Fitch Cuts NJ Revenue Projections Again: Sky Is NOT Falling

After three consecutive months of falling revenue Fitch has decided to revise their online gambling revenue projections for New Jersey according to an article in the AP on Wednesday.

Fitch’s initial estimates were among the most conservative of any major analyst firm at $200-$300 million with the potential of up to $750 million when fully mature, but the company has now reduced their Year 1 revenue projections down to $120-$130 million.

New Jersey was making public boasts that the industry could bring in over $1 billion in Year 1 (privately these projections were said to be far lower, but these public boasts of $180 million in revenue for the state have had a costly impact on people’s view of the iGaming industry.

These early claims of a cash windfall have led to the mischaracterization of the industry as a failure; the failure was in the projections and with using the highest of the high.

The numbers were wrong from the start

Nobody in iGaming took these projected revenue numbers overly serious, as they simply did not reflect the historical data available for a market the size of New Jersey. But at the same time nobody expected them to be touted as much as they were.

The biggest problem turned out to be New Jersey’s willingness to accept Wells Fargo projections over the others. Sure Wells Fargo is a well-known name, but when it comes to online gambling there is not much of a track record there… and this was evident in their predictions as Wells Fargo Securities estimated a range of $650 million – $850 million in Year 1.

Wells Fargo’s report was the impetus for New Jersey’s own $1.2 billion projection ($1.2 billion was Wells Fargo’s Year 5 prediction) and while there were other moderate and conservative projections this was the analysis New Jersey ran with.

Voices of reason

While Governor Christie, Wells Fargo, and a few others were talking about a billion-dollar-a year industry, iGaming analysts were far more conservative, so much so that they were well below the “conservative” estimates initially estimated by Fitch –which seemed downright pragmatic next to Wells Fargo.

Prior to launch iGaming analysts like Eilers and Academicon were projecting somewhere between $100 million and $200 million in Year 1. While Chris Grove of onlinepokerreport.com felt the industry had the potential to bring in $150 million – $200 million in Year 1.

Gambling Data forecast Year 1 revenue of $235 million – $288 million, which while still on the high-end was at least within the ballpark.

These far more conservative projections of total gaming revenue were below the state’s ambitious projections, and not just for revenue. The State’s numbers were so far off that the conservative numbers for total gross gaming revenue was less than the tax revenue the state was projecting!

Think about that for a moment, the state expected to receive $180 million in tax revenue from $1.2 billion in total gaming revenue, while analysts were projecting the total gaming revenue to be below $200 million.