Pennsylvania Senate Puts Forward Highly Flawed Online Gambling Bill

PA sealOn Tuesday evening, Pennsylvania Senate Bill No. 900 was introduced into the record, just a day ahead of an important gaming reform hearing in front of the Pennsylvania CERD Committee.

Pennsylvania SB 900 was sponsored by Senator Kim Ward, and cosponsored by such notable legislators as Senate President pro tempore Joe Scarnati.

SB 900 covers quite a bit of ground, proposing a number of potential “fixes” to Pennsylvania’s gaming laws.

Issues such as Gaming Terminals at bars and OTB facilities, and the potential removal of “membership fees” at Category 3 facilities are extremely contentious issues within the state’s gaming industry, but it was online gaming that drove the debate at the hearing.

The good news is 11 of the 12 casinos in Pennsylvania favor online gaming expansion, with Las Vegas Sands’ Sands Bethlehem Casino being the lone voice of opposition.

One point of internal conflict

Within the bill there is only one point of contention amongst the stakeholders, the exclusion of Category 3 licensees.

SB 900 would limit online gaming licenses to Category 1 (Racinos) and Category 2 (stand-alone casinos) license holders. Category 3 casinos (resort casinos) would not be allowed to apply for an online gaming license under SB 900.

At Wednesday’s hearing, Wendy Hamilton of SugarHouse Casino explained their support for this provision stemming from Category 1 and Category 2 casinos paying an initial licensing fee of $50 million, while Category 3 licensees paid only $5 million.

Of course, Category 3 license holders are allowed just a fraction of the machines Category 1 and 2 license holders are allowed:

  • Category 1 and 2 licensees: 5,000 slot machines and 250 table games
  • Category 3 licensees: 600 slot machines and 50 table games

Access to Category 3 casinos is also limited to hotel guests and customers who have purchased a “membership” to the casino.

Fatal flaws in the bill itself

Unfortunately, even if the state’s casinos can find agreement on this issue, the Senate bill is highly flawed at a more nuts and bolt level.

Tax rate is insurmountable

SB 900 calls for a 54% tax on online gambling (the same rate imposed on slot machines in Pennsylvania), a rate over 3.5x higher than New Jersey’s rate of 15%. Pennsylvania Representative John Payne’s online gambling bill HB 649 calls for a 14% tax rate on gross online gaming revenue.

Several panelists at Wednesday’s CERD hearing indicated the rate would make it impossible for any operator to turn a profit, as online margins are far slimmer than brick & mortar casinos.

Representatives from several of the state’s casinos indicated a rate above 15% would pretty much kill the industry before the first online gaming site ever launched.

Licensing fee is exorbitant

SB 900 also calls for an upfront licensing fee of $10 million, and while not the poison pill that a 54% tax rate presents, the $10 million fee is twice what John Payne’s HB 649 bill calls for, and could be a significant hurdle for entry into the market.

Instead of Pennsylvania’s casinos clamoring to open online gaming sites, many may instead become observers.

In-person registrations

If the taxation and licensing issues weren’t bad enough, SB 900 contains an even more harmful policy; the requirement of in-person registration in order to open an online gaming account.

Parx Casino is widely believed to be behind the call for in-person registrations, perhaps seeing it as a way to leverage their prime location over casinos in more sparsely populated areas. However, in-person registrations wouldn’t help anyone, they would only harm Parx the least.

Final thoughts

Pennsylvania seems extremely close to passing online gambling legislation, and in doing so would become the fourth state with legalized online gambling.

For this to happen the following must occur:

  1. The state’s casinos will have to reach an agreement regarding the two Category 3 casinos in the state, and the smart solution would seem to be inclusion instead of arbitrary exclusion. Allowing the two Category 3 casinos to apply for an iGaming license would also mean the state would receive millions in added licensing fees.
  2. The supporters of SB 900 will need to sit down with iGaming analysts and realize that their cash grab (both the ridiculously high 54% tax rate and the less damaging $10 million licensing fee) would be detrimental to the point that the industry would likely never get off the ground as operators would pass on PA.
  3. Much like educating lawmakers on the potential ramifications of their proposed financial burdens, people need to sit down with Parx Casino brass and explain precisely why in-person registrations would cripple the industry. This so-called safeguard (or competitive advantage depending on who you ask) would destroy the industry as fast as a 100% tax rate.
Comments News Contributors

Related News Stories