The Good, The Bad, And The Ugly On The PA Online Casino Bill

June 3, 2017
ripe and rotten apples

After a flurry of activity, Pennsylvania online gambling proponents are now playing the waiting game. A bill which would expand gambling in the state to include online poker, online casinos, and daily fantasy sports made it through the state Senate last week.

The fact the bill is this far along is a big win for gaming advocates. The bill itself though? Well, at the moment it is not very pretty. The current tax rates and licensing fees are problematically high. In fact, some suggest online casinos might not even be a viable business under the current proposed regulations.

Thankfully, it seems like the Pennsylvania House plans to make changes to the bill before voting on it. Given the varied interests of the parties House members represent, the next big question is if there is a compromise that can get through the House and passed into law.

What is wrong with the current bill?

You might be wondering why the House debates on the bill will be such a battle. Well, the state the bill is in now is a problem. If the House does not change major aspects of the proposed regulation, online gambling in Pennsylvania could be a disaster.

As it stands, the tax rates on the bill are even higher than brick and mortar casinos. Both table games and slots are taxed at 54 percent, while poker is taxed at 16 percent. Plus, operators will need to pay separate $5 million licensing fees if they want to run an online poker site and a casino.

PlayPennsylvania reported extensively on why these tax rates are not tenable for online business models. Some operators, like Penn National, went on the record that if tax rates are prohibitively high, the company will simply not participate.

Granted, the bill allows for non-casino operators to come in from the outside and apply for licenses. Nonetheless, the larger issue remains that companies will not pursue online offerings with $10 million in upfront fees and these tax rates.

What might the House change about online gambling?

Rep. George Dunbar spoke with Online Poker Report about potential changes in the bill shortly after the bill cleared the Senate. He think the tax rates and fees will drop, but how much they do is still up for debate.

The bill is headed to the House Rules Committee, where Dunbar thinks the online poker licensing fee will be one of the first things to change:

“I don’t think that’s the final product at all. The $5 million license fee for peer-to-peer games isn’t going to fly because no one is going to pay $5 million just for poker, as they’d never be able to recoup that money, and I don’t know who is going to buy a non-peer-to-peer license with that tax rate.”

The big issue with taxation is the fear online casinos will cannibalize their land-based counterparts. However, Dunbar says Parx Casino is the only Pennsylvania casino to argue that narrative. Most of the other casinos vocally disagree with it. Though, with the canceled sale of Sands Bethlehem Casino to MGM, it is unclear if anti-online gambling billionaire Sheldon Adelson becomes more involved in the debate.

Why are VGTs even part of the online casino debate?

The surprising issue that might hold up the bill is video gambling terminals (VGTs) in places like bars and trucks stops. As it stands, the proposed legislation will not generate enough tax revenue to meet the amount in the state’s budget expected to come from gambling expansion.

VGTs could help solve the revenue, but they are an extremely contentious issue. Many casinos oppose expansion into VGTs because of potential cannibalization. While there is minimal data on the subject, in states with VGTs like Illinois, there does seem to be possible overlap.

Some casino companies, like Rush Street Gaming (who owns Rivers and SugarHouse casinos), invested in VGT vendor companies and want to expand the market. Other, smaller casinos fear them as competition. So, unlike the tax rates, this issue is much more contentious.

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