New Jersey tax proposal draws analysis and ire 

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While the next New Jersey state budget for 2026 is not a done deal, J.P. Morgan analyst Joseph Greff wrote in a 27 February investor note, there is a higher probability this year that gaming taxes could be increased.

Gov. Phil Murphy had proposed a 25% levy on online sports betting and igaming in his budget address this week. The two are taxed at 13% and 15% respectively.

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Greff reminded his readers that state Sen. John McKeon had pitched a 30% impost on igaming and online sports betting last year, but it did not make it into the 2025 budget. The analyst wrote that Murphy’s support increases the prospect of a tax hike, but that the final amount possibly will be negotiated lower before 30 June 2025.

Using Murphy’s numbers, Greff quantified the effect on DraftKings at US$52 million to US$57 million of cash flow (US$38 million of that from igaming) or 5.5% of total cash flow. He noted that the estimated effect on DraftKings from a higher Illinois levy, passed last year, was US$50 million.

While he made no estimates for privately held FanDuel, Greff measured the potential effect on several other digital providers. BetMGM could forfeit US$35 million to US$39 million of cash flow and US$15 million to US$16 million less would flow to Caesars Digital, at a six-to-one ratio of igaming to sports betting. The effect on Penn Interactive, parent of ESPN Bet, would be between US$3 million and US$4 million.

Greff’s projections were predicated on the assumption that Garden State sports wagering would increase from 5% to 15% in 2025, as igaming enlarges by 10% to 20%. “We also note that our estimates are prior to any mitigation efforts and contemplate 100% direct flow-through to EBITDA given that promotions are not tax-deductible in the state, while acknowledging that there are potential offsets from a promotional strategy and marketing strategy perspective,” he added.

The J.P. Morgan analyst was more optimistic than some regarding the potential for more and similar tax increases in other states.

“We note that while higher taxes will likely continue to be a key investor topic in 2025, we don’t ascribe a (meaningfully) high probability to a widespread elevated tax environment in the near-term,” Greff wrote.

He added that the larger-scaled operators were well-positioned to weather tax increases. Also, he felt they would be the likeliest to benefit from legalization of igaming.

A less upbeat view was shared by Mark Giannantonio, president of Resorts Atlantic City and of the Casino Association of New Jersey. Voicing strong opposition to the Murphy proposal, he said that it was “ill-advised and, if passed, will have significant adverse consequences for brick-and-mortar casinos.

Gianantonio continued, “A tax hike in this difficult economy would threaten … and negatively impact the operations, workforce and marketing of our casino hotel properties. Reductions in these benefits also will lead to reductions in consumer spending in the casino properties and other Atlantic City businesses, as well as the state and local taxes generated there.”

The Casino Association of New Jersey (CANJ) President warned of job cuts, and less investment and innovation. He cautioned, “This type of tax hike will not yield such expected tax dollars to the State Treasury because it will result in diminishing returns through a consumer shift away from the licensed and regulated providers and back to the unregulated and illegal, offshore online businesses from which the state derives no revenue.”

Giannantonio lamented “challenging times” in Atlantic City, ones marked by less tourism and casino foot traffic. He asserted, “Atlantic City has still not recovered from the COVID-19 pandemic. Recent gaming revenue reports show that six of nine casinos have not returned to pre-pandemic gaming levels.

“This unnecessary tax proposal, against the backdrop of a weakened economic climate, would jeopardize our properties and ultimately hurt the working class people it supports,” the CANJ President concluded. “We strongly urge lawmakers to oppose any legislation, including this bill, that would deter business and hinder our ongoing efforts to transform Atlantic City into a leading beachfront resort destination.”