The Atlantic City Luxury Tax has been around for a century, and this venerable assessment has held a spot on the Monopoly board since 1935. Those who land on that spot must pay $100 in Monopoly money. In real-life, the price of ignoring what that tax reveals is much more expensive.
The New Jersey Division of Taxation imposes that 9 percent tax on sales within Atlantic City, based on the following:
- Sales of alcoholic beverages for on-premises consumption;
- Cover, minimum or entertainment charges;
- Room rental in hotels, inns, rooming or boarding houses;
- Hiring of rolling chairs, beach chairs and cabanas; and
- Tickets of admission within Atlantic City.
This tax, which is imposed at the state level on spending by adults who actually visit Atlantic City, provides an extraordinary window into the relationship between iGaming and non-gaming spending. The Luxury Tax tracks on-site, non-gaming spending in a clear, unadorned and accurate manner.
As the following chart shows, spending on rooms, alcoholic beverages and entertainment has kept pace with iGaming revenue. The significant dip in 2020 reflects the Covid-19 pandemic, and the temporary closing of casinos. The internet remained open during that time, so iGaming showed no concomitant decline.
The old tax offers critical insight into the relatively new phenomenon of iGaming. Various stakeholders whose interests are tied to the brick-and-mortar casino industry have concerns about the potential impacts of iGaming on their industry, and their livelihoods.
For example, in New York state, the New York Hotel and Gaming Trades Council—which represents the workers in casino hotels and other physical facilities—are opposed to the authorization of iGaming, based on the fear that iGaming will keep visitors home, wagering on their phones, rather than visiting casinos and spending the dollars that fuel the wages of these workers.
Such concerns are understandable and fully expected. Throughout history, the emergence of technologies that change how we live, work and play has created concerns for stakeholders tied to the legacy industries. When radio emerged as a phenomenon that allowed baseball fans to stay home and listen to games, ballparks and related constituencies opposed the new technology, with many seeking to ban the broadcasting of games.
A generation later, the cultural revolution wrought by the development of television created concerns for film studios, theater operators and related stakeholders.
We know how those concerns were not borne out, and as history repeats itself, we can see how the emergence of iGaming is evolving, notably in states such as New Jersey that make casino operators the primary operators of digital gaming.
As expected, casino operators were smart enough to realize that iGaming opened a window into new, often younger demographics who were otherwise not on the radar—nor in the databases—of their casinos. Such new gamblers have been encouraged to sign on to loyalty programs, earn points and redeem those points in casinos. Indeed, it should be no surprise to any observers of the human condition that many adults enjoy games of chance, but they also enjoy social settings. The Luxury Tax is but one piece of evidence supporting that notion.
Spectrum Gaming Group—a consultancy that I served as managing director for more than 20 years, and with which I retain an affiliation—has studied this issue for decades, including a recent report for the Indiana Gaming Commission. That report noted that “when retail casino operators offer iGaming, they can be expected to leverage the digital offering to enhance and grow their retail revenue by marketing their amenities and their loyalty programs to a broader demographic.”
Data that dates back to the dawn of iGaming in 2013 shows that, from its earliest days, igaming could be accretive to land-based gaming. A 2017 report that we at Spectrum prepared makes that clear.
Following the 2013 inauguration of iGaming, the following was noted:
- Caesars reported that 80 percent of its online players were new customers.
- Golden Nugget noted that only 11 percent of its online signups were already Golden Nugget Atlantic City rated patrons, and even most of those had never played at Golden Nugget.
- The Tropicana reported that approximately 60 percent of its online players were “new acquisitions,” meaning that they were not in that casino’s database.
Notably, the Tropicana also revealed at the time that its multi-channel customers—who played both online and at the casino—actually increased both their visitation and their gaming spending.
Time has neither challenged nor eroded those early observations.
Lawmakers and regulators have an obligation to identify how best to meet the policy goals of their particular states and communities, and that means paying attention to the concerns of stakeholders, but it also demands attention to the experience and data provided by others.
The phenomena of iGaming and iLottery cannot realistically be ignored, as the technology exists. The goal should be to harness that technology to best meet the policy goals that lawmakers have established. IGaming offers an opportunity to do just that.
Any analysis of iGaming is, by definition, forward-looking. But sometimes, a rearview mirror is an essential piece of equipment when charting that future. The Spectrum Internet Gaming Heuristic Theorem (SIGHT) was developed more than two decades ago, based on a series of oft-quoted observations that proved to be accurate:
- The brick-and-mortar gaming industry would abandon its rejection of internet gaming and ultimately accept, adopt and embrace it.
- In doing so, the industry would develop new business models that harness the internet as a chief marketing tool to identify, cultivate and reward customers.
- The entrance of land-based casinos, armed with brands and an array of licenses, would alter the face of internet gaming, and render nearly all past and present revenue projections as obsolete.
IGaming did not exist anywhere in the United States when those concepts were crafted, but as Spectrum noted in the aforementioned 2017 version of SIGHT:
- Land-based casino operators, as projected, were moving along the continuum from rejection to acceptance to embrace, and were at that moment in the early stages of a full embrace. Indeed, those land-based operators that have ventured into online are clearly in the “embrace” mode.
- Public policy can be best advanced by ensuring, to whatever degree is practical and politically possible, that land-based casinos be the primary operators and/or beneficiaries of online gaming.
- Online gaming would help capture a different demographic than the traditional land-based casino customers, including a new cohort of younger adults who can be effectively encouraged to visit land-based casinos.
- Online gaming will, for the most part, not cannibalize land-based spending. Indeed, the evidence indicates that existing land-based customers who also wager online will ultimately increase their land-based spend.
Spectrum’s projections in 2002 and 2017 were spot on, and should remain a central guidepost for state policymakers across the nation. Effectively, iGaming has been proven to help generate casino revenue, and as Atlantic City has again shown the world, iGaming will grow non-gaming revenue, which creates new economic opportunities and enhances multiple fiscal streams, including sales taxes, income taxes and, yes, the Luxury Tax. Pardon the pun, but policymakers no longer have the luxury of ignoring that finding.
