Atlantic City cannot overcome the clear and unambiguous language of the state constitution.”

The Political Hurdles
The political hurdles are multiple, as usual. One is the relationship between the casino industry and the horse racing industry in New Jersey.

In his veto message, the governor noted that he had trouble with the sections of the bill that would have attempted to assist the ailing New Jersey racing industry by devoting some of the revenues from online gambling to support the tracks and the horsemen. Part of the veto message reads:

“Moreover, rather than requiring that the revenue generated from Internet gaming be used for general purposes for Atlantic City redevelopment or to assist senior or disabled citizens, the bill requires that the revenue be used to subsidize horseracing purses. My administration is committed to making horseracing a self-sustaining industry without state subsidy. Therefore, I cannot support this aspect of the bill.”

The governor’s veto, while a setback, did not deter the proponents of online gambling from continuing their efforts. They just went back to the drawing board. Guided by the governor’s objections, they sought to construct a new bill that would address those problems. As of this writing, Senate Bill No. 1565 is now pending before the state’s legislature. That bill basically provides that:

- All casino games could be offered through Internet wagering.
- All Internet gambling equipment would have to be located in secure locations within Atlantic City and controlled by casinos.
- Critically, all Internet wagers would be deemed as having been placed when received by the casino.
- Wagers could only be placed by persons physically present in New Jersey.
- Proper verification techniques would have to be established.
- The New Jersey law would be subject to and superseded by federal law.
- Internet gambling revenue would be taxed at the rate of 10 percent independently from other gaming revenue tax and an investment alternative tax would also be imposed on Internet gambling revenue at the rate of 5 percent if non-qualifying investments were made, or 2.5 percent if the required amount of investment was made.
- The Division of Gaming Enforcement would establish an Office of Internet Wagering to specialize in that area of regulation.
- Appropriate licensing and operational requirements would have to be devised and imposed.
- An initial fee for application would be set at no less than $200,000 and a renewal fee would be established at no less than $100,000.

In order to address the concerns raised by the governor in his veto message, the bill expressly provides that no organization or commercial enterprise, other than a permitted casino in Atlantic City, will be able to make its premises available, or even advertise that its premises is available, for placing wagers using the Internet. The drafters of S.1565 also sought to address the governor’s constitutional issue by citing the New Jersey Supreme Court’s decision in State v. Trump (160 N.J. 505, 516 (1999)). That case interpreted the state constitution’s gambling provision as “purposive,” as something that should be read in a way that places its purpose as paramount. The drafters further cite the Trump finding that the purpose of the constitution’s gambling provision was to rejuvenate and redevelop the tourism industry. In light of this, the bill’s sponsors argue that the purpose of Internet gambling authorization matches that of the constitutional provision, and that any interpretive ambiguity regarding S.1565 should be read in favor of finding it constitutional.

Finally, Senate Bill No. 1565 addresses the governor’s concerns over support for the racing industry in a very straightforward way. It drops that portion of the legislation entirely.

With these revisions, the sponsors hope that the new bill will pass both houses of the legislature, pass review by the governor, and if challenged, pass constitutional muster. The latest report, as of this writing, is that the bill is expected to receive a vote by the state senate on May 31.

Sports Betting Efforts
In another effort to revitalize New Jersey’s gambling industry, attempts are being made to legalize sports betting. Of course, as in most other states, sports betting is now illegal in New Jersey. The federal Professional and Amateur Sports Protection Act (PASPA), passed in 1992, prohibits sports betting, with the exception of those states that were grandfathered in at the time. New Jersey, in fact, was given a window of time to join those other grandfathered states, but it failed to pass the legislation necessary to take advantage of that opportunity. The professional leagues lobbied heavily at the time against any such initiative. It was also a gubernatorial election year, and many believe that politics played a great role in turning away the sports betting proposal.

Now, though, the effort to allow sports betting is back. In March 2010, Sen. Raymond Lesniak filed a lawsuit alleging that PASPA’s prohibition of sports betting was unconstitutional as applied to New Jersey. That complaint was dismissed in March 2011 as premature because New Jersey, at the time, had no sports betting law that it was, in fact, being prohibited from implementing. Such a law would require both a new constitutional amendment and then enabling legislation.

So, after the court’s dismissal, efforts began to meet that jurisdictional obstacle. First, a referendum to amend the state constitution to allow sports betting was placed on the ballot for the 2011 election. That referendum passed by a vote of 64 percent to 36 percent. Its provisions are now found at Art. IV, Sec. VII, Paras. 2(D) and (F). Then, pursuant to that authority, the Casino Control Act was also amended on Jan. 17, 2012. Sports betting is now provided for at N.J.S.A. 5:12A—2 et. seq.

Among other details, the new legislation contains these basic elements:

- Casinos and racetracks will be allowed to offer sports pools.
- Casinos will need to obtain a separate license from the Division of Gaming Enforcement and racetracks will need a separate license from the Division of Gaming Enforcement and the State Racing Commission.
- Casinos and racetracks may enter into agreements to jointly operate sports pools.
- The sports pool must be operated in a sports wagering lounge located at the casino or racetrack.
- Wagers can only be accepted from persons on the premises of the sports wagering lounge.
- The holder of a sports pool license may contract with a third party to manage the operation.
- ­Sports wagering revenue will be taxed at 8 percent and paid to the Casino Revenue Fund with a portion of the tax going toward gambling treatment programs.

Of course, this new legislation cannot be implemented unless and until the PASPA issue is resolved. But, with the passage of this recent authorizing bill, the proponents of sports betting are hopeful that they have overcome the jurisdictional bar to their initial lawsuit and can now be heard in court on the merits.

On another front, federal initiatives are being taken to enable New Jersey, and maybe other states, to authorize sports betting. On Jan. 23, 2012 two New Jersey congressmen—Rep. Frank Pallone (D - 6th District) and Rep. Frank LoBiondo (R - 2nd District)—have introduced bills in this regard.

Rep. Pallone’s bill, H.R. 3809, is called the “New Jersey Betting and Equal Treatment Act.” It would amend the federal judicial code to exempt a lottery, sweepstakes or other betting, gambling or wagering scheme operating exclusively in New Jersey to the extent that such a scheme is approved by the New Jersey legislature. Rep. LoBiondo’s bill, H.R. 3809, is called the “Sports Gaming Opportunity Act of 2012.” It takes a little broader view. It would also amend federal criminal law to allow the same forms of gaming, but it would apply, instead of just to New Jersey, to any state that authorizes such gaming by a statute enacted on or after Jan. 1, 2012 and in effect no later than Jan. 1, 2016. Of course, since the New Jersey sports betting legislation was enacted on Jan. 17, 2012, H.R. 3809 would apply to the Garden State. Both of these federal bills are presently pending.

Will any of these initiatives ultimately become reality? If they do, will they turn the struggling economy of Atlantic City around? Don’t look at me for the answer. Look to the future as best you can.


Guy S. Michael is a Partner at Michael & Carroll, P.C. He has served as a Deputy Attorney General, Division of Law, State of New Jersey; Deputy Attorney General, Division of Gaming Enforcement, State of New Jersey; and Assistant Attorney General and Deputy Director of Operations, Division of Gaming Enforcement, State of New Jersey. After entering private practice, Michael has represented numerous gaming interests, including casinos, casino vendors and Native American tribes.