Virgin Sees Big Bucks In Online Gambling In New Jersey

"We’re having a rocket in space later on this year; if you get a rocket in space, gaming is a simpler problem."

If Virgin and the State of New Jersey get their way, online gaming will no longer mean expensive money transfers to shady offshore operators with little chance of getting your money back — so long as they can figure out that you're actually in New Jersey.

Since November 21, New Jersey has allowed online gaming in order to fight back against the decline in revenue for its Atlantic City casinos, under the condition that gamers are located in New Jersey. Virgin Games, which has a long pedigree in the U.K. and a partnership with the Tropicana, set up a virtual shop in the state.

"We hope to provide New Jersey players with a globally leading, safe, fun and rewarding online gambling experience," said Virgin Group founder Richard Branson.

Starting in late November, through the end of the year, online gambling generated $8.4 million, even though total December revenue of $214.5 million fell 4% from last year's December take of $223.5 million, largely in line with the 6% revenue drop at New Jersey casinos in 2013 to $2.9 billion. Total casino revenue in New Jersey has decreased by more than $5 billion since 2006, according to credit ratings agency Fitch. The Tropicana has had $759,000 in online revenue from the start of gaming on November 21 through the end of the year.

Gamesys Chief Operating Officer Lee Fenton, who is running and the branded Tropicana site with Virgin Group, wouldn't specify Virgin's revenue in its soft-launch period since November.

Virgin's foray into online gaming in New Jersey is a logical extension of its gaming operations in the U.K., as well as its major consumer businesses in the United States: Virgin Mobile, which was purchased by Sprint in 2009, and its airline, Virgin America. It's also an attention-grabber for Branson on par with his Virgin Galactic commercial spaceflight company, which hopes to have its first flights this year.

"We're having a rocket in space later on this year, if you get a rocket in space, gaming is a simpler problem," Fenton said.

New Jersey's last big investment in improving Atlantic City's fortunes, the Revel casino, which received substantial state subsidies, filed for bankruptcy less than a year after it opened in April, 2012.

Fitch said that online gaming could bring in up to $300 million this year and $700 million in future years (New Jersey is projecting $1.2 billion in revenue). Fitch said in a report that the introduction of online gaming will be "positive for market participants, but will not single-handedly turn around the Atlantic City casino market" because the existing supply of casinos would still exceed the demand for gambling in the mid-Atlantic. There are 15 registered sites for 24-hour gaming according to New Jersey's Division of Gaming Enforcement.

New Jersey is the third state to allow online gaming — following Nevada and Delaware — and features the widest range of gaming options, which has led to some technical struggles familiar to any large scale online operation that has to handle payments and comply with a long list of regulations.

"The major issue has been around geolocation and payment processing," said Fenton. "The geolocation issue is something we have to be very careful about; the worst thing is that any laws could be broken from wagers being taken outside the state."

Online gaming in New Jersey is only allowed for people physically located within the state's boundaries, and online casinos use a customer's wi-fi connection and a downloaded plugin to verify gamers' location, "It's not perfect," Fenton said, "but we have a smoother process than anyone else."

Another issue is payment verification and transfers, a familiar problem for any online gamblers who use overseas sites. Fenton said that while some bank partners for Visa and MasterCard approve payments to Virgin's sites, not all of them do because of how relatively recent legal online gaming is in the U.S. It will take some time before credit card payments work at the roughly 95% success rate they do in the U.K., where online gambling has been legal for nearly a decade. Until then, Virgin is pointing customers towards bank transfers.

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