High PA Online Gambling Taxes Would Mean Online Gamblers Never Show Up

April 24, 2017
High PA Online Gambling Taxes Would Mean Online Gamblers Never Show Up

There are myriad problems with taxing online gambling at too high of a rate in Pennsylvania.

But one of the biggest problems: PA online casinos are not a matter of “if you build it, they will come.” The black market for online casinos could still persist and even thrive if the tax rate is set too high.

PA needs to attract online gambling customers

There is the possibility floating around the PA legislature of taxing online slot machines at a rate of 54 percent.

That tax rate doesn’t take into account that the economics of running an online casino are simply different than they are for land-based casinos.

Yes, casinos need to spend some amount of money on marketing to get people in the doors. But online casinos face a far different starting point than land-based ones.

People who use online casinos aren’t going to be instant converts

Here is something that not everyone understands about iGaming: You don’t get customers simply by opening the doors.

When land-based casino open in PA (or anywhere), it’s difficult to miss them in the cities or communities they serve. Obviously, some marketing takes place for brick-and-mortar facilities. But a substantial amount of their revenue does not have to go back into marketing the casino, solely, by default. After all, casino resorts have hotel rooms, food, and other entertainment options that also generate revenue and attract people.

But online casinos have to do more to get people in the virtual doors, and they have just one product: Gambling.

First, opening an online casino, without devoting and advertising or marketing expenses, would land with a thud. You can’t just launch an online casino and expect people to start depositing willy-nilly. You need to let people know it’s there.

Second, current online gamblers in the United States and PA have habits. They have been playing online poker at unlicensed sites since 2011’s Black Friday. They have been gambling at online casinos and sports betting sites run by offshore operators even longer than that.

While people will gravitate toward regulated sites, when available, they have to know they are there in the first place, and have a reason to spend their money there.

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Where the money goes for online gambling

The best comp Pennsylvania has is the regulated online gambling market in New Jersey. In order to run what has become a very profitable iGaming industry in the state, we know that a large amount of money from online gambling revenue is used for marketing purposes.

According to New Jersey online poker and gambling operators, nearly half of every dollar of revenue goes to advertising or player reinvestment (player promotions and retention costs).

Operators because they like pissing away money. They do this because it’s necessary to attract and retain customers.

Taxing iGaming operators at a high rate in PA would take much of this ad and marketing money away. And there’s no guarantee that the customers would gamble at the regulated online casinos in this scenario.

Simply put, lawmakers need to get it out of their heads that online gambling is the exact same thing as a land-based casino, simply run on a laptop or a mobile device. If they don’t get rid of that misconception, the prospective online gambling industry in PA could be over before it starts.

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