Pottstown media outlet The Mercury has spoken out against the possible legalization of online gambling in Pennsylvania, citing a decline in gaming revenue both in and beyond the state.

Fears of market saturation, diminishing returns

The editorial comes at a potentially critical point for online gaming in Pennsylvania, which is dealing with a deficit of more than $1 billion. First-term Governor Tom Wolf, a Democrat, finds himself locked at odds with a Republican-controlled legislature over the state’s fiscal 2016 budget.

Gaming on the eastern seaboard “has hit its saturation point,” wrote The Mercury’s editorial board last week. More from the editorial:

Even though gambling is a major industry, generating more than $3 billion a year in Pennsylvania alone, there are only so many gamblers and they only have so much money. Yet the response of lawmakers is to give those same gamblers more options to spend the same amount of money, rather than recognizing that the saturation point is not a bluff.

The cannibalization argument, again

The editorial was the latest example of the idea that online gambling simply cannibalizes revenue from brick-and-mortar establishments. That’s a theory that has largely been debunked throughout the industry, despite the fact that it continues to surface from time to time from gaming interests and media outlets.

Earlier this month, Tim Shea, the president of the Pennsylvania Horsemen’s Benevolent and Protective Association, penned a letter to the editor that made the rounds in several state newspapers. That letter also cited cannibalization as a reason to stay away from iGaming, even though the writer of the research said Shea was misinterpreting his findings.

In fact, most in the industry now believe that online gambling is complementary to land-based casinos.

Online gaming as a remedy?

The editorial argues that regulating online gaming would have little impact on revenue in the state, despite the fact that the state’s casinos have largely dismissed the cannibalization argument and are asking for the ability to offer iGaming. Amid the state’s budgetary woes, many have heralded online gaming legislation as a means to triage the deficit without resorting to tax increases.

But neither legislators nor gaming interests in the state have seen eye-to-eye on the specifics of iGaming. One particularly large stumbling block has been the proposed rate at which virtual casinos would be taxed.

One bill, SB 900, proposed a gross tax of 54 percent for online gaming revenue. Casino operators, unsurprisingly, have criticized the figure as unreasonable. PA’s casinos have instead voiced support for a rate of 15 percent, as proposed in HB 649.

Flurry of PA online gaming bills in 2015

Five bills that include iGaming regulation have already been proposed by Pennsylvania lawmakers in 2015. Most of the bills, which were authored by both Democrats and Republicans, have garnered support among the state Senate’s Community, Economic & Recreational Development Committee.

One such bill was sponsored by committee chair Kim Ward. Another was authored by the bipartisan duo of Representatives John Payne, a Republican, and Nick Kotik, a Democrat. Payne and Kotik also authored an op-ed article in support of online gaming, which appeared on the Harrisburg-based PennLive in May.

Most of these bills contain other gaming measures — unrelated to iGaming — which are far more controversial for lawmakers and casinos. It’s not clear that any of these bills will be the vehicle for online gambling regulation, at least in this legislative session.

Legislators still deadlocked on state budget

Wolf, who has long called for increased education spending, has maintained this position in the face of the looming deficit. Although Wolf ran on a campaign of lowering middle-class tax rates, news of the deficit spurred the governor to propose a round of tax hikes to compensate for the gap.

But since Wolf unveiled that plan in March, Republicans have remained stalwart in their opposition, decrying the strategy as lofty and unrealistic.

Most recently, Wolf vetoed an eleventh-hour budget proposal authored by Republicans, and the state’s budget currently hangs in purgatory. Meanwhile, rhetoric surrounding the issue has become increasingly mucky. Wolf drew Republican ire last week, when he blamed the party for the continued delays in negotiation.

Will online gambling make an appearance in the state budget talks? Proponents are still waiting for that to happen.

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