Since its legalization four years ago, online gambling in New Jersey has become the crutch upon which the state's casino industry leans. Last year was the first year in a decade that Atlantic City's gambling halls saw revenue rise year over year, and it was only because of internet gaming that it was able to do so. Without it, casino revenue would have declined once again.

As 2017 gets rolling, and relatively new online sites establish themselves in the state, investors may be surprised to learn which of New Jersey's online casino operators are the fastest growing.

Image source: Getty Images.

A limited field

Along with Nevada and Delaware, New Jersey is just one of three states where internet gambling is legal, and the Garden State has the distinction of having a much larger market than the other two. Still, that hasn't stopped the casino industry from shrinking.

Since 2013, five casinos have closed their doors, the most recent being the Trump Taj Mahal, which went under last October. Yet the closures underscore just how over-casinoed the state had been. Earlier this year the general manager of the Golden Nugget was quoted by the Associated Press as saying Atlantic City has at last "right-sized itself to the point where we're not over-saturated anymore. I'd like to think things had hit rock bottom and we'll all get better from here."

For online casinos to operate in New Jersey, they have to be linked with an actual physical casino. Pennsylvania, which is considering legalizing online gambling, is looking to that model for its own regulations.

Casino

Online Poker and Casino Sites

Borgata

Borgata, PartyPoker, Pala

Caesars Interactive

Caesars, 888, Harrah's, World Series of Poker

Golden Nugget

Golden Nugget, Betfair, SugarHouse

Resorts

Resorts, Mohegan Sun, PokerStars

Tropicana

Tropicana, Virgin

Data source: New Jersey Division of Gaming Enforcement.

The other two casinos in the state, Bally's and Harrah's, are Caesars Entertainment (NASDAQ: CZR) properties, and only Bally's does not have a branded online site.

The bigger they are...

Until recently, MGM Resorts' (NYSE: MGM) Borgata had been the biggest and best in the state. So far in 2017 it has taken in $126.3 million in total gaming win, or 5.6% more than the $119.5 million it raked in last year at this time, and more than twice as much as its next closest rival, Tropicana, which realized $58.9 million in total gaming win.

New Jersey is off to a good start this year, generating over $410 million in total win for the first two months of the year, a 3.9% rise over 2016. Yet once again, it is the online casinos that are driving the growth. While the physical casinos are in the black so far, their win is only up 1.9% to $372.5 million compared to internet gaming, which is up 27.8% to $37.5 million.

A good part of that is due to the addition of Amaya's (NASDAQ: AYA) PokerStars to the Resorts lineup. It was granted an operating license for online gambling in October 2015 and had a soft launch of its site last March before finally going live. It added some $6.2 million to the internet gaming win totals over this past January and February.

Image source: Borgata.

...the harder they fall

It's also causing the Borgata to stumble. It's gone from first place last year with $8.8 million in internet gaming win to third place with $7.51 million, a 14.7% decline. It's easy to see the introduction of PokerStars had a big impact on the leader, though it managed to stay ahead of the Tropicana, which despite its big overall gains, only enjoyed a 6.6% increase in internet gaming win to $6.3 million. The Borgata's decline also put it behind second-place Caesars, which has $7.52 million in gaming win so far this year.

So who is tops? Well, doing the math, it leaves only the Golden Nugget, which saw a massive 77% jump in internet gaming win to $10 million from $5.6 million the year before.

Casino

2017 YTD Internet Gaming Win

2016 YTD Internet Gaming Win

Change (YOY)

Borgata

$7.5 million

$8.8 million

(14.7%)

Caesars Interactive

$7.5 million

$6.3 million

20.4%

Golden Nugget

$10.0 million

$5.6 million

76.9%

Resorts

$6.2 million

$2.8 million*

n/a

Tropicana

$6.3 million

$5.9 million

6.6%

Data source: New Jersey Division of Gaming Enforcement. *All of Resorts' online casinos not fully operational during the period.

A golden opportunity

What helped boost the Golden Nugget's numbers was the addition of SugarHouse to its roster last September using the casino's online gambling license and attracting players with over 200 titles. Perhaps more remarkable, though, is Golden Nugget's achievement was realized despite not offering peer-to-peer poker (the Tropicana doesn't offer such games either).

Image source: Getty Images.

Arguably one of the main attractions of internet gaming, and certainly the one that receives a lot of attention, peer-to-peer poker is where you play against people and not just a computer, as in video poker. Although it had partnered with Amaya in 2013 to bring online poker to New Jersey, the Golden Nugget site never launched.

As all the players jockey for position and settle into the state, we'll likely see further changes in pole position. In less than two weeks the state will release its numbers for March, and with PokerStars celebrating its one-year anniversary in New Jersey, we'll see if Golden Nugget can hang onto its lead or whether Resorts will push to the forefront. It may come down to a roll of the dice as to whether the Borgata continues its decline or is able to regain its footing.

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Rich Duprey has no position in any stocks mentioned. The Motley Fool is short Caesars Entertainment. The Motley Fool has a disclosure policy.

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