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.”

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.

Pennsylvania Will Legalize Online Gambling This Year… If

If the Pennsylvania legislature can compromise on an internet gambling tax rate, Pennsylvanians could be gambling online as soon as this year.

A comprehensive gaming reform package (SB 900) that included everything from online gambling expansion to 24-hour liquor licenses and allowing slot machines at OTB locations has apparently been scrapped as the state legislature continues to craft a budget that can pass the desk of newly elected Governor Tom Wolf.

There are signs that indicate the legislature could be looking at just one aspect of the comprehensive proposal: Online gambling expansion, but there is one sticking point that seems to be holding it up.

If the legislature can compromise on a tax rate, Pennsylvanians will likely be playing on legal online gaming sites this year or by the end of 2016, considering 11 of the state’s 12 casinos are in favor of iGaming expansion and agree on every major issue, unlike the stakeholder gridlock in California.

It is still possible that misplaced fear by Pennsylvania lawmakers could be the reason online gambling fails to pass this year.

The tax rate proposals

The hiccup seems to be where to set the tax rate on online gaming operators.

Representative John Payne’s HB 649 had a casino-friendly 14% tax rate; the same rate Pennsylvania collects from table games in the state’s casinos and a rate in line with New Jersey’s iGaming tax rate of 15%.

On the other hand, the comprehensive bill proposed by the state senate called for a 54% tax rate, identical to Pennsylvania’s tax rate on slot machines.

Why the discrepancy?

State Senator Robert “Tommy” Tomlinson appears to be the driving force behind the 54% tax rate, as he has openly expressed his concern that a tax rate below the rate imposed on Pennsylvania’s brick and mortar gaming would lead to casinos focusing on online gaming instead of B&M gaming — a patently absurd notion.

Tomlinson has made this pitch multiple times, and despite several experts explaining the differences in margins between the two, Tomlinson seems convinced his point of view is correct.

Even if the higher tax rate comes from a good place (a desire to raise more revenue for the state) it’s a logical fallacy. One might think a higher tax rate would mean more money for the state, but the reality is a higher tax rate would likely reduce the amount of money the state pulls in from online gambling.

First, gaming analysts are convinced that a tax rate as low as 15% only provides operators the potential for 5% margins. Essentially, any tax rate over 20% makes iGaming in a closed market like Pennsylvania close to unprofitable and will likely reduce the number of casinos and online software companies willing to enter the space.

Instead of 10 or 11 licenses at $5 million a pop, Pennsylvania would be lucky to have two or three casinos apply. Right off the bat, Pennsylvania could lose as much as $40 million.

Furthermore, to make up for the higher tax rate, online gaming operators would need to increase the rake on poker games and implement other penny pinching policies such as reducing the payout percentage of slot machines.

These customer-unfriendly actions would drive many patrons away from Pennsylvania’s regulated sites, as they could either drive across the border to play at the more customer-friendly New Jersey online poker sites (if they live close enough) or continue to patronize the numerous unlicensed online gambling sites available.

An untenable tax rate would sabotage online gambling before the first site ever went live. A high tax rate doesn’t allow potential operators the ability to compete on a level playing field.

What’s the answer?

If the lawmakers calling for a high-end tax rate are simply unwilling to compromise and concede to a rate under 20%, the only other option might be a proposal similar to the B&M casino tax rates; a higher tax rate on slots and a lesser rate on table games and iPoker.

If this is out of the question, then online gambling in Pennsylvania will likely have to wait another year.

After Pennsylvania Budget Veto, Could Online Gambling Bill Be Back on Table?

Pennsylvania Gov. Tom Wolf vetoed a Republican budget proposal on Tuesday, perhaps giving new life to efforts to regulate online gambling in the state.

Pennsylvania Gov. Tom Wolf vetoed a Republican-backed budget proposal on Tuesday, perhaps giving new life to efforts to legalize and regulate online gambling in the state.

Veto = good for internet gambling?

While the discord between Pennsylvania’s democratic governor and the heavily Republican legislation has not been good for budget negotiations, it might be good news for interests who would like to see online gambling in the state. Movement on any of the five bills that would regulate online gambling had come to a halt previously, and new gaming measures had not been included in the spending bill sent to the governor’s desk.

Right now, the two sides currently don’t see eye-to-eye on how the budget should be constructed. From an Associated Press story on the budget impasse:

As the state began the new fiscal year without even a partial budget in place, both sides said discussions would begin Monday in hope of bridging the vast gap between Wolf’s plan, which would raise taxes and substantially increase education funding, and the GOP plan that had no new taxes and much more modest school spending.

Wolf’s veto means the state missed a soft deadline for funding the state government, although it will not result in massive shutdowns.

At this point, Republicans and Wolf are going to be looking for ways to create revenue so that they can avoid future deficits that could range from $1 billion to $2 billion. They also need to find middle ground on tax increases that Republicans want to avoid and new education spending that Wolf campaigned on.

One of the easy ways to generate revenue would appear to be the introduction of online gambling, which has not been very contentious in the legislature, at least as a general idea, if not in its actual implementation. Both Democrats and Republicans have introduced bills that would regulate online gambling, with the frontrunner to advance coming in the form of Sen. Kim Ward’s SB 900.

A little bit of momentum

So far, there hasn’t been any direct talk of bringing Ward’s gaming bill — which also includes other changes to Pennsylvania’s brick-and-mortar casino industry — back to life. But it doesn’t take much of an imagination to see it as part of a budget compromise. Between licensing fees and taxes, online gambling has the potential to add tens of millions to hundreds of millions to state coffers, depending on the estimate you side with.

One state senator — Lisa Boscola — said she believes the Ward bill has a chance to make it to the governor’s desk, although she opposes the bill. She said that in comments for a story at Lehigh Valley Live:

Legislative committees in recent weeks have been holding hearings on new bills, and Boscola, D-Lehigh/Northampton, believes the interest may be there to legalize online gaming soon.

“It’s gaining a lot of traction because of the structural deficit in our budget,” she said. “It’s not going to be that easy to get passed, but it’s got momentum.”

Boscola hasn’t been really involved in the online gambling debate so far, but has been lobbied by Sands Bethlehem; the Sheldon Adelson property is against online gambling regulation.

An unscientific poll posted at Lehigh Valley Live shows that 80 percent of respondents are in favor of online gambling. While the results probably aren’t terribly important, in the grand scheme of things, it at least doesn’t give the opposition more ammunition to oppose an online gambling bill.

Still hurdles for bill to clear

The bill, as currently composed, is still not really ready to go directly to the governor’s desk. A proposed tax rate of 54 percent is far too high and would need to be reduced to make online gambling viable in the state. Seven casinos have come out against parts of SB 900; they have made a proposal to drastically reduce the proposed tax rate.

Republicans seem to be behind the bill, at least in concept, as leadership in both houses have supported online gambling legislation. Whether Wolf would sign an internet gambling regulation bill — either on its own or as part of a budget — is an open question. But if it’s something that adds money to the budget and he’s not vehemently against it in principle, you have to figure the bill has a chance to get past Wolf as well.

If Online Gambling Bill Isn’t Passed, How Will Pennsylvania Trim Its Deficit?

Pennsylvania is looking to trim a deficit in excess of a billion dollars, although it’s not clear online gambling will be part of the equation in 2015.

Since opening its doors to the casino industry in 2004, Pennsylvania has enjoyed an influx of gaming revenue. But despite this widely praised venture, recent estimates suggest the state will face an imposing $1.2 billion budget deficit, or more, in the coming fiscal year. And now online gambling regulation is on the table as a way to cut into that deficit.

Campaign promises haunting Wolf

The deficit represents a quandary for Governor Tom Wolf (D), who campaigned on platforms of lowering taxes across the state’s middle class and prioritizing education spending.

According to the Pennsylvania State Education Association, a labor union, Pennsylvania ranks “45th in support” for public schools in the country.

But prior to his election, Wolf was unaware a severe deficit loomed. In March, the governor responded to news of the deficit by proposing an array of tax hikes in the state’s 2015-16 budget, a plan criticized by Harrisburg Republicans as overbearing and unfeasible.

Wolf’s budget would have halved corporate tax rates while increasing personal income tax in the state from 3.07 to 3.7 percent, and increased education spending by over $400 million.

But Republicans, in control of the state legislature, insisted they would not approve what Senate President Pro Tempore Joe Scarnati called “the most massive tax rollout plan in recent history of the commonwealth.”

Forecast better than expected, but still turbulent

That proposal, however, was tailored to bridge a budget shortage estimated in March at $2.3 billion. While it now appears the deficit will be $1.1 billion lower than previously thought, legislators are nonetheless scrambling for a workable solution to the still-sizable gap.

Harrisburg lawmakers, tasked with building a cohesive budget by a June 30 deadline, have floated ideas including raising taxes on tobacco products and phone bills, and placing a severance tax on natural gas extraction.

In proposing the severance tax, Wolf said the initiative would generate $1 billion for the state in its first year, revenue which the governor hoped to earmark for education.

Possibly easing matters further is HB 466, a bill to privatize the state’s liquor operations, which supporters say will trim costs. The bill cleared the Pennsylvania House in February, and is currently before the Senate.

A proposed overhaul of the state’s employee pension system has also gained traction, recently clearing the state senate and currently awaiting action in the House. The Harrisburg-based Patriot-News has spoken favorably of the bill, which it says will lead to savings for taxpayers.

Last week, Scarnati said firm agreements on both pension reform and liquor privatization bills were imminent.

But complicating matters is the state’s extended budgetary forecast. Early estimates predict a deficit of over $2 billion in 2016-2017. And while Wolf still hopes to increase education subsidies, it is unlikely schools will receive the $500 million increase first pitched by the governor.

Gaming a key revenue factor

Legalized online gaming, meanwhile, remains an alluring option for lawmakers seeking to triage the deficit without resorting to tax hikes. Five regulatory bills have already been proposed in 2015, and debates on the subject have intensified in recent months.

This option is supported by a number of key Pennsylvania legislators, including Kim Ward, chair of the Senate Community, Economic & Recreational Development Committee. Ward is the prime sponsor of one such regulatory bill, SB 900. The bill is co-sponsored by several key committee members, including Senator Robert “Tommy” Tomlinson.

Each of the state’s land-based casinos, with the exception of Sheldon Adelson’s Sands Bethlehem, supports the venture. To operate within the state, online casinos would need to partner with brick-and-mortar operations. While critics say online gaming would lead to cannibalization in the marketplace, analysts have said the arrangement would be mutually beneficial.

There are still hurdles to clear if the bill is to become law. Senators on the CERD still seemed to have serious questions about Ward’s bill, and seven casinos recently came out against SB900, which is a wide-ranging gaming bill that includes internet gambling. While online gaming regulation would certainly help the deficit problem of coming years, it’s not clear if that budget relief will come from iGaming in 2015.

Photo by Jerchel used under license CC BY 2.0.

Stance Of Seven PA Casinos Hurts Chances For Online Gambling

Seven Pennsylvania casinos announced that they oppose parts of a proposed gaming act and asked for a lower internet gambling tax rate in the bill.

Seven Pennsylvania casinos announced that they oppose parts of a proposed gaming act and asked for a lower internet gambling tax rate, perhaps complicating regulation of online gaming in the state during this legislative session.

Who wants work to be done on gaming bill?

Gambling Compliance first reported (paywall) a letter sent by a group of casinos that oppose SB900 — a bill introduced by Sen. Kim Ward that would legalize and regulate online gaming in the state. Internet gambling is viewed as one of the ways potentially to chip away at a deficit of more than $2 billion in Pennsylvania. The state budget is supposed to be due in just a few days, on June 30, but lawmakers and Gov. Tom Wolfe remain at an impasse.

While the letter doesn’t seem to be a death knell for a gaming act passing this year, it certainly illustrates that there are issues that likely need to be resolved before such a bill passes. While brick-and-mortar casinos in the state are generally behind online gaming, interested parties in the state differ on the tax rate associated with the bill.

The group of casinos that penned the letter — which you can read at Gambling Compliance — runs the gamut across Class I, II and III casinos and accounts for half of the current B&M locations in the state:

  • Harrah’s Philadelphia
  • Mt. Airy
  • Nemacolin
  • Presque Isle Downs
  • Rivers
  • SugarHouse
  • Valley Forge

Earlier, Sands Bethlehem — of the Sheldon Adelson empire — voiced its displeasure with the online gambling portion of the bill.

What the casinos want

On internet gambling, the casinos suggest a much lower tax rate than the proposed 54 percent tax rate — which would be among the highest of any regulated jurisdiction in the world. From the letter:

We support internet gambling at a fair rate of taxation (15%) and a reasonable upfront fee;  available to all Classes of licensees on the same terms.  The industry needs to avoid the fate of other industries that have ignored the Internet (record industry, book stores etc.).  Based on experiences to date in regulated U.S. jurisdictions, online gaming is likely to increase – not cannibalize – overall revenues and taxes. And, it will create cross marketing opportunities for licensees and improve distribution channels for operators to all customer segments.

The tax rate, though, appears to be far from the most controversial portion of the bill, at least from the perspective of these casinos.

The casinos are also against provisions in the bill that would:

  • Allow slots at off-track betting facilities
  • Allow video-style gaming at bars
  • Create an admission fee for Category III licenses

In the letter, the casino group offered this:

The positions set forth are tied together as a collective package and the failure of one of the components would impact the group’s ability to collectively support the remainder of the issues.

And later:

If these proposals cannot be adopted as an entire package, we would respectfully ask that opening the Gaming Act be deferred at this time and we commit to work with leadership in the next session to find a workable solution.

Despite a lot support for some sort of online gaming regulation in the state and the revenue it would create, it appears casinos will not back a carve out just the internet gambling portion of the bill. Other than differences of opinion on the tax rate and questions on implementation, getting to a “yes” on online gaming would seem to be much easier than passing an over-arching bill.

Bill is not done, yet

There has been little movement on the gaming bill since a hearing in front of Ward’s Senate Community, Economic, and Recreational Development Committee last week. And Ward even said in an interview last week that she does not think her gaming bill has a chance of making it into this year’s budget. But a story at the Daily Times painted a slightly more optimistic view on the chances for online gaming regulation.

In reality, little progress has been made on anything associated with the budget. A Penn Live editorial says the Wolf and the Republican-run legislature are still “miles apart” on many key issues. At this point, a budget passing by the June 30 deadline appears unlikely — “hope is waning” for that possibility, according to an Associated Press story.

That may give casino interests and lawmakers time to get on the same page on the gaming act and online gambling. Either way, however, time is running out for the possibility of internet gaming regulation to pass in 2015.

Photo by Mark used under license CC BY 2.0.

New Op-Eds Alternately Blast, Support Pennsylvania iGaming Regulation

A fresh round of online gaming op-eds appeared last week on the pages of PennLive, the homepage of Harrisburg’s Pennsylvania Patriot-News. The two articles, respectively written by public relations executives Tony May and Charlie Gerow, argued starkly opposing viewpoints.

May, a lobbyist for Harrisburg’s Triad Strategies, did not explicitly call for online gaming legislation to fail, but spoke critically of regulation. Gerow, of the Harrisburg-based public relations firm Quantum Communications, offered bullish optimism.

Gerow’s Argument

Possible alternative to higher taxes

The issue of online poker comes at a crucial moment for Pennsylvania Governor Tom Wolf, who recently proposed a series of tax hikes despite promising lower taxes during his 2014 campaign. Experts have estimated that Pennsylvania will face a $1.2 billion budget deficit next year, and supporters of online gaming, such as Gerow, view the revenue stream as a means by which Wolf can bridge the gap without raising taxes.

Gerow touted the $10.3 billion in Pennsylvania revenue since 2006, when casinos first began operating in the state. Land-based Pennsylvania casinos, all of whom principally support online gaming (with the exception of Sands Bethlehem), have also adopted that figure as a rhetorical centerpiece, and a number of executives mentioned it specifically at a State Senate committee hearing last week.

Social ills exaggerated

Fears of online gaming’s potentially dangerous social consequences were overemphasized, Gerow added.

“The concerns about increased social pathologies are relatively easy to deal with, given the record of previously expanded gaming,” he wrote.

“Most Pennsylvanians would prefer he find his spending money someplace other than their pockets,” Gerow’s column concluded.

Gerow noted that he and May were once united in support for the expansion of Pennsylvania online gaming legislation, but the pair, who co-host a local public access television program, now appear to disagree on the issue.

May’s Argument

Lawmakers acting irrationally

In his counterpoint, May invoked the gambler’s fallacy, personifying Pennsylvania lawmakers as a losing casino patron. May accused Pennsylvania lawmakers of succumbing to an irrational belief that its luck would differ from New Jersey, a neighboring state currently suffering from poor casino receipts.

“Casinos are failing in Atlantic City,” he wrote. “New casinos are popping up in neighboring states and revenues at healthy casino operations are flattening out if not declining.”

Shortsightedness of public support

But given its voluntary nature, May said, gambling is typically viewed favorably by the voting public. Where citizens would otherwise oppose coercive or costly legislation, gaming offers consenting adults an opportunity, not a mandate, to spend. “Gaming expansions are de facto taxes on self-selected segments of the population,” he wrote, adding “the psychology of gaming is irrefutable.”

May cited theories that a conspicuous consumption bubble would soon burst, causing widespread harm to the entertainment and hospitality industries. Oversaturation of the modern gaming landscape, he said, is evidence that such a tipping point approaches.

“Daily numbers, instant games, mega multi-state jackpots, slots, table games, Keno, pari-mutuel betting and maybe widespread, legalized sports betting,” May wrote. “How big can it get?”

The op-ed columns are the latest on the topic for PennLive, which last month published another pair of high-profile arguments both for and against online gaming. Blanche Lincoln, a Sheldon Adelson-backed lobbyist, said it would be a “fiscal loser” for the state, while Senators John Payne and Nick Kotick, sponsors of the online poker bill SB 900argued in support of such legislation.

Pennsylvania Gaming Control Board to Senate: “We Can Regulate Online Gambling”

On Wednesday the Pennsylvania Senate Community, Economic, and Recreational Development Committee hosted a hearing that discussed, among other things, the legislature’s current efforts to expand into online gambling.

The hearing featured a number of witnesses from the Pennsylvania Gaming Control Board (PGCB), who hit on topics ranging from regulations and safeguards, to problem gambling and the health of the state’s horse racing industry.

Wednesday’s hearing occurred just a week after the state’s casino stakeholders appeared in front of the Pennsylvania Senate CERD Committee to talk online gaming expansion and gaming reforms.

Both hearings provided positive momentum for online gaming expansion in the Keystone State, but there are still quite a few wrinkles that will need to be ironed out if iGaming is going to become a component of the state’s budget.

That budget that is due in just 14 days, although there seems to be wiggle room for an extension.

Regulators unafraid of online gambling

The key takeaway from Wednesday’s hearing? The Pennsylvania Gaming Control Board is ready, willing, and able to tackle online gambling. PGCB Executive Director Kevin O’Toole was the first witness to tout the PGCB’s capabilities and willingness to take on this oversight role.

“The Board is confident [Internet gambling] can be regulated,” O’Toole stated.

The PGCB has “experienced and capable regulators,” O’Toole told the committee, adding that the board would be ready to regulate Internet gaming in an efficient and controlled manner if and when it’s legalized.

According to O’Toole, the PGCB could have regulations drafted, licenses handed out, and the sites online within nine to twelve months of the legislature passing an online gambling bill. O’Toole qualified this aggressive timeline by saying it was dependent on the speed of the license application process.

Another witness, Michael Cruz, the Chief Technology Officer of the PGCB, said the state would draw heavily on New Jersey’s experiences.

“I’m not interested in reinventing the wheel,” Cruz told the committee. Cruz added that Pennsylvania regulators would look towards the New Jersey model in drafting Pennsylvania’s regulations.

What are the remaining issues?

Unlike California, the policy differences among Pennsylvania’s potential iGaming stakeholders don’t seem as hard-line. In-person registrations and whether Category 3 casinos should be allowed to apply for an online gambling license appear solvable.

The pricklier issues seem to be differences between the state’s casinos and the legislature when it comes to an acceptable tax rate.

The casinos and most iGaming advocates would like to see the tax rate set around 14% (the rate in Representative John Payne’s HB 649) while the recently introduced Senate gaming bill sponsored by Senator Kim Ward, SB 900, calls for a 54% tax rate on online gambling.

However, these are merely the iGaming issues the state is wrestling with.

The senate is trying to pass a comprehensive gaming reform bill, not a standalone online gambling bill. It’s the policies in the other sections of SB 900 that seem far more contentious.

Liquor, Category 3 restrictions, and OTB’s are the REAL issues

The issues that could sideline the bill (including online gambling) appear to be the following proposed brick-and-mortar gambling reforms:

  1. Loosening restrictions on Category 3 license holders – specifically, the requirement that casino players must be guests or “members” of the casino.
  2. Increasing the number of off-track betting locations (and slot machines at these locations) in Pennsylvania.
  3. Making liquor available 24/7 at casinos.

Category 3

Under SB 900, for a one-time $5 million fee, the state’s two Category 3 casinos would be able to do away with their “membership” requirements. Category 3 casinos are in favor of this proposal, while virtually every other casino is opposed to it. The strength of opposition seems contingent on the proximity to the Category 3 casino.

This provision would not allow Category 3 license holders to add more slots or table games. Currently Category 1 and 2 casinos are permitted 5,000 slot machines and 250 table games, while Category 3 casinos are permitted 600 slot machines and 50 table games.

OTB locations

Another provision in SB 900 would allow casinos (this appears only to apply to racinos) to open multiple OTB parlors and place slot machines at them.

Each OTB (there could be as many as 32) would cost $5 million with the slot revenue taxed at 54%.

Category 1 racinos are all for this expansion effort, while Category 2 casinos (most notably SugarHouse Casino) are opposed to this type of expansion.

Liquor around the clock

The final sticking point is a provision that would allow casinos to serve liquor around the clock, which once again calls for a $5 million permit fee.

Every casino is in favor of increasing the number of hours they are allowed to serve liquor, so this issue will pit legislator against legislator, as many are opposed to increasing the number of hours casinos can serve liquor.

Upshot

For the bill to move forward, these three non-Internet gaming issues (which seem far more contentious and far more difficult to solve) need to be addressed or scrapped.

Alternatively, iGaming could be separated from the other parts of SB 900 and added to the budget. Pennsylvania’s iGaming future may very well hinge on his happening.

Photo by Bestbudbrian used under license CC BY-SA 3.0.

Parsing Pennsylvania Online Gambling Revenue Estimates

Revenue estimates for a legal Pennsylvania online gambling market are based largely on NJ figures, which isn’t the most reliable comparison point for PA.

In 2014, economic analysts Econsult Solutions presented a thorough forecast of online gaming’s potential impact in Pennsylvania.

A year later, Online Poker Report’s Robert DellaFave offered an update to the predictions made by Econsult, adjusted to reflect the state’s current regulatory climate.

Updated PA online gambling revenue estimates

In its report, Econsult predicted the state would see $187 million in first-year online gaming revenue, with up to $307 million annually once the market reached maturity.

Over a five year period, DellaFave’s analysis produced a best-case estimate of $210.7 million in online gaming revenue for the state, a worst-case figure of $149.2 million, and a base estimate of $175.6 million.

But despite rigorous attention to detail from both DellaFave and Econsult, several variables remain for Pennsylvania which could potentially render obsolete even the most meticulously outlined predictions.

Question marks remain

Tax rates, a longstanding point of contention for online gaming in Pennsylvania, will continue to serve as a sticking point in negotiations, and could impact the overall performance of online gaming.

Casinos, of course, would favor lower tax rates, and generally appear to support the rate of 15 percent proposed in Representative John Payne’s HB 649. This bill is the basis upon which DellaFave’s analysis was calibrated.

While HB 649 appears to be a frontrunner among both lawmakers and casino brass, support is not unanimous. Payne’s online gaming bill is one of five currently circulating in Harrisburg, and other lawmakers have balked at the proposed 15 percent rate.

Senator Sean Wiley, who plans to introduce online gaming legislation of his own, will seek to tax virtual casinos at a rate of 36 percent.

SB 900, introduced last week and sponsored by Senator Kim Ward, would tax online casinos at a rate of 54 percent. Ward has said, however, that SB 900’s original language was merely a jumping-off point, portions of which have already been amended. Much of the bill remains subject to change, potentially including the proposed tax figure.

At a committee hearing in Harrisburg last week, Senator Robert Tomlinson voiced concerns about taxing online casinos at a lower rate than their brick and mortar counterparts, calling it a “scary point.”

If higher profit margins were to be found online, Tomlinson said, casinos in the state would be pushed to divest from live establishments.

Difficult to compare PA and NJ

Revenue figures from New Jersey, which has offered regulated online gaming for about a year and half, would seem to be an obvious comparison. But while New Jersey’s online gaming data are the best real-world tool available for Pennsylvania forecasters, one-to-one comparisons between the states are largely unreliable.

Precluding this comparison, in part, are a number of key demographic differences.

Pennsylvania’s unemployment rate, at 5.3 percent, is solidly below New Jersey’s 6.5 percent rate, and even below the national average of 5.5 percent.

However, per capita income in New Jersey, the second-highest in the nation as of 2013, is significantly above that of Pennsylvania.

Further frustrating possible comparisons between the states is an age disparity. Online gaming appeals more strongly to younger audiences, but median age in Pennsylvania is higher than that of New Jersey, which could translate to comparatively lower revenues for the former.

For Pennsylvania casinos hoping to maximize value in the digital market, the spectre of ubiquitous online gaming opponent Sheldon Adelson looms.

Notably absent from the New Jersey casino industry, Adelson and his Sands Bethlehem are poised to contest regulation in Pennsylvania however possible. While even Adelson may not be able to stop legalization entirely, Sands’ lobbying efforts could still delay the process, and possibly even influence language contained in future bills.