Thin margins and high fees; they could be the death of sports betting in Pennsylvania.
On May 31, the state released its temporary sports betting regulations and the following day the Pennsylvania Gaming Control Board (PGCB) started accepting petitions for sports betting from the existing 12 casinos and one casino to come.
Nobody submitted a petition and while it’s hard to say exactly what’s keeping casinos from applying, they may have 10 million reasons why.
High fees could be deterring casinos
Per the state’s sports betting legislation, casinos must pay $10 million and complete an application in order to secure a sports betting license. Once their sportsbooks are up and running, the state will take another 36 percent of each casino’s revenue.
Pennsylvania is, historically speaking, a tax-heavy state. Casinos pay a 54 percent tax on their casino revenue. The revenue money is split four different ways:
- State tax: 34%
- PA race horse development fund: 12%
- Economic development and tourism fund: 5%
- Local share assessment: 4%
When it comes to sports betting, Pennsylvania will charge a 36% tax on gambling revenue.
This is significant considering that margins are already thin for sports books and Nevada and New Jersey have significantly lower tax rates on sports-betting revenue.
36% tax is steep based on revenue
Nevada sportsbooks have a historic win of around 4.5 percent. While it’s hard to predict how much money sports betting in PA will bring, we can theorize that the average win will be similar to Nevada.
A 36 percent state tax on a 4.5 percent win would drop that win down to 2.8 percent. In terms of dollars, that’s the difference between, say $100 million in revenue and $64 million.
36% tax is steep based on other states’ rates
Aside from the implications, a 36 percent tax has on overall revenue numbers for PA sports books, there’s the issue of other states’ rates.
Nevada charges a 5 percent tax while New Jersey’s tax is scheduled to be 8 percent. The PA sportsbook tax is more than seven times higher than Nevada and more than quadruple New Jersey’s rate.
Comparing satellite casino fees to sports betting fees
Another aspect of the PA gambling expansion was satellite casinos (“Category 4 casinos”). Licenses for these casinos require a minimum of a $7.5 million bid in the PGCB’s auctions.
While the first two licenses went for more than $90 million combined, the past two have dipped below $10 million each, which leads to the question: Why are casinos hesitant to submit sports-betting petitions for $10 million when satellite casinos licenses are just a few million cheaper, have higher tax rates, and require funding for construction and all the expenses related to building a new facility?
The issue may be projected revenue. Satellites will most likely bring in more revenue than sportsbooks.
It seems as though the casinos believe this is the case, as five satellite licenses are off the board with just five remaining. Meanwhile, at the time of publishing, no sports-betting petitions had been filed.
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