SUNY Report: Pennsylvania Headed For Tough Times If Online Gambling Bill Passes

A new report suggests that Pennsylvania land-based casinos should expect revenue decline, even as the state of PA looks to pass online gambling legislation.

Big revenues today don’t equate to big revenues tomorrow.

That’s the conclusion of a recent State University of New York (SUNY) report about the Pennsylvania gaming industry. In the 40-page document, SUNY Rockefeller Institute of Government analyst Lucy Dadayan said while the state’s gambling-tax revenue is a boon for the budget now, history says that revenue will decline over time.

The report, titled “State Revenues from Gambling: Short-Term Relief, Long-Term Disappointment,” comes in the midst of the proposal of HB 649, a bill that would legalize and regulate Pennsylvania online gambling.

Bad times call for more gambling

According to Dadayan, history shows expanding gambling is one of the tools of choice for states who are struggling with revenue.

“States are more likely to expand gambling operations when tax revenues are depressed by a weak economy, or to pay for new spending programs,” she wrote.

Dadayan went on to point out “many states” augmented the gambling sector in response to the Great Depression.

Wallets more frugal after economic downturn, competition increases

The report said a couple of other factors that have soured long-term revenues are:

  • Consumers coming off the Great Recession are tighter with their discretionary spending.
  • Those consumers are more prone to dial back the money they put toward casinos and racing.
  • The continued expansion of gambling operations in Maryland, New York City and Ohio will continue to cut into Pennsylvania’s gaming revenue

Dayadan’s final conclusions were not positive. She said Pennsylvania’s gambling revenues “are short-lived and create longer-term fiscal challenges for the states as revenue growth slow or declines.”

Gambling revenues in the context of HB649

As mentioned earlier, the release of the study comes at an interesting time. The Pennsylvania House of Representatives Gaming Oversight committee approved HB 649 with a vote of 18-8 in November. However, the bill never made it through the House.

In December, the bill was tabled, the legislative equivalent of an airplane holding pattern.

Lawmakers “untabled” the bill this past March and now it is open for discussion once again. The most outspoken legislative proponent of the gambling bill is Representative John Payne, a Republican from Dauphin, Penn.

Payne leads the oversight committee which first approved the bill, and he is the prime sponsor of the bill.

Payne points to revenue as reason to pass bill

In an interview with The Morning Call, Payne said his main argument is that the bill will inject millions of dollars into Pennsylvania’s budget. He scoffed at Dadayan’s claims that gaming revenue isn’t sustainable over the long haul.

“We know people are going to gamble, so we might as well regulate it and tax it. I hope they didn’t waste too much taxpayer money on that study,” Payne was quoted as saying. “What we need to do is give casinos the tools to compete with other states.”

Payne’s disregard for the study was evident when he questioned whether or not the author had ever heard of Las Vegas.

Keystone state pulls in second-most tax revenue in nation

However, it’s easy to understand why the politician would feel confident that expanding the state’s gaming sector would bring in enough money to alleviate the state’s $2 billion budget gap.

According to numbers provided by The Morning Call, Pennsylvania lottery, land-based casino and off-track betting tax revenues rank second in the nation. Only New York earns more in those three areas, but around two-thirds of the state’s $3.2 billion take comes from lottery sales.

One of the big factors behind the state’s hefty tax revenues is its 55 percent tax on slot machines, a huge number compared to sub-10 percent rates in New Jersey.

Report says uncertain future ahead despite big tax revenues

Despite Payne’s optimism about the bill, Dadayan’s research points to skepticism. Revenues for several states dropped significantly between 2008 and 2015.

Though that time frame includes the recession, Dadayan said competition from new casinos in competing states played a sizable role taking a few states’ big revenue and distributing it to states with expanded gambling laws.

The Keystone State Is Leading The Charge To Legalize Online Gambling

There are many states that come up when talk turns to which will be next to allow legal online gambling. One state that is always mentioned is Pennsylvania.

The hopes of gamblers across Pennsylvania have received a shot of adrenaline recently as the state directly to the north, New York, is implementing a budget provision that would legalize online poker.

Gary Pretlow, the Chairman of the New York Assembly Racing and Wagering Committee, is ready to tackle the issue according to an article by Gambling Compliance (paywall).

Pretlow plans to make the issue public, once New York’s land-based casinos get on board. Pretlow is documented as saying, “I don’t want to throw competition at them before they have evened opened their doors.”

What does this mean for Pennsylvania?

The leading advocate for legalizing online gaming in the Keystone State is state Representative John Payne, who chairs the House Gaming Oversight Committee.

Payne made it clear in 2015, during his first push for legalization, that his focus is keeping Pennsylvania from turning into an “Atlantic City situation.”

Payne’s concern is on keeping Pennsylvania competitive with surrounding states with casinos which include New York, New Jersey, and Ohio.

Payne has reason to be nervous. New Jersey is is sending a measure to voters in November that would allow gambling in the northern part in the Garden State, not just within Atlantic City. Additionally, Massachusetts and New York have solidified plans to add a total of six new casinos in the coming years.

2016 the last chance for PA?

It is also important to note that Payne, the driving force behind the plan, will retire in 2016. Along with Payne, Nick Kotick, co-chair of the Gaming Oversight Committee, also plans to call it quits by the end of the year.

The element of the unknown after these two depart could make the passing of the legalization bill (HB 649) even more interesting.

All in all, efforts in both New York and Pennsylvania to legalize online gaming have a chance of becoming a reality sooner than later. The question being asked is who first? Both states’ lawmakers have gained traction recently on the race to the finish line.

The race between these two states is currently neck and neck but could also spill over into surrounding demographic areas such as Massachusetts, Ohio, and Maryland. Only time will tell which of these states will hit the jackpot and legalize online gaming first.

As of right now, this race is anyone’s guess.

Online Gambling Not In 2015-16 PA Budget, But Could Be In New Budget That Is Due Soon

Even though Pennsylvania online gambling and poker won’t be a part of the recently completed budget, legislation has a real chance in 2016.

Pennsylvania’s budget for the 2015-2016 fiscal year is finally complete — even though said budget was nine months late.

The bad news for those hoping to see online poker and gambling in Pennsylvania? Regulation of iGaming was not included in that budget.

The good news? The new budget is due in a few months, and it still appears that online gaming will be seriously considered this spring.

The old budget and online gambling, not meant to be

Online gambling was a real part of Pennsylvania budget negotiations for at least a short time in the fall.

The bill that was originally an online gaming-only bill — HB 649 — became an omnibus gaming expansion package and passed a committee vote in the fall. The bill made it to the full House, but never saw a vote.

Rep. John Payne — the bill’s sponsor and the chairman of the House gaming committee — explained at the time that some members of the Republican majority had seen the gaming package as a way to fund the current year’s budget.

That idea, while it gained traction in the short term, was quashed, and the discussion was put off to a later date. Part of the problem was that some of the bill’s provisions faced an uncertain future in the Senate, including a provision allowing video gaming terminals in taverns.

Meanwhile, online gambling continued to be a non-controversial part of the discussion.

The new budget: Discussions have already begun

The budget for fiscal year 2016-2017 is due by the end of June, and talks between Gov. Tom Wolf and Republicans have already begun. As Pennsylvania has proven, however, that June 30 deadline is all but meaningless.

Whether online gambling will be a part of the budget talks moving forward is unknown right now, but it’s certainly a possibility. While the original intent of online gaming was to move forward independent of the budget process, there’s also a very good chance online gaming and other gambling expansions are considered as a way to fund the budget, once again.

Either way, online gaming by itself could account for tens of millions of dollars in revenue just in licensing fees in Year One, so it certainly appears that it’s going to get a real look again this year in PA. After all, the state again appears to be facing a deficit, and all avenues for creating new revenue are being considered.

The states’ lawmakers have already done a lot of the heavy lifting in terms of considering online gambling and its impacts, which could bode well this time around.

Is 2016 the last, real shot for online gambling in PA?

In the background is the stark reality that the two champions of online poker and gambling legislation in the state — Payne and the Democratic chair of the House gaming committee, Nick Kotik — will be stepping down after their current terms are complete.

Without these two at the helm, will anyone in the state still push for online gambling legalization moving forward? While it’s certainly possible, losing both of these proponents of iGaming regulation would be a blow to efforts in Pennsylvania.

Pennsylvania certainly looks like it could get an online gambling bill to the finish line this year. But if it doesn’t, it might face a murky future.

New Proposal Would Increase Taxes On Pennsylvania Casinos

Though a large gaming reform bill is on the table in Pennsylvania, Governor Tom Wolf has put forward a separate idea to tax promotional play at PA casinos.

A new budget proposal (for the FY 2016/2017 budget) by Pennsylvania Governor Tom Wolf would impose an 8 percent tax on promotional play at the state’s 12 casinos. Based on 2015 promotional play numbers, this new tax would create an additional $50.9 million in revenue for the state. But the numbers don’t tell the entire story.

Promotional play vouchers are generally given to active and inactive players in a casino’s database to entice them to visit the casino, and can take the form of a free $10 in slot play (or more depending on the person’s betting habits), or even a $20 match play on table games, where the casino matches a person’s $20 bet. Promotional play is also a huge lure for organized bus trips, where riders receive promotional play dollars that usually exceed the cost of their bus ticket.

The governor’s proposal is universally opposed

The state’s casinos are unlikely to approve of this new proposal, and are already pushing back against the idea.

In response to the news, Las Vegas Sands spokesperson Ron Reese, whose Sands Bethlehem Casino is the biggest purveyor of promotional play coupons, told the Morning Call, “Any time money is taken out, it’s going to affect reinvestment in the property and the creation of future jobs. This proposal is bad for jobs in the Lehigh Valley and beyond. There’s certainly no shortage of taxes already being paid.”

Promotional play is already a loss leader for the casino, and a state-imposed tax will likely curtail a casino’s usage of it. With less promotional play, casinos may see a drop in traffic, which would of course lead to a loss in revenue – revenue the state collects 54 percent of when it comes to slot machines, and 14 percent of when it comes to table games.

Mohegan Sun’s CEO Michael Bean said as much to the Morning Call, indicating that while only an 8 percent tax, it could be the straw that breaks the proverbial camel’s back. “It’s a primary marketing tool for us, but there’s a tipping point,” Bean said. “It’s going to cost us $3.7 million on top of the $125 million we already pay. At some point, if it’s going to be a handicap, you’re going to have to spend less. That’s not good for us or the state.”

Essentially, Wolf’s proposal, meant to increase the state’s tax revenue from casinos, could have the unintended consequence of lessening the amount of money the state collects from gaming overall.

A letter, signed by all 12 of the state’s casinos and sent to the governor last week said as much:

“This tax revenue will never be generated, though, because casinos will simply discontinue using promotional play in the same way and at the same levels.”

Budget problems and other gaming reforms

As noted in the opening, this proposal is for the 2016/2017 Pennsylvania budget, but the state still hasn’t passed its 2015/2016 budget, which was due back in July of 2015, a stalemate that becomes more and more of a crisis with each passing day.

The proposal is also strange considering the state legislature is expected to vote on a massive gaming reform bill that would generate far more tax revenue than Wolf’s proposal, and in a less controversial way. Among the state’s brick and mortar casinos, there is a near unanimous consensus when it comes to the omnibus gaming reform bill, HB 649, which includes the addition of slot machines at designated airports and off-track betting parlors, and the legalization and regulation of online gambling.

However, HB 649 has been earmarked to fix the state’s state pension deficit, and is not being used to solve the state’s budget stalemate – although there have been halfhearted attempts to shift HB 649 into the budget. According to the bill’s sponsor, Representative John Payne, if HB 649 were shifted to the budget it would lead to the legislature having to vote on tax increases to solve the pension deficit.

Payne noted this is something few legislators were likely to do in an election year.

Image George Sheldon / Shutterstock.com

Pennsylvania Budget, Online Gambling Both Remain In Limbo During Impasse

Online gambling appears set to be considered by the Pennsylvania legislature later this year, but not as a part of the budget process.

Online gambling looked like it would have a real chance to pass in Pennsylvania in 2015 — at least for a short period of time.

That enthusiasm died down quickly, as Republican leadership in the state legislature indicated it did not want a gambling expansion package to be earmarked as a part of the state budget.

However, the sentiment about keeping iGaming and the budget separate came at a time when it appeared like the governor and lawmakers had gotten on the same page in ending a six-month budget standoff. After approving a partial budget via a line-item veto, Gov. Tom Wolf showed he and House Republicans are still far apart on a number of important expenditure issues, and how much to spend on the budget.

Where are we now? Online gambling likely remains on the sidelines during the budget impasse, for now, but it’s still very much in play for 2016.

Online gambling, not a part of the budget?

A gambling expansion package was at least a possible part of a budget revenue plan for a short time, in the eyes of some Republicans in the House. That’s according to the sponsor of online gaming and expansion bill, HB 649, Rep. John Payne.

He told Online Poker Report that revenue from gaming is currently earmarked for dealing with a deficit in pension spending; putting gambling revenue into the budget would just create problems down the road, Payne indicated.

More from OPR:

“[Gaming] was like plan 1,000,” for the budget, Payne quipped.

“I know we’re desperate here,” Payne said, recounting a conversation with members of his caucus, “but if we do that then you must be voting next spring for a tax increase for the structural deficit on the pension plan.”

Does that mean there’s no chance online gambling and the larger gambling expansion package makes into the budget framework? Not at all. Given the fluid situation surrounding the budget — the status of which changes almost daily — it would probably surprise no one to see gaming expansion make it back into the conversation.

The odds of that happening are perhaps not great, but they are at least greater than zero.

Gambling expansion bill: Coming this spring?

Even if online gambling, as part of a gambling expansion package, doesn’t come this winter, Payne believes it will be something the legislature considers this spring.

Still, online gambling has now become a part of a larger overall gaming expansion effort in the state, and that brings with it potential pitfalls.

When online gambling has been considered on its own merits earlier in 2015, it was largely noncontroversial. The questions about iGaming were in many ways logistical and practical, not whether the state should or shouldn’t have it.

Now, however, every potential gaming expansion in the state has been lumped into HB 649, which started as an online-only bill. Now it contains far more controversial elements, such as the ability of private establishments to offer video gaming terminals. (The House amended HB 649 to include VGTs, and Senate Republicans indicated at one point that they didn’t have the votes to pass the gaming bill as-is, with VGTs included.)

The final form of HB 649 may well be key to whether we see online gambling in PA in 2016. If unpopular measures remain a part of the plan, then the bill could die in the legislative process. If it’s trimmed down to include measures that lawmakers and gaming interests can agree on, then Pennsylvanians might be playing online poker by this time next year.

Pennsylvania Closer To Online Gambling Than Ever Before With House Vote Looming

The PA House of Representatives appears to be close to voting on a bill that would legalize and regulate online poker and gambling.

The Pennsylvania House of Representatives was expected to vote on a gaming reform package (HB 649) this week that would, among other things, legalize online gambling in the Keystone State.

The gaming reforms contained in the legislation would then act as one of the funding components of the 2016 Pennsylvania state budget, which the legislature and Governor Tom Wolf are frantically working on finalizing before Christmas.

With the reforms in HB 649, most notably online gambling expansion, the state would garner some $300 million in annual revenue, which is why HB 649 is seen by some as a necessary part of the state’s budget, and a key funding mechanism that could bring the governor and legislature together.

Unfortunately, the vote never happened, as a late amendment that added video gaming terminals (VGT’s) to the package was added on Wednesday, and appears to have slowed down the bill in the House.

The House adjourned on Thursday without voting on HB 649, and will not return until Saturday, when they will hopefully pass HB 649 and send it on to the Senate — where the VGT amendment will either be removed or act as a poison pill that kills the bill.

The VGT problem

The reason the VGT amendment (or some other unknown change) could act as a poison pill is, all of this is taking place at lightning speed.

Both the Senate and House have proposed budgets in place (the state budget is nearly six months past due; a historic delay), and in addition to reaching an agreement on the budget, the legislature is also busy passing bills that fund the budget. But with time running out, the slightest hiccup, such as the VGT amendment, could upset the entire process.

The amendment passed by a whisker on Wednesday, (96-93) in the House, and by all accounts has even less support in the Senate where it will likely be eliminated. The amendment would allow VGT’s in specified private establishments, something the casinos in the state do not support.

One possible scenario for HB 649 is for the Senate to remove the VGT amendment from the bill and send their version of HB 649 back to the House for another vote. Considering the small margin by which the amendment was initially passed, the House could simply accept the Senate version in what would likely be another close vote that could go either way.

Another option would be a joint committee to quickly craft a compromise and whip up votes in the House and Senate, but there might not be enough time for this to happen.

The real concern in the iGaming community is that the Senate might make other adjustments to the bill, such as increasing the tax rate on online gaming operatorsThis would be very troubling, as there simply isn’t enough time remaining before Christmas break for the two legislative bodies to hash out an agreement on multiple issues, and iGaming would likely be taken off the table and replaced by some other funding vehicle.

History of HB 649

HB 649, sponsored by House Gaming Oversight Chair John Payne, and cosponsored by House Gaming Oversight Democrat co-chair Nick Kotick, began as an online gambling expansion bill back in February.

The bill had broad support in the House and from the state’s potential iGaming stakeholders, but as the year wore on it was the Senate’s bill (SB 900) that garnered more attention. SB 900 was a comprehensive gaming reform package, and even though the online gambling component was less appealing to stakeholders due to an exorbitant tax rate, the potential revenue from iGaming and the other reforms pushed HB 649 to the sidelines.

However, SB 900 never gained traction, and with budget talks at an impasse, HB 649 was resurrected in November — complete with an omnibus amendment package attached with other gaming reforms. The bill easily passed the House Gaming Oversight Committee, was mentioned as one of the funding mechanisms in the House budget, and is waiting for a full floor vote — which will hopefully take place on Saturday.

Why HB 649 needs to pass

The question a lot of people have is; why does the legislature need to pass HB 649 if it’s going to be included in the state budget anyway?

The answer is procedural.

Every state (and the federal government) has their own way of doing things, and Pennsylvania is no different. When the Pennsylvania legislature crafts a budget they must explain how much money they need for each department and program and explain precisely where that money is coming from. However, the Pennsylvania budget only appropriates the money to pay for these programs; the funding mechanism, in this case HB 649, must still be passed by the legislature on its own accord.

Essentially, the budget outlines where they plan on getting the money from, but the funding source (assuming it’s a new source) must still be passed by the legislature and signed into law by the governor.   

Pennsylvania Online Gaming Bill Has New Life, Passes Committee Vote

A Pennsylvania House committee passed a bill that would allow casinos to operate online casino games and poker rooms.

Pennsylvania could be on its way to becoming the fourth state to legalize online gaming.

A bill that would permit the state’s casinos to operate poker and casino games over the Internet passed out of a house committee this morning. The bill, HB 649, is sponsored by Rep. John Payne, chairman of the Pennsylvania Gaming Oversight Committee.

HB 649 passed the committee by an 18-8 margin.  It now heads to the full Pennsylvania House for a vote.  If it passes, it would then head to the state Senate.

The bill may also be attached to a state budget, which is 130 days past due.

What HB 649 permits

HB 649 would permit online poker and casinos games in the state. Pennsylvania casinos would operate regulated online games. Outside companies could provide software to Pennsylvania casino licensees.

Casinos would pay $5 million in licensing fees under HB 649. Software providers would pay $1 million to get licensed. The tax rate would be 14 percent of gross revenues.

In addition to online poker, any casino game legal at Pennsylvania casinos would be permitted over the Internet at licensed sites. This includes slots, video poker, blackjack, roulette, craps and a variety of proprietary table games.

Three states already permit licensed online gaming. Nevada became the first state to regulated online poker in April 2013. Delaware and New Jersey launched online poker and casinos games in November 2013.

Poker Players Alliance reaction

John Pappas, executive director of the Poker Players Alliance, released this statement:

“With the passage of H.B. 649, the House Gaming Oversight Committee has proven their commitment to providing Pennsylvania residents with a safe and regulated place to play online poker within their own borders. The PPA thanks Chairman John Payne and the Committee for their leadership. Now this bill needs to become law. The safety of consumers and the fiscal health of Pennsylvania will be vastly improved when Internet gaming is appropriately licensed, regulated and taxed. It is our hope that the legislation will be enacted on its own or as part of the state’s 2016 budget by the end of this year.”

Pennsylvania Is Throwing Everything But The Kitchen Sink At Gambling Expansion

When it comes to gambling reforms and expansion, virtually everything is on the table in Pennsylvania in the state legislature right now, including online gambling and sports betting.

When it comes to gambling reforms and expansion, virtually everything is on the table in Pennsylvania.

If you can gamble on it, or put a gambling device somewhere, the Pennsylvania legislature has discussed it in 2015. Slot machines at off-track betting parlors; slot machines at airports; changes to the video lottery terminal laws for bars and taverns; online gambling; skill-based gambling; and daily fantasy sports and even the legalization of sports betting are being considered.

Bringing DFS to brick-and-mortar casinos

Republican Representative George Dunbar has filed a bill that would allow Pennsylvania casinos to offer fantasy sports on property. Dunbar’s bill seeks to codify the state’s law to make fantasy sports held at brick-and-mortar casinos expressly legal.

“There’s nothing under our gaming law that allows them to collect money and distribute money on a fantasy sports tournament. Although it would not be illegal, it’s not codified under our gaming laws,” Dunbar told PennLive.com. “All the bill would do is say, “You can do this if you want to, to hold daily tournaments and attract people if you want to.” “

What Dunbar is proposing is not the legalization and regulation of the DFS industry as we know it (DraftKings and FanDuel), but merely a law that would allow casinos to offer fantasy sports contests as a way to draw people into the casinos and a new marketing tool to hopefully capture a younger demographic.

Sports betting… stop me if you’ve heard this plan before

Representative Nick Kotik, who co-sponsored an online gambling bill (HB 649) with Representative John Payne earlier this year, has decided to take on a much heavier lift, introducing a bill that would legalize sports betting in the Keystone State.

Even though Kotik is the Democratic chair of the House Gaming Oversight Committee, the bill is unlikely to gain much traction, and even if it does, it’s unlikely to survive the inevitable legal challenges that have derailed New Jersey’s efforts to legalize sports betting. These challenges will come from sports leagues and the NCAA, who have fought (and beat) New Jersey every step of the way.

However, if Pennsylvania simply makes this push, and California too, it may force the federal government to revisit the Professional and Amateur Sports Protection Act of 1992 (PASPA) that forbids states from legalizing sports betting, which they already seem to be considering.

Online gambling still a possibility

Pennsylvania’s 2016 budget was due on July 1, and while delays aren’t unusual in the process, we’re now approaching a final past-due warning, as the state blew past the deadline nearly 90 days ago.

Reports vary when it comes to online gambling’s chance of being part of the final budget deal, as some see it as a key bargaining chip, while others have stated that the issue has barely been brought up.

All American Poker Network CEO David Licht is one person who thinks iGaming is still very much on the table, as he believes some of the brick-and-mortar casinos are using online gambling as leverage for some of the other gaming reforms that have been discussed, from adding slots at OTB locations to changes to Category 3 licenses. “At the end of the day, $100 million in revenue is a hard thing to ignore,” Licht said about iGaming expansion being part of the final budget.  

The architect of HB 649, and the driving force behind Pennsylvania’s iGaming expansion efforts, Representative John Payne, also believes iGaming still has a good shot of passing in the budget. “I still feel very comfortable that some forms of gaming will be part of the final budget package,” Payne said in an interview with WGAL News 8.

Upshot

What gaming reforms are actually on the table during the ongoing budget discussions is anyone’s guess, but there are no shortage of possibilities the legislature and the governor could consider.

Some seem feasible — like online gambling, Category 3 license holders, and perhaps adding daily fantasy sports at Pennsylvania’s casinos. Others — like slot machines at airports and sports betting — seem like a long shot.

From Horse Racing To Possibly iGaming: The Timeline of Legal Gambling In Pennsylvania

Pennsylvania introduced horse racing, and slot machines and table games over the course of 50 years, with online gambling possible in the future.

Pennsylvania’s regulated gambling industry dates back to 1959 when the state legalized horse racing, but it was the legalization of slot machines in 2004 and table games in 2010 that turned Pennsylvania into a true gaming state.

Despite its very short history as a gaming state, Pennsylvania has emerged as the second largest casino market in the country, trailing only the casino juggernaut that is Nevada in gross gaming revenue.

However, stagnant revenues and increased competition from neighboring states has Pennsylvania once again considering further expansion possibilities.

Horse racing in Pennsylvania

In 1959, the Pennsylvania legislature passed the Race Horse Industry Reform Act. The bill legalized horse racing in the state, but it would take several years before dedicated horse racing tracks started popping up in the state. The oldest track still in operation is Meadows Racetrack and Casino, which first opened in 1963.

Horse racing in Pennsylvania had very deep roots (Stephen Foster’s ode to betting on the ponies, Camptown Races, was set in Pennsylvania) as horse racing thrived in the state throughout the 1700’s and 1800’s, even when prohibited by the legislature. But horse racing was eventually forced to throw up its hands in disgust at the state’s restrictions (limited to racing at fairs and other odd venues) in the 1900’s, and most Pennsylvania stables simply raced their thoroughbreds out of state.

By legalizing thoroughbred racing, the state kept that purse money in-state and was able to capitalize on the tax revenue the racing industry generated.

Slot machines in Pennsylvania

In 2002, gubernatorial candidate Ed Rendell made gaming expansion a centerpiece of his campaign. Rendell’s plan was to legalize slot machines and allow the state’s racetracks to apply for slot licenses, as well as creating a new license category for standalone slot casinos. Under Rendell’s plan, the revenue generated from the slot machines would go almost entirely towards easing property tax burdens and school funding, both of which were mounting concerns in the state.

The legislature passed a version of Rendell’s plan in 2004, which Rendell happily signed. Under the bill, up to seven racetracks could apply for slot licenses, and the state would create five stand-alone slot casino licenses, and three resort casino licenses.

Rendell noted at the time that slot machines wouldn’t be a panacea, but the revenue generated from slot machines (estimated at the time to be $3 billion a year) would tally about $1 billion a year for the state, on top of the one-time licensing fees the state would collect from potential casinos.

Table games in Pennsylvania

The revenue from the slot machines was certainly helpful, and did offer a modicum of tax relief, but Rendell’s warning that slot machines wouldn’t be a panacea was realized within a few years, likely hastened by the economic collapse of 2008, and by 2010 the Pennsylvania legislature was looking at further gaming expansion to help close their growing budget deficit and rising property taxes.

The simplest and quickest fix would be the legalization of table games, and in 2010 the Pennsylvania legislature passed a bill that would allow the state’s existing casinos to add table games. Governor Rendell, the driving force behind slot expansion earlier in the decade, wasn’t a proponent of table games, but he did the sign the bill, making sure to tell reporters at the time that he had mixed feelings about it.

Rendell’s misgivings proved unfounded, as table games were seamlessly added to Pennsylvania’s existing casinos, and Pennsylvania has become the second largest gaming state thanks to the $3 billion in gross gaming revenue the state’s 12 casinos generate each year.  

Online gambling in Pennsylvania

In 2013, led by State Senator Tina Davis, Pennsylvania started looking into online gambling, but it wasn’t until 2015 that iGaming talk really heated up.

Representative John Payne, the Chairman of the House Gaming Oversight Committee, led the charge for iGaming legalization in 2015. Payne hosted a series of hearings on the subject and crafted HB 649, a bill that would legalize online gambling in the Keystone State.

The Pennsylvania Senate also explored iGaming expansion and crafted a bill of its own, SB 900. The Senate bill included other potential gaming reforms but wasn’t as industry-friendly as Payne’s bill.

Right now, there is still some hope that online gaming expansion will work its way into the 2015 state budget.  

Future expansion

In addition to online gambling, the legislature also explored several other gaming reforms they felt could support the casino industry while also increasing state revenue.

Among the gaming reform measures the legislature has discussed are:

  1. Legalizing and regulating skill-based games.
  2. Adding slot machines to off-track betting terminals.
  3. Removing some restrictions on category 3 (resort casinos) license holders.

What will the future hold for gambling in Pennsylvania. It appears that more options — including online gambling — are in the cards. How quickly we see new gambling opportunities open up remains to be seen.

Photo by Steve Elgersma used under license CC BY-NC-ND 2.0

Editorial Balks At Online Gambling As Solution For Pennsylvania

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

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.

Photo by used under license CC BY-SA 2.0.