The PA Senate Is Rewriting The Online Gambling Playbook, And Not In A Good Way

Steve Ruddock May 8, 2017 2483 Reads
PA online gambling opportunity

The Pennsylvania Senate is drawing closer to its big reveal of a much-anticipated gaming reform package highlighted by the legalization of online gambling.

In an interview with Online Poker Report, CERD Committee Chairman Mario Scavello said he anticipates the Senate will vote on a gaming reform bill as soon as Tuesday.

PA Senate’s self-defeating approach to online gambling

Since the onus was placed on the Senate to craft the bill, more questions than answers have emerged. Based on the bits and pieces leaking out, it’s hard to wrap one’s head around what the Senate is trying to accomplish.

Unable to get the Senate to act on any of the noncontroversial proposals it proposed during the last three years, the Pennsylvania House decided to let the Senate put forth its own bill. The House has already passed two bills.

Details of the Senate bill have been trickling out during the past few days. While nothing is concrete, the Senate’s vision of online gambling is starting to come into focus.

Unlike the House bill, which 10 of the state’s 12 casinos sanctioned, the Senate’s bill will have less support and even fewer interested parties. Online Poker Report estimates the revenue from upfront licensing fees would be cut in half under the Senate’s proposal.

Tax rate still the key point of contention

The key sticking point continues to be the online tax rate.

A false narrative pushed by Sen. Robert Tomlinson and Parx Casino is gaining momentum in the Senate and is likely to find its way into the bill.

Parx believes online gaming’s tax rate should mirror the tax rate imposed on land-based casinos: 16 percent for table games and poker and 54 percent for slot machines.

Despite mountains of evidence to the contrary (here, here, here, and here) the Parx argument is winning in the legislature.

By all accounts, the Senate is not only going to adopt the Parx position, but also take it a step further. The most recent reporting out of Harrisburg has online poker taxed at a rate of 16 percent and all online casino games (slots and table games) taxed at 54 percent.

Could Category 3 casinos be left out in the cold?

Another strange proposal the Senate is purportedly considering is the exclusion of the state’s two Category 3 casinos: Lady Luck and Valley Forge.

Leaving these two casinos on the sidelines:

  • Turns two supporters of online gaming into opponents.
  • Causes the state to lose out on the upfront licensing fees from these two casinos and their platform partners. Both have shown interest in online gambling.

A bifurcated licensing system

The Senate’s proposal reduces the licensing fees from $8 million to $5 million. But according to Chris Krafcik of Gambling Compliance, gaming licenses will be split.

A separate license would be required for poker and casinos, meaning the total is $10 million.

This is yet another odd inclusion, since 10 of the state’s casinos were willing to pay $8 million for an all-inclusive license whether they were going to launch poker sites or not. The Senate is once again leaving money on the table.

Since only a few casinos will have an interest in launching online poker sites, the extra $2 million from two or three operators doesn’t offset the $3 million reduction in fees from the brands interested in casino-only.

License cap and open application process

According to Krafcik, the number of licenses would be capped at 20 — 10 online casino licenses and 10 online poker licenses. Scavello told OPR the number of available licenses would be 12, one for each casino in the state.

According to Scavello, the state’s casinos would have right of first refusal for these licenses. After 90 or 120 days, if any licenses remained unclaimed, the state could turn to an out-of-state casino or company.

“They have a certain amount of time to make a decision, and if they decide they don’t want to participate then there might be someone that will,” Scavello said. “They’ll be vetted just like the casinos, but that offer will go out there.”

Is there room for a tax rate compromise?

The 54 percent slot tax rate appears intractable, and the state may have found a way to force the casinos to accept the bloated rate.

Recently Sen. Joseph Scarnati floated the idea that the state lottery would be able to manage online gambling just as well as the casinos.

Scavello also brought up the possibility of the lottery handling online gambling in his interview with OPR.

“The lottery is telling us they can do it at that number, so we’re saying if they can, then why can’t the casinos?” Scavello said.

This would be a terrible idea.

However, the suggestion is almost certainly more bark than bite. If the casinos don’t acquiesce to a higher tax rate, the state might cut them out entirely and turn to the state lottery to run online gambling.

In his interview with OPR, Scavello made it clear the Senate is still discussing the numbers.

“That number will be finalized by Monday, and hopefully Tuesday we’ll have the vote,” Scavello told OPR. “Could it be less? Yes it can. We just need to have a discussion in our committee on what we can support.”

If the tax rate has to mirror the land-based rate, there is room for compromise on the table game tax rate. Pennsylvania’s casinos pay 16 percent, but the online gaming bill will reportedly ask for 54 percent. The overreach on table games may well be a case of “starting high,” with the Senate recognizing there will be some back and forth before the bill is finalized.

Other potential concessions

The state could sweeten the deal for casinos by applying the upfront licensing against future taxes owed. In doing so, the state could reap the short-term revenue windfall from the licensing fees and at the same time provide the casinos with some short-term tax relief while the industry is in its infancy.

Online operators could redirect the early savings into marketing and other areas critical to a successful launch.

Another simple way lawmakers could increase support for the bill is the removal of the exclusion of Category 3 casinos.

In a situation where every vote will matter, it’s foolhardy to eliminate the support of two casinos that employ well over a thousand Pennsylvanians and send millions in tax revenue to the state and local municipalities. If legislation excludes the Category 3 casinos, the legislators representing those districts are likely to be “no” votes.