One Year Later: Successes And Failures Of Pennsylvania’s Gaming Reform Law

It has been a year since Pennsylvania’s gambling expansion law passed. What has the state accomplished and what comes in year two?

Today is the one-year anniversary of Pennsylvania’s massive gaming reform law which helped the Keystone State join the modern world by becoming the fourth state to legalize online gambling.

Online gambling was the most ballyhooed part of the Keystone State’s comprehensive gaming reform law, but the 900-page bill did a whole lot more than that.

In addition to online gambling, the Pennsylvania gaming law:

  • Legalized sports betting
  • Regulated daily fantasy sports
  • Legalized online lottery sales and monitor lottery games
  • Created a fourth category of casinos, satellite casinos
  • Loosened restrictions on Category 3 “resort” casinos
  • Authorized video gambling terminals (VGTs) at select locations
  • Authorized tablet gaming at select airports
  • Paved the way for the issuance of a Category 2 license in Philadelphia

The success of these reforms can be measured in two ways:

  • Revenue. Some of the reforms have lived up to the initial revenue expectations. Others have exceeded expectations. And still, others have fallen short of expectations.
  • Timeline. Some of the reforms have met their target launch dates, but many have been slower to market than expected.

Here’s a look at the impact of the key components of the gaming reform bill.

Online gambling is behind schedule but already a moneymaker

As noted above, online gambling was the big ticket PA gaming revenue items in the bill. Bringing online poker and casino games to the state has been a slow and frustrating process.

Twelve months after legalizing online gambling, the state is still several months away from launch. That places it well behind the original timeline estimates of 9-12 months.

That said, money is flowing into the state’s coffers from online gambling.

The money isn’t coming from bets and wagers (that will come down the road), it’s coming from the one-time windfall the state receives for each interactive license it sells.

To date, Pennsylvania has collected $100 million in up-front licensing fees, and still has 10 licenses (three slot, three table game, and three poker) in its pocket.

The state is in the process of doling out those licenses to approved gaming entities from outside of Pennsylvania. The price for the a la carte licenses runs $4 million each.

Sports betting was an unexpected bonus

Pennsylvania passed its gaming reform law before the Supreme Court of the United States’ monumental decision that struck down PASPA and paved the way for legal sports betting in the US.

But Pennsylvania lawmakers had the foresight to tuck a provision that preemptively legalizes sports betting into the bill.

Despite an absurdly high tax rate of 36 percent, five Pennsylvania casinos have already coughed up the $10 million for a PA sports betting license.

Because Pennsylvania didn’t anticipate revenue from sports betting, revenues from licenses and later operations will be found money.

Category 4 casinos exceeding all expectations

One of the biggest unknowns in the gaming reform law was the auctioning off of up to 10 Category 4 satellite casino licenses.

Nobody knew how much interest there would be in these licenses or how much money casinos would be willing to pay for a glorified slot parlor.

Pennsylvania is already pretty well blanketed with casinos, but there are some pockets that are underserved, and those areas commanded serious bids.

The minimum bid for the licenses was set at $7.5 million. Pennsylvania estimated about $67.5 million coming from the auctions. Even though only five casino licenses were claimed, the state easily surpassed that number.

The revenue from Category 4 casinos is currently at $127.7 million and counting. Don’t get too excited about that number going up though. There has been no action on the remaining six licenses since April.

January 10 auction

  • Winner: Mountainview Thoroughbred Racing Association, LLC (aka Hollywood Casino)
  • Winning bid: $50,100,000
  • Satellite location: Yoe, PA in York County

January 21 auction

  • Winner: Stadium Casinos LLC (Philly Live! Casino)
  • Winning bid: $40,100,005
  • Satellite location: Derry, PA in Westmoreland County

February 8 auction

  • Winner: Mount Airy Casino
  • Winning bid: $21,888,888.88
  • Satellite location: New Castle, PA in Lawrence County

February 22 auction

  • Winner: Parx Casino
  • Winning bid: $8,111,000
  • Satellite location: South Newton, PA in Cumberland County

April 4 auction

  • Winner: Hollywood Casino at Penn National
  • Winning bid: $7,500,003
  • Satellite location: West Cocalico Township, PA in Lancaster County

DFS is providing a slow revenue trickle

Daily fantasy sports (DFS) has been a hot topic for several years, but by the time the Pennsylvania legislature got around to it the fervor was already dying down. DFS simply wasn’t the revenue generator states were originally led to believe it was.

At the end of the day, legalizing DFS was an easy way to get some money (around a couple million dollars annually) flowing into the state’s coffers.

  • May 2018: $199,755.94
  • June 2018: $152,679.34
  • July 2018: $131,727.75
  • August 2018: $141,543.03
  • September 2018: $320,057.10
  • Total DFS tax revenue earned to date: $945,763.16

Online lottery and monitor gaming already paying dividends

One of the most unheralded parts of the gaming reform law was the legalization of online lottery and monitor gaming.

Both got off to a strong start following their rollouts earlier this year, and are well on their way of achieving their 2018-2019 revenue targets of around $50 million.

However, the online lottery instant win games have come under fire from the state’s casinos. The casinos are crying foul over the slot-like games, and after the state rebuked their calls to end the games, a group of casinos have filed suit.

Category 3 reforms provide a nice boost

In its quest to raise as much revenue as possible the PA legislature served up a couple of batting practice balls to the state’s Category 3 “resort” casinos.

For a one-time fee, Category 3 casinos could:

  • Eliminate the amenity fee (a door charge for non-hotel-guests to gamble in the casino).
  • Expand their slot and table game offerings.

Valley Forge jumped at the state’s amenity fee offer and has been reaping the rewards ever since. So, not only did the state receive the one-time payment, but Valley Forge’s monthly revenue has ballooned, which means more tax revenue for the state.

Interestingly, the state’s other Category 3 casino, Lady Luck Nemacolin hasn’t followed suit.

Further, neither casino has paid the $2.5 million to increase its number of slots, or the $1 million payment to increase its number of table games.

The jury is still out on VGTs

Like online gambling, VGTs were propped up as one of the cornerstones of the bill. Unlike online gambling, VGTs have been more fizzle than sizzle.

The state has received 11 applications and several have been conditionally approved. However, not a single VGT has been placed in a qualified truck stop.

Flights aren’t the only thing delayed at airports

Another part of the bill that hasn’t amounted to a hill of beans is tablet gaming at select airports.

Airport gaming seems to be on the backburner while the state squares away the bigger ticket items like sports betting, online gaming, VGTs, and satellite casinos.

The Stadium Casino project

Two provisions in the gaming reform put the stalled Stadium Casino project back on track by repealing limits on casino ownership in the state. Originally approved in 2014, the collaboration between Cordish Company and Parx Casino parent company Greenwood Racing.

The gaming reform law also ended a lawsuit by SugarHouse Casino with a provision that imposes heavy fines on casinos with active lawsuits.

With the project back on track, Cordish and Greenwood cut the state a $50 million check for the license.

But the story doesn’t end there. According to recent rumors, the two companies are getting cold feet, and are looking to back out of the project.

Western PA Poker Rooms: Breaking Down Rivers Casino, Presque Isle And Meadows

Here’s a closer look of the three poker rooms scattered across western Pennsylvania, including the 30-table poker room at Rivers Casino.

Ten of Pennsylvania’s 12 casinos possess poker rooms, but the size and offerings vary quite a bit.

In this column, we’ll take a look at the three poker rooms in the western part of the state — at Presque Isle, Rivers, and Meadows — and see what they have to offer.

Rivers Casino poker

Rivers Casino is the only Pennsylvania casino located in Pittsburgh (right next to Heinz Field), so it’s not surprising the property boasts one of the largest poker rooms in the state, with 30 tables. The Rivers poker room also has one of the better mixes of games and stakes, with both low- and high-limit games available.

Its tournament schedule is also one of the most robust in the state, with two to three daily tournaments. Rivers is a Poker Night in America-branded room and hosts a number of different tournament series throughout the year.

On the promotions front, Rivers has a bad-beat jackpot, as well as “hot seat” and “high hand” giveaways. Rivers also offers 24-hour food service, discounted hotel rates and call-ahead and online seating.

Stakes and games typically found at Rivers are:

  • $1/$3 no-limit hold’em
  • $1/$3/$6 no-limit hold’em
  • $5/$10 no-limit hold’em
  • $10/$20 no-limit hold’em
  • $4/$8 limit hold’em
  • $1/$3 pot-limit Omaha
  • $5/$5 pot-limit Omaha
  • $5/$10 limit Omaha 8
  • State-approved games are available upon request

Presque Isle Casino poker

Situated in Northern Pennsylvania — in Erie —  Presque Isle has a small seven-table poker room that mainly caters to low limit players.

One thing potential visitors should be aware of is, unlike other rooms, the Presque Isle poker room isn’t open 24 hours. The room opens at 1 p.m. on weekdays and 10 a.m. on the weekends. There isn’t a specific closing time, as games run as long as people continue playing.

Presque Isle does offer weekend tournaments and Sit & Go’s (when they run), as well as high-hand promotions on select days and times.

Stakes and games typically found at Presque Isle Casino are:

  • $1/$3 no-limit hold’em
  • $2/$5 no-limit hold’em
  • $2/$4 limit hold’em
  • State-approved games are available upon request

Meadows Casino poker

Nestled in the southwestern corner of the state, in the town of Washington, Meadows Casino boasts a 14-table poker room. This makes it the only real alternative to Rivers Casino in western PA, although it’s still a 30-minute drive from Pittsburgh.

Meadows’ poker room hosts daily poker tournaments, high-hand jackpots, phone-in seating and tableside food delivery.

Meadows’ daily tournaments are some of the lowest buy-ins you’ll find in a casino, with reentry tournaments priced as low as $30, not to mention a $51 buy-in deepstack tournament on several different days.

Stakes and games typically found at Meadows Casino are:

  • $1/$3 no-limit hold’em
  • $1/$3/$6 no-limit hold’em
  • $2/$4 limit hold’em
  • $3/$6 limit hold’em
  • $5/$10 limit hold’em
  • $2/$5 pot-limit Omaha
  • State-approved games are available upon request

PA Online Gambling Proposal Would Kill Industry Before It Even Started With High Tax Rate

Here’s why a proposed 54 percent on online slot machine revenue in Pennsylvania would ground the state’s online gambling industry before it launches.

Online gambling is on the clock again in Pennsylvania.

The PA Senate CERD Committee will meet Tuesday. It’s likely to discuss an innocuous-looking bill authorizing tablet gaming at certain Pennsylvania airports.

The bill, H 271, passed the Pennsylvania House of Representatives earlier this month without much fanfare, thanks in part to its very limited scope. However, there is more to the bill than meets the eye.

In an interview with Online Poker Report’s Matthew Kredell, state Rep. George Dunbar said, “We put in one thing, tablets in airports, and basically said, ‘You load it up with what you want in it’ … it puts the ball in [the Senate’s] court.”

In effect, the House passed it in order to give the Senate an opportunity to assemble the other pieces of a comprehensive gaming package that will meet revenue targets in the state’s budget.

We don’t yet know what pieces the Pennsylvania Senate may add.

It all comes down to tax rates

If a group of state senators gets its way, Pennsylvania’s gaming bill would likely include the legalization and regulation of online gambling. This isn’t necessarily good news for legal online gaming supporters, and like most things, the devil is in the details.

In the case of the rumored Senate online gambling proposal, the structure of the bill would be such that Pennsylvanians wouldn’t have access to licensed online gambling sites. That tax rate would be too much of a burden on casinos.

According to reporting from Online Poker Report, a small group of state senators, led by Robert Tomlinson, are calling for online gambling tax rates that would mimic land-based taxed rates — 54 percent for slots and 16 percent for table games.

Tomlinson has long-called for such a tax rate, citing (wholly unfounded and downright absurd) concerns that casinos will cease trying to generate billions of dollars of revenue at their land-based properties in order to generate hundreds of millions in online revenue.

Or as my colleague Robert DellaFave astutely put it:

A 54 percent tax rate is a non-starter

The 16 percent table game rate would be in line with other proposals. But the slot tax rate is a burden no online casino operator would be able to bear.

The tax rate would not generate more revenue for the state or bolster casinos with a new, beneficial revenue stream. Instead, it would simply kill online gambling before it ever got off the ground.

Based on publicly available revenue reports and talks with New Jersey online operators, it’s obvious online gambling doesn’t possess the margins to withstand a 54 percent tax rate on online slots. If the state implemented such a tax rate, one of two things would happen. Neither of them would be helpful for Pennsylvania or the casino industry:

  • Operators would shun Pennsylvania, seeing no reason to part with the million-dollar upfront licensing fee when there is zero opportunity to ever turn a profit due to the excessive tax rate.
  • Daring operators would pass the burden on to the customer, ensuring the existence of a thriving black market with which the licensed operators would be unable to compete.

The margins don’t exist for a 54 percent tax rate

Per Online Poker Report:

OPR polled multiple operators in New Jersey to construct this generic snapshot of where a dollar of online gambling revenue goes:

  • 24 cents to advertising
  • 20 cents to player reinvestment (player promotions and retention costs)
  • 18.5 cents to payment processing, KYC, geolocation costs, and platform and content royalties
  • 17.5 cents to taxes
  • 12.5 cents to general and administrative needs, including staff
  • 2.5 cents to other regulatory fees

That leaves five cents of profit from each dollar of revenue.

More importantly, the entire premise for the 54 percent tax rate has no basis in reality, as detailed in the two columns below.

Eastern PA Poker Rooms: Breaking Down Sands, Mohegan Sun, Hollywood And Mount Airy

A comparison of the four poker rooms in Eastern PA (not in Philly): Mohegan Sun Pocono, Sands Bethlehem, Mount Airy and Hollywood Casino at Penn National.

Ten of Pennsylvania’s 12 casinos house poker rooms, but the sizes and offerings vary quite a bit.

We’ll take a look at the four poker rooms in the eastern part of the state: Mohegan Sun, Mount Airy, Sands, and Hollywood Casino.

Mohegan Sun Pocono poker

The Mohegan Sun Pocono poker room in Wilkes-Barre has 18 cash-game tables, which is a decent amount for the region.

On most days, Mohegan Sun offers two daily tournaments — one at 11 a.m. and one at 7 p.m. — to go along with the Sit & Go tournaments offered in the poker room. On the promotional front, Mohegan Sun has an ongoing high-hand jackpot promotion that pays out three times daily.

Stakes and games typically available at Mohegan Sun Pocono are:

  • $1/$2 no limit hold’em
  • $1/$3 no limit hold’em with no-max buy-in
  • $2/$5 no limit hold’em
  • $10/$20 H.O.S.E. (A $10/$20 HOSE game with a full kill is available on Thursdays)
  • $4/$8 Omaha 8 or better with a kill
  • $2/$4 limit hold’em
  • $1-$5 seven card stud
  • State-approved games available upon request

Mount Airy poker

Mount Airy Casino in Mt. Pocono offers a small assortment of low-limit poker tables. The nine-table poker room is located a bit off the beaten path (on the third floor of the casino) and caters mainly to low-stakes locals and visitors. In fact, there’s not more than a blurb about poker on the casino’s website.

The casino doesn’t run daily tournaments on the regular, nor does it offer any special promotions beyond some jackpot-type promotions.

Stakes and games typically available at Mount Airy are:

  • $2/$4 limit hold’em
  • $3/$6 limit hold’em
  • $1/$2 no limit hold’em
  • $2/$5 no limit hold’em
  • State-approved games available upon request

Sands Bethlehem poker

Sands Bethlehem is the king of poker in the northeast region of the state and one of the larger poker rooms in any region.

The poker room is centrally located in the casino and boasts 30 cash-game tables. The tournament schedule is bit sparse considering the size of the room, as on average you’ll only find five daily tournaments throughout the week.

Sands offers a nice assortment of promotions, including a bad-beat jackpot and high hand bonuses at select times, but the big draw at its poker room are the amenities. From the complimentary beverages to massage services, Sands offers a lot of the luxuries one would only expect to find in a Las Vegas Strip casino. The poker room is close to 24-hour eateries within the casino and also offers tableside dining from 8 a.m. to midnight.

Check out what games are currently running at the casino and the size of the jackpot on Sands’ website.

Stakes and games typically available at Sands Bethlehem are:

  • $1/$2 no limit hold’em
  • $2/$5 no limit hold’em
  • $5/$5 no limit hold’em
  • $5/$10 no limit hold’em
  • $10/$25 no limit hold’em
  • $3/$6 limit hold’em
  • $5/$10 Omaha 8 or better
  • $1/$3 pot-limit Omaha
  • State-approved games available upon request

Hollywood Casino

Located at the iconic Penn National Racecourse in Grantville, Hollywood Casino’s poker room has 16 tables, and like Mount Airy, mainly caters to low-limit players.

Hollywood Casino at Penn National offers one of the best tournament selections in the area, with one to two tournaments most days.

Hollywood Casino offers a bad-beat jackpot (see how large it is on the casino’s website), as well as a high-hand promotion at select times. Other perks of playing at Hollywood Casino include call-ahead seating and weekend massage rates of $1/minute.

Stakes and games typically found at Hollywood Casino at Penn National are:

  • $1/$2 no limit hold’em
  • $2/$5 no limit hold’em
  • $2/$4 limit hold’em
  • $1/$2 pot-limit Omaha 8 or better
  • State-approved games available upon request

Penn National Bets Big On Mississippi Again, Buys Pair Of Tunica Casinos

With the purchase of Bally’s Tunica and Resorts Tunica, Penn National will soon be running five Mississippi casinos, including three in Tunica.

Penn National will soon lay claim to nearly three dozen gaming properties in 17 states, including five in Mississippi.

PN agreed to purchase Bally’s Casino Tunica and Resorts Casino Tunica. The sale of the two properties is expected to be finalized some time in June.

Both casinos had fallen into bankruptcy. The final price tag for the two Tunica-based locations came in at $44 million. Penn bought the properties from RIH Acquisitions MS I LLC and RIH Acquisitions MS II LLC — both holding companies for the bankrupted casinos.

According to the Associated Press, Penn National CEO Timothy Wilmott indicated the company will centrally manage its Tunica casinos and has plans for “modest” improvements. This includes the company’s well-received Marquee Rewards loyalty program, which is already in place at the company’s three other Mississippi properties:

  • Boomtown Casino Biloxi
  • Hollywood Casino Gulf Coast
  • Hollywood Casino Tunica

“The acquisition will add two complementary casinos to our existing Hollywood Casino Tunica operations, thereby presenting Penn National with the opportunity to benefit from a centralized local management structure,” said Wilmott said in a statement.

What is Penn National getting for its $44 million?

Penn’s new casinos rely heavily on slot revenue. The 40,000-square-foot Bally’s Tunica possesses close to 1,000 slots and just 16 table games. Resorts Tunica is slightly smaller at 35,000 square feet, but is also slot-heavy. It has 800 terminals compared to just nine table games.

Resorts Casino Tunica also has a 200-room hotel and another 18,000 square feet of convention space, something Bally’s Tunica lacks.

Combined, Bally’s Casino Tunica and Resorts Casino Tunica generated $21 million in gross gaming revenue in 2016.

Penn National does things its way

If anyone can turn around the two regional casinos it’s Penn National. The company has shown an affinity for running small, regional casinos in recent years.

Penn’s gaming holdings run the gamut from off-track betting shops to racetracks to racinos to full-fledged casinos. Whether it’s one of the 15 Hollywood casinos or the Tropicana in Las Vegas or the recently opened Plainridge Park Casino (a racino) in Massachusetts, Penn’s numerous casino and gaming properties are often overlooked by the industry.

This could be because the company has done a good job creating smaller regional casinos, rather than following the popular strategy of building billion-dollar destination locations.

But the model is paying off for Penn National. Revenue rose from $2.8 billion in 2015 to $3 billion in 2016, with earnings of $844 million last year.

A job saver in Mississippi

The Mississippi sales should be good for everyone involved.

Penn National picks up the two casinos for a pretty good price. Plus, the local economy will get a much-needed reprieve. The two casinos employ around 1,000 people in the Tunica area — an area still trying to recover from the devastation of Hurricane Katrina in 2005.

Gaming has been a big part of the recovery, keeping thousands of people employed, and keeping the local economy flush with tax revenue from the casinos, which are still pulling in more than $2 billion per year.

However, the Tunica area has been hit hard. Casino revenue is down more than 40 percent compared to its 2006 levels.

Philadelphia Poker Rooms: Breaking Down Parx, SugarHouse And Harrah’s

A comparison of the games, tournaments and amenities at the three Philadelphia area poker rooms in Pennsylvania: Parx, SugarHouse and Harrah’s.

Ten of Pennsylvania’s 12 casinos have poker rooms, but the size, game offerings, promotions and amenities vary quite a bit.

Here is a look at the three poker rooms in the Philadelphia area — Parx, SugarHouse, and Harrah’s — with a rundown what each has to offer.

Harrah’s Philadelphia

Located in Chester (just outside Philadelphia), Harrah’s Poker Room is in the heart of Pennsylvania poker country. The room is of average size for the region, with 28 cash-game tables, and offers daily tournaments at 11:30 a.m. and 7 p.m. most days.

Harrah’s runs several monthly poker promotions. Currently, players will find high-hand jackpots every 30 to 60 minutes and a promotion where anyone showing a qualifying full house is entered into a monthly drawing.

With so much competition nearby, the room offers a couple of interesting options players won’t find in many other poker rooms. Harrah’s allows players in time-raked games to “Run it Twice” and players in any Hold’em or Omaha game can post a Mississippi Straddle — basically posting a straddle from any position, which makes the next player the first to act pre-flop.

Stakes and games typically found at Harrah’s are:

  • $2-$6 limit hold’em
  • $1/$2 no limit hold’em ($60-$300 buy-in)
  • $1/$3 no limit hold’em ($100-$500 buy-in)
  • $2/$5 no limit hold’em
  • $5/$10 no limit hold’em
  • $5/$10 Omaha 8 or better
  • State-approved games are available upon request

Parx Casino

With over 80 tables, Parx can lay claim to being the largest poker room in Pennsylvania. It’s also one of the only poker rooms in the state with consistent high-stakes action.

Unlike most of its competitors (which offer two daily tournaments), Parx only offers one daily tournament, mixing night and daytime starts, but the poker room also runs multiple tournament series throughout the year.

The casino has an ongoing bad-beat jackpot. Monthly promotions at Parx run the gamut, with the casino currently running a high-hand giveaway every half-hour, along with a grand-prize drawing at the end of the month.

Stakes and games typically found at Parx are:

  • Limit hold’em: $3/$6 – $6/$12 – $15/$30 – $40/$80
  • No limit hold’em: $1/$2 – $1/$3 – $2/$5 – $10/$10 – $10/$25
  • PLO: $5 single blind – $5/$5
  • PLO8: $1/$2
  • Omaha 8 or better: $8/$16 – $10/$20 – $15/$30 – $30/$60
  • Mix games: $6/$12 – $10/$20 – $15/$30 – $30/$60
  • State-approved games are available upon request

SugarHouse Casino

After moving from a temporary home to its permanent location in early 2016, SugarHouse has the newest and swankiest poker room in the state. The 28-table room has all the modern niceties, including backlit tables, in-seat text-to-order food service and full charging stations at every position.

SugarHouse is also a branded Poker Night in America poker room and routinely hosts televised cash games and tournament series.

SugarHouse’s daily tournament schedule consists of a nightly tournament during the week and three tournaments on weekends typically.

SugarHouse is big on promotions, notably its hourly high-hand giveaways. This core promotion is often augmented as is the case right now, where SugarHouse is offering:

  • 3x giveaways at select times on Tuesday and Sunday where a high hand prize is awarded every 20 minutes;
  • $300 every 30 minutes at select times on Monday and Wednesday;
  • $500 every 30 minutes at select times on Thursday and Friday;
  • Super Saturday, where SugarHouse will give away $300 every 20 minutes from 12 p.m. to 8 p.m.

Stakes and games you’ll typically find at SugarHouse are:

  • $1/$2 no limit hold’em
  • $1/$3 no limit hold’em
  • $2/$5 no limit hold’em
  • $2-$6 limit hold’em
  • State-approved games are available upon request

Sands Bethlehem Sale Could Shift PA Online Gambling Legalization Opinions In Major Way

If the proposed sale of Sands Bethlehem Casino to MGM goes through, it would remove one of the only roadblocks opposing online gambling legalization.

Las Vegas Sands reached an agreement to sell the Sands Bethlehem Casino in Pennsylvania to MGM Resorts International.

The sale could have wide-ranging implications. The proposed $1.3 billion deal would not only have a major impact on land-based gaming in Pennsylvania. It could also be the final nudge the state needs to pass a bill legalizing PA online casinos.

Why the Sands Bethlehem matters for iGaming

Las Vegas Sands is adamantly opposed to online gambling. Unsurprisingly, state Sen. Lisa Boscola was one of the most skeptical lawmakers at a recent hearing on online gambling legalization. Her district includes Sands Bethlehem.

Of note, the other voice of opposition at the hearing was Sen. Robert Tomlinson, whose district includes Parx Casino. That’s the other Pennsylvania casino operator that opposes online gambling.

These lawmakers aren’t necessarily in cahoots with casino operators. But casinos are often the largest employers and economic drivers in the lawmakers’ districts. Therefore, their position on pertinent issues is important.

If MGM replaces Sands, the online gambling opinions of Boscola and other lawmakers in the vicinity of Sands Bethlehem are likely to evolve.

“It definitely changes the online gaming landscape a bit,” said state Rep. George Dunbar, the vice chairman of the House Appropriations Committee, in an interview with The Morning Call. “Some members could be swayed by a change, if it happens. Things are going to get interesting.”

In the same column, Sen. Pat Browne said, “If I’m going from an operator that thinks iGaming is dangerous to its business model, to one that uses it to build brand, it absolutely changes things.”

Sands opposition to online gambling has been unwavering

Sands didn’t testify at the hearing. But the casino’s parent company and its chairman, Sheldon Adelson, have made their position perfectly clear.

In 2013, Adelson famously told Forbes he would “spend whatever it takes” to stop online gambling in the US.

Soon thereafter, the Coalition to Stop Internet Gambling lobbying group was formed — widely believed to be funded by Adelson — and prohibition bills were introduced in Congress.

At a June 2015 hearing in Pennsylvania, Las Vegas Sands Senior Vice President of Government Relations and Community Development Andy Abboud submitted the following testimony:

“We are opposed to internet gambling… because of the negative effects internet gambling would have on employment and investment in Pennsylvania, and on its families and children and because of the threat it poses to the public interest.”

[…]

“The Las Vegas Sands stand in opposition to internet gambling in Pennsylvania and across the country, because internet gambling is bad for Pennsylvania jobs, Pennsylvania families and brings the wrong element to Pennsylvania gambling.”

And last year, Sands Bethlehem President Mark Juliano submitted similarly worded testimony:

“Las Vegas Sands testified last year before this committee in full opposition to internet gambling and this position has not changed. Internet gambling is a job killer that seeks to move jobs from casinos in Pennsylvania to server farms in foreign countries.”

Meanwhile, MGM embraces online gambling

On the other hand, MGM sees things differently, viewing online gambling as a driver of growth and reinvestment.

MGM already offers online gambling in New Jersey, through Borgata. It plans to launch an MGM-branded online gambling website in the near future.

In 2016, MGM praised legislative efforts to bring online poker to New York:

“This legislation recognizes that millions of New Yorkers play online poker on unregulated and unprotected off-shore poker websites that operate with no oversight, fraud controls, or age restrictions.

“We applaud the Senate Finance Committee’s vote to create a safe, legal environment for online poker through legislation that will generate tens of millions of dollars in revenue for taxpayers, and create open and fair opportunities for all providers of online poker.”

Final thoughts on Sands and online gambling

The sale of Sands would cause a dynamic change in Pennsylvania’s support and opposition coalitions.

Casinos opposing online gambling currently number just two (against 10 in support), but they are the two largest casinos in the state — Parx and Sands.

If Sands is sold to MGM, the opposition not only loses half its strength, but it would be transferred to the already significant support coalition.

Furthermore Boscola’s skepticism could quickly shift to cheerleading for online gambling if the casino in her district becomes an MGM property.

While Sands’ brass has cautioned that too much gambling expansion could lead to less investment in its Bethlehem property, online gambling would ramp up MGM’s willingness to invest.

Key Takeaways And Interesting Nuggets From The PA Online Gambling Hearing

There was a lot of good — and bad — that came out of this week’s Pennsylvania online gambling joint hearing involving the House and Senate.

This week’s joint online gambling hearing in front of Pennsylvania’s House Gaming Oversight Committee and the Senate CERD Committee was long and often contentious. A live blog of the entire hearing can be found here.

Clocking in at over four hours, the hearing featured 15 witnesses broken up into seven separate panels. Each panel fielded multiple questions from lawmakers in the two committees.

During the proceedings, a second joint hearing was announced between the two committees. The second hearing will take place March 20 at 10 a.m.

Here are the key takeaways from the hearing:

Political sausage-making was on full display

There was little effort made by some lawmakers to hide their allegiances to certain casinos. Sens. Lisa Boscola and Robert Tomlinson made it clear from the outset that they were going to carry water for Sands Bethlehem and Parx respectively.

At times, it felt like the two senators, along with the representatives who testified on behalf of Parx and the Coalition to Stop Internet Gambling, were reading from the same crib sheet. (CSIG is widely believed to be primarily funded by Sands Bethlehem owner Sheldon Adelson.)

Of course, this cuts both ways. But by and large the lawmakers representing districts where the casinos are in favor of online gambling were more reserved in their cheerleading, at least compared to the cantankerous opposition of Tomlinson and Boscola.

Takeaway: The opposition to online gambling is outnumbered. But it’s a powerful, vocal minority willing to go to the mat. Online gambling is expected to get done this year, but expect to travel down a long, perhaps frustrating path before legalization is realized.

Tax rate still needs to be ironed out

Finding a tax rate that works for the state and the online operators has always been a challenge. Based on yesterday’s hearing, it would seem that the 14 percent tax rate in the current gaming reform bill is going to be raised, but not to the levels some of the lawmakers were calling for.

Proponents of online gambling said around 15 percent is the sweet spot, so I suspect the final version of the bill will come in toward the top end of the 15-20 percent range.

Takeaway: From a policy perspective, the debate going forward will center around this issue.

Cannibalization concerns remain, despite contradictory evidence

After three years of New Jersey online gambling, you’d think the cannibalization question would have been put to rest. It hasn’t.

Online gambing opponents are unwilling to let go of the idea that online will cannibalize land-based casinos. Throughout the hearing, they raised the specter of online gambling damaging land-based gaming. They painted it as a net-loser for the state and the casinos. (That’s despite the fact that we have real-world information to use.)

However, as David Satz of Caesars noted during the hearing, “avoid the scare-mongering.”

There is no evidence online cannibalizes land-based gambling. In fact, all available evidence points to it being beneficial.

Takeaway: It’s unclear how lawmakers will receive these bombastic arguments, if they don’t represent a particular casino. But it’s abundantly clear that casinos against online gambling are going to cling to this argument to the bitter end, even if all the evidence points to the contrary.

Facts don’t matter on PA online gambling

Data can be boring, so lawmakers love to make points with anecdotes. They’ll be damned if they’re going to let facts get in the way of spinning a good yarn.

The poker playing bot beat humans!

For example, several lawmakers brought up Libratus during the course of the hearing. That’s the poker-playing bot developed by Carnegie Mellon University, which recently bested four elite poker players at Rivers Casino in Pittsburgh.

These references to Libratus indicate they read local newspapers. The match was a big story in Pennsylvania papers. But their absolute butchering of the story exposed them as only reading the headline and skimming the text. They kept declaring the bot beat the pros in a “tournament for $1.8 million.”

What actually happened: The four pros faced Libratus one at a time in heads-up cash games (which barely exist anymore), and the games were not for real money. The pros didn’t lose a dollar, much less 1.8 million of them.

If state politicians are ignorant to this fairly simple detail, what else are they ignorant about? Cannibalization? Potential revenue?

The tax rate and online gambling

There was also an ongoing and altogether strange assertion that land-based casinos would focus on online gambling rather than physical gambling if the tax rate was demonstrably lower. To paraphrase a familiar refrain at the hearing: “You’re trying to make money, and you’d make more money selling the games with the lower tax rate!”

This might sound reasonable, but setting aside the fact that people don’t go to the casino just to gamble and would do so online if given the opportunity, there’s something called profit margins to think about. Tax rates are only one part of the equation when it comes to profit.

This argument is a lot like saying, if we tax beer at 14 percent and wine at 59 percent, grocery stores will focus on selling beer and there will be no wine for anyone! This isn’t true. If the store is making $1 ($0.86 after tax) on every case of beer they sell and $3 ($1.77 after tax) on every bottle of wine, they’re going to still sell wine. Wine drinkers are not necessarily beer drinkers even though there is some crossover.

The same holds true in the gaming industry. Online and live gamblers different customers (with some crossover). Also, land-based gaming has higher profit margins so the industry can handle higher tax rates.

Takeaway: If lawmakers are going to testify, they should make sure their talking points are crystal clear. The other side is going to fire off salvos of word salad, misrepresented numbers, apples-to-oranges comparisons and anecdotal evidence that might seem plausible but actually contradicts the actual situation on the ground.

Making the case for online gambling

John Pappas’ closing remarks really hit the nail on the head, cutting through all the talk of revenue, tax rates and cannibalization.

“I would like to reiterate that this committee is not deciding whether Pennsylvania citizens will gamble on the internet – today, thousands of Pennsylvanians already gamble on offshore sites that provide absolutely no local oversight or protection,” Pappas began, adding that internet gambling (lottery, casino, poker, sports betting, and horse racing) is successfully regulated all over the globe, including in the US.

“The only question before this committee is, will you support legislation to provide Pennsylvania players and taxpayers with a safe and well-regulated place to play poker and other games on the internet, or will you leave them with an unprotected market vulnerable to fraud?”

Takeaway: It’s imperative that legislators’ eyes be on the prize and not become distracted by refuting every false claim. Or, as Chris Grove noted in his Grove Report email newsletter:

“It’s difficult to separate the steak from the sizzle in high-profile hearings such as these.”

Other interesting tidbits

  • “CIE’s NJ experience: 80 percent of online players are new customers; 42 percent who were TR customers were inactive customers who re-activated after signing up online.” — David Satz, Senior Vice President of Government Relations and Development, Caesars Entertainment.
  • Question: “Before New Jersey legalized online gambling, were you able to gamble online in New Jersey?” Answer: “Yes.” Question: “And how much did the state collect in revenue from that?” Answer: “Zero.” — An exchange between Rep. George Dunbar and Caesars’ David Satz.
  • Parx CEO Anthony Ricci may have unwittingly explained the casino’s somewhat mind-boggling opposition to online gambling in his testimony. He noted the company’s concerns that it puts smaller casinos on a level playing field with access to all players statewide. Ricci is implying that small casinos in far-flung areas of the state would be on a level playing field in the online arena. Right now, Parx has the biggest piece of the gaming pie. It doesn’t want to introduce a new pie where its slice might be smaller.
  • Noting the casino’s strong revenue numbers, CERD Chairman Mario Scavello intimated that Valley Forge might be considering filing for a Category 2 license, thereby ending its run as a Category 3 “resort” casino and lifting many of the restrictions that come with the more affordable license.
  • The tiny Lady Luck Casino came out in favor of online gambling at the hearing. That ended any speculation it may sit on the sidelines. Because of its size and lack of capital, it would likely need a high-profile partner with a strong independent brand, such as a PokerStars.

Growing Pennsylvania Budget Deficit Is A Good Omen For Online Gambling Legalization

With the state’s budget deficit ballooning to $250 million, it’s imperative that Pennsylvania lawmakers pass a bill legalizing PA online gambling and DFS.

Pennsylvania lawmakers and Governor Tom Wolf are coming under increasing pressure to close a still-growing, nine-figure budget shortfall, which increases from $2.2 billion to $3 billion over the next 18 months.

According to Marc Levy of the Associated Press, the Pennsylvania Legislature’s Independent Fiscal Office “lowered revenue estimates for the current fiscal year by $250 million,” leaving the state $700 million short of being able to properly fund its $31.5 billion budget.

The state has already employed a number of stop-gap measures in recent years, which have resulted in its credit rating being lowered five times.

Legislature has yet to come up with a feasible plan

The Democratic governor Wolf was elected in 2014 on a platform of fiscal responsibility and ending property tax increases. He vowed to balance the budget through, among other things, targeted tax increases.

The Republican-controlled legislature had other ideas, and so far it has won the battle.

While Wolf’s recent proposals focus on the more amenable spending cuts, tax increases can only be ignored for so long. The larger the deficit grows, the more likely sales or income tax increases are back on the table — unless the legislature and the governor can come up with an alternative funding source.

They could also save themselves some time and effort by finally acting on a funding source they already approved in 2016.

PA gaming reform package more necessary than ever

As former California Gambling Control Commissioner and current Bermuda Casino Gaming Commission Executive Director Richard Schuetz said on Twitter, the rising deficit will likely force the legislature to act on a number of gambling reforms that were proposed last year.

Online gambling and daily fantasy sports were part of a gaming reform bill passed by the Pennsylvania House of Representatives on two different occasions in 2016.

The Senate didn’t vote on either bill, but it did include the revenue projections these gaming reforms would generate as a funding source for the state’s budget. This was something most people took as a sign that the Senate would eventually pass the gaming reform package.

The Senate’s failure to act in 2016 was unsettling, but with the budget deficit growing, any holdouts may have to acquiesce.

If the legislature neglects to pass a gaming reform bill (the reforms would bring in an estimated $100 million in the first year thanks largely to the online gambling licensing fees), it would be adding $100 million more to the deficit, since the Legislative Fiscal Office is still counting this revenue in its projections.

The sooner PA online gambling is legalized, the better

Even though the bulk of the money will come from licensing fees, the tax revenue online gambling would generate isn’t exactly trivial. This is why time is of the essence.

It will take time to get the Pennsylvania online casino industry up and running. Even if the legislature passes the bill tomorrow, the first legal online gaming website in Pennsylvania is unlikely to launch before 2018.

Furthermore, it will take time for the industry to mature.

New Jersey online gambling sites generated:

  • $123 million in 2014
  • $149 million in 2015
  • $197 million in 2016

Had the Pennsylvania Senate acted on the gaming reform bill passed by the House last summer, online gambling websites could have potentially been up and running before the end of spring.

Had this occurred, the state would have been collecting tax revenue on top of the licensing fees, and the industry would be six to nine months further along.

Depending on the final tax rate the state adopts for online gambling operators (anywhere from 15 percent to 25 percent), Pennsylvania could be losing anywhere from $3 million to $5 million a month in much-needed tax revenue.

Effectively, every day online gambling remains illegal, the state of Pennsylvania is losing revenue.

Upshot

The legislature’s inaction in 2016 has already cost the state as much as $35 million in revenue over the course of 2017. Continued delays are not only depriving the state or money; they make income and sales tax increases all the more likely.

Sustained Pennsylvania Slot Revenue Decline Is A Good Reason To Legalize Online Gambling

Pennsylvania’s slot revenue has stagnated, which is why the state should be looking to alternative revenue streams like online gambling.

Pennsylvania managed to set a revenue record in 2016, in spite of the state’s casinos posting their second worst slot revenue tally in the last six years.

Slot revenue has been stagnant for several years in the Keystone State, and down year-over-year in three of the past four.

Here’s a historical look at Pennsylvania slot revenue:

  • 2007: $1.039 billion
  • 2008: $1.616 billion
  • 2009: $1.965 billion
  • 2010: $2,274 billion
  • 2011: $2.406 billion
  • 2012: $2.471 billion
  • 2013: $2.384 billion
  • 2014: $2.320 billion
  • 2015: $2.366 billion
  • 2016: $2.360 billion

This slot revenue dip was largely hidden by the addition of table games in 2010, which more than offset the slot revenue declines and led to back-to-back record years in Pennsylvania.

But the slot revenue trend should be worrisome, especially for the individual casinos. And it adds up to a good case for legalizing PA online casinos.

Recent slot performances year by year

2014 bad all around

2014 was a year to forget for Pennsylvania casinos.

Ten of the state’s 12 casinos saw slot revenue decline year-over-year. It likely could have been worse, considering the state’s two Category 3 casinos were recent arrivals: Lady Luck Nemacolin opened in July 2013, and Valley Forge opened in March 2012.

2015 was ‘meh’

In 2015, the Pennsylvania casino industry rebounded, but individual operators didn’t experience the same type of bump as the whole industry.

Yes, just four of the state’s casinos experienced slot revenue declines. But this shouldn’t be surprising, considering the pitiful performance from the year before.

Additionally, the bump was small for another third of the state’s casinos. Four others only increased revenue marginally, between zero and 1.35 percent.

2016 constitutes a trend

In 2016, six of the state’s casinos suffered slot revenue declines, and three others saw slot revenue grow less than two percent.

Furthermore, casinos that experienced growth did so at a subdued rate, with SugarHouse Casino leading the way with a mere four percent rise in slot handle. That’s a far cry from some of the revenue increases posted by individual operators in previous years.

Table game revenue continues to rise, but it appears Pennsylvania has hit a critical mass on the slot side of the casino floor. When table game critical mass is reached, the record-setting years will come to an end.

Challenges facing Pennsylvania casinos

Three things are likely behind Pennsylvania’s recent slot numbers:

  1. First, Pennsylvania’s casino industry has likely hit critical mass with 12 casinos.
  2. Second, a decade in, the Pennsylvania market has reached maturity.
  3. Third, competition continues to pop up in surrounding states.

Soon enough, table games will also reach full maturation. The bigger question is how Pennsylvania deals with out-of-state competition.

This question was first answered by former Rep. John Payne. He told Online Poker Report in March 2015, “My mission statement is to keep gaming in general healthy, but in particular to make sure our casinos stay healthy and competitive against our surrounding states.”

Part of keeping Pennsylvania competitive means finding new revenue streams for casinos, as the market is only going to become more competitive over time.

Payne would go on to champion a number of gaming reforms, including online gambling legalization.

Time to start looking elsewhere

Pennsylvania is currently considering a number of Payne’s gaming proposals designed to increase existing revenue or generate new revenue.

The state’s legislature is considering everything from adding slot machines at airports to easing restrictions on Category 3 casinos in exchange for a one-time fee. But it’s Payne’s baby, online gambling, that would create the biggest revenue stream.

The online gambling industry in Pennsylvania is estimated to be in the $250 million range. That is a pretty significant chunk of the state’s total gaming revenue of $3 billion per year.

Online gambling doesn’t cannibalize casino revenue

There is also mounting evidence that online gambling benefits land-based casinos.

In a 2015 paper, researchers at UNLV noted, “The expansion of online gambling will lead to new (online) revenue sources and higher revenue within existing (complementary) products… local tourism dollars being generated by offline casinos are enhanced by the addition of online gambling legalization.”

Essentially, by legalizing online poker, Pennsylvania lawmakers would not only be bringing the state’s gaming industry into the 21st century. They would also be giving casino revenue an immediate shot in the arm by opening up a new revenue stream and (according to research) increasing land-based play and visitation.

Disregard the potential of online gambling to boost land-based revenues. Had Pennsylvania legalized online gambling in 2015 and hit the estimated $250 million in Year 1 revenue, the 2016 revenue numbers for the state’s casino industry would have looked like this:

2015 Revenue 2016 Revenue YoY change
$3,173,787,012 $3,463,422,178 +8.3%

 

Instead of this:

2015 Revenue 2016 Revenue YoY change
$3,173,787,012 $3,213,422,178 +1.2%

There is nothing wrong with 1.2 percent growth. But had total gaming revenue risen more than eight percent, stagnant slot machine numbers would be less of a concern for the state and the individual casinos.