Pennsylvania Online Gambling Hearing Live Blog From March 7

March 7, 2017
Pennsylvania Online Gambling Hearing Live Blog From March 7

US Poker will post continuous updates of today’s joint online gambling hearing set to take place in front of the Pennsylvania House Gaming Oversight Committee and the Senate Community, Economic & Recreational Development Committee.

The committees have blocked off a full two hours for the hearing and invited 15 witnesses to testify.

You can watch the hearing here.

If you’re from Pennsylvania you can contact your legislators and let them know you support legal, regulated online gambling here.

The hearing will likely cover some old ground in order to get newly elected legislators and new committee members up to speed as the state continues to march towards legalizing online gambling.

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How we got to this point

After passing two gambling bills in 2016 (only to watch them wither and die on the vine in the Senate), the PA House of Representatives introduced another comprehensive gambling bill in early February that greatly resembles last year’s efforts.

There is far less clarity on the Senate side. Dueling legislative proposals have been floated. A new group of four PA State Senators introduced companion  legislation to the House bill on Monday, SB 477.

Meanwhile, Gov. Tom Wolf has been bullish on the legislature passing the gambling package, so much so that he not only included revenue from online gambling in this year’s budget, but next year’s too.

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Live updates of today’s hearing

Updates will be posted under the designated time stamps.

Here’s a look at the tentative schedule for the hearing.

Chairman Scavello asked all members to stick to the topics of the day and not sway off into the prickly issue of VGT’s, which will be discussed later this month.

2:00 – 2:10

Roll call was taken just after 2 PM, and brought the first positive sign, as most of the members of both committees are present.

  • Chairmen Opening Remarks

2:10 – 2:25

  • Kevin O’Toole, Executive Director, PA Gaming Control Board
  • Doug Sherman, Chief Counsel, PA Gaming Control Board

The Pennsylvania Gaming Control Board believes it can handle any of the new reforms that have been proposed, including online gambling.

The PGCB is supportive of HB 392, including online gambling, per Kevin O’Toole.

The PGCB also supports the certification of skill-based slot machines in casinos. Skill based slots have been proliferating in New Jersey, and are just beginning to appear in Las Vegas.

O’Toole would also like to see the state lift the restrictions on the number of slot machine licenses a person or business can hold in Pennsylvania.

Senator Boscola, who represents the district that includes the anti-online gambling Sands Bethlehem casino, wonders what the lower tax rate for online gambling would do to brick & mortar revenue. The PGCB notes that the demographics between online and live gamblers are quite different, and there are no signs of cannibalization in other jurisdictions.

Senator Tomlinson continues the same line of questioning, a line of questioning he first brought up last year.

Tomlinson, whose district includes Parx (also against online gambling) and has been a thorn in the side of online gambling legislation over the years. Tomlinson’s belief is the lower online tax rate will cause casinos to focus on online gambling instead of bricks and mortar, or as Robert DellaFave put it:

2:25 – 2:40

  • David Satz, Senior Vice President of Government Relations and Development, Caesars Entertainment
  • Anna Sainsbury, Chief Executive Officer, Geo Comply

David Satz starts off by talking about the current unregulated market that offers zero consumer protections and provides zero tax revenue to the state.

Satz goes on to point out that Congress, through UIGEA, expressly authorized intrastate online gambling with the exception of sports betting.

The key takeaway from the state’s that have legalized online gambling is that with proper regulation and licensing you can protect consumers (prevent underage or out of state gambling) and generate revenue. Satz, “avoid the scaremongering; the regulations do work.”

Satz makes the salient point that fighting off online won’t protect brick and mortar casinos from going the way of blockbuster or the like, casinos need to embrace online in various forms. As Satz noted in his written testimony, “CIE’s NJ experience: 80% of online players are new customers; 42% who were TR customers were inactive customers who re-activated after signing up online.”

Anna Sainsbury from GeoComply has a presentation showing how the geolocation technology works to make sure people are located within the state when they log on to an online gambling site. Sainsbury’s presentation is a clear demonstration of how precise the geolocation technology is, and how the company thwarts spoofing attempts.

Sainsbury is now explaining how GeoComply takes extra care near borders, and how they use analytics to track people over time to see if people are routinely flagged as fraud or even potential fraud.

Senator Tomlinson flippantly makes the case that this could be some kind of invasion of privacy that he’s uncomfortable with.

Tomlinson quickly moved on to his previous tax concerns, which Satz rebuts by noting that casino-goers are going to the casino for many different reasons, which is why you don’t see cannibalization of brick and mortar properties by online gambling, regardless of the tax rate. It’s clear that Tomlinson is going to fight against online gambling tooth and nail all day long.

Representative Nesbit admits he tried to log on to a New Jersey online gambling site from Pennsylvania and couldn’t.

Sainsbury makes the final point that not only do they have reporting and confidentiality but all vendors must be licensed and go through stringent background checks.

After being asked why online gambling focuses on using credit cards by Representative Kaufer (a former Mohegan Sun employee), David Satz makes the case that online allows for better tracking and consumer protections.

Kaufer moves on to concerns of bots, to which Sainsbury notes how stringent the fraud software is, and how they have to deactivate all ancillary programs.

Representative George Dunbar asks, before New Jersey legalized online gambling were you able to gamble online in New Jersey? Satz, “yes.” And how much did the state collect in revenue from that? Satz, “zero.” Dunbar ends his questions right there, feeling his point was clearly made.

Representative Santora provides anecdotal evidence, saying he was at Harrah’s Chester when someone from Caesars told a visibly drunken person they could no longer gamble and politely escorted them out of the casino and presumably to a cab. Wonders how this would work online.

Questions grow less abrasive as lawmaker Lawrence Farnese is now trying to wrap their heads around all the implications of geolocation technology, e.g. data collection and potential sharing of that information. Sainsbury notes that GeoComply’s business is 100 percent on the compliance side.

Senator Bartolotta brings up cross-marketing efforts to bring online players into the brick and mortar casino. Satz, “absolutely.” Satz goes on to explain that every land-based player’s rewards card is linked to their online account, but rewards are only available at brick and mortar property.

Senator Boscola revisits the question about the wide gap in tax rates, and  it’s becoming obvious that anti-online gambling lawmakers are going to stick to this 54% tax vs 14% tax bogeyman they’ve created. The answer to this line of questioning is the profit margins are vastly different.

2:40 – 2:55

  • David Cookson, ESQ, Coalition to Stop Internet Gambling

The Coalition to Stop Internet Gaming is unsurprisingly opposed to online gambling and unsurprisingly, providing a lot of scary theoretical scenarios, but not offering any evidence, despite online gambling being legal in three states since 2013.

And that’s all I’ve got to say about that.

Parx is downplaying any comparisons to New Jersey but drawing lines between Pennsylvania and Delaware and Pennsylvania and Nevada in an effort to downplay the potential revenue the state may bring in.

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2:55 – 3:10

  • Eric Pearson, Chief Executive Officer, Valley Forge Casino Resort
  • Donn Mitchell, Chief Administrative Officer, Isle of Capri Casinos

Donn Mitchell states that Lady Luck supports online gambling but is more concerned about the potential gaming reform that would remove the amenity fee from Category 3 casinos (basically an entrance fee to use the casino) for a one-time payment. It will be interesting to see who Lady Luck will partner with. Based on their size it would have to be a very strong brand with a turnkey operation, a company like Amaya and PokerStars comes to mind.

Pearson, from Valley Forge (The other Category 3 casino in the state with an amenity fee) would also like to see the amenity fee removed, and would like to see poker tables not count against their maximum allotment of table games. Valley Forge is pro-online gambling and has been linked to GVC/partypoker. Pearson calls internet gambling a real growth opportunity for all casinos, pointing to the ongoing growth in New Jersey.

Interesting side note, Chairman Scavello let the cat out of the bag that Valley Forge might be considering filing for a Category 2 license, as it does better than several Category 1 and Category 2 casinos already, despite the Category 3 restrictions it deals with.

Representative Dunbar is correcting some of the data and numbers that Senator Tomlinson has been spouting off about  in a word salad throughout the hearing.

Chairman Scavello states that there will be another joint hearing at 10 AM on March 20.

3:10 – 3:25

  • Bob Green, Chairman, Parx Casino
  • Anthony Ricci, Chief Executive Officer, Parx Casino

Parx is now decidedly against online gambling. The company has shifted to a much stronger opposition position over the last six to twelve months.
Green notes that their current revenue streams are extremely reliable, which may explain their newly adopted vigorous opposition. As the clear market leader, Parx is very content to let the status quo continue rather than allow some of their competitors potentially outpace them online.

Representative Sanotra points out that this isn’t about Parx, they have to come up with solutions that will work for everyone.

Parx CEO Ricci may have just explained their opposition, as he cites concerns that it puts smaller casinos on a level playing field with access to all players statewide.

Ricci also questions whether unregulated online gambling in Pennsylvania exists and how much of it was online gambling as opposed to sports betting.

3:25 – 3:40

  • Richard Schwartz, President, Rush Street Interactive
  • WendyHamilton, General Manager, SugarHouse Casino

Wendy Hamilton calls online gambling a unique opportunity for operators and the state. Hamilton notes that the state’s slot revenue is at best holding steady, so continuing the status quo isn’t the best idea.

Schwartz lays out some of the benefits that casinos can garner from offering online gambling, saying it’s a “proven player acquisition tool.” They agree with the concept that online gambling would not be cannibalizing land-based gambling.

SugarHouse, it should be noted, is uniquely situated as a PA casino that is operating as a regulated online gambling operator in New Jersey. Operating under Golden Nugget’s license there, SugarHouse notes that GN data says online gambling increases players’ spend in land-based facilities.

Rep. Ed Neilson is curious about what number of online gamblers never step foot in SugarHouse, or elsewhere, a question not immediately answered.

Hamilton also refutes Parx’s assertion that online gambling would hurt existing casinos, noting that the second Philly casino that Parx has planned would cannibalize existing revenue.

Schwartz also notes that online gambling is a way to attract younger customers, an issue the casino industry at large has been grappling with.

3:40 – 3:55

  • Nicholas Menas, Vice President of Corporate Development and Government Affairs, AMAYA
  • John Pappas, Executive Director, Poker Players Alliance
  • Paul Irvin, Associate, The Innovation Group
  • Ira Gubernick, Member of Cozen O’Connor on behalf of the Coalition for a Safe and Regulated Internet

The PPA, via Pappas says he is supportive of online gambling regulation. Pappas reiterates the position that online gambling and poker take place in Pennsylvania whether the state acts or not.

He does a demonstration he has done in other states, doing an internet search for lawmakers asking whether he can gamble online PA. He proceeds to click on several sites that say that it’s perfectly legal to gamble online in the state, and proceeds to link to a variety of unregulated gambling sites.

Irvin talks about revenue projections in PA. He said he believes that revenue will ramp up more quickly than it did in New Jersey. Their prediction model says a mature market in 2019 will surpass $400 million annually. That’s in excess of estimates we’ve seen.

Irvin also notes that compacting with NJ and New York (if it passes an online poker bill) would mean a 10 percent increase in revenue in PA.

Irvin is also the latest in a string of witnesses that dismisses the idea that online gambling cannibalization of land-based gaming revenue is in play.

Gubernick relates that it is highly unlikely the federal government is going to backtrack on the DOJ stance regarding online gambling. That allays concerns put forth by CSIG earlier.

Menas tries to take another angle at the cannibalization argument, saying that companies like his simply work with existing licensed casino operators, and try to help them generate new revenue.

He adds to the arguments being put forth that online gambling would not hurt land-based casinos. He argues that online gambling is not an “expansion,” but rather acknowledging the existing environment.

Menas did the best in combating questions from Tomlinson, coming at him from a reasoned perspective.

Lawmakers finally get to margins vs. tax rate. Tomlinson continued to rail against the proposed 15 percent tax rate, but Menas notes that a higher tax rate could all but eliminate profit and the margins for online operators. You simply can’t equate the 54% tax rate and margins for land-based casinos and online gambling.

3:55 – 4:05

  • Chairmen Closing Remarks
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