Last week, the Pennsylvania Gaming Control Board announced it is officially accepting petitions for sports betting licenses. In April, the state opened a 90-day window for land-based casino licensees to apply for online gaming licenses.
But the state’s gaming law, signed by Governor Tom Wolf in December, may torpedo both efforts to expand the state’s gaming pie. The reason? High taxes and fees.
The PGCB announced that it “has notified casino license holders that they can begin submission of petitions requesting approval to conduct sports wagering.” The state adopted initial regulations at its Wednesday meeting, and will adopt more regs at meetings in the coming months.
“The actions taken by the Board are the first in our efforts to launch sports wagering in Pennsylvania as soon as possible,” said PGCB Executive Director Kevin O’Toole, according to Legal Sports Report. “In the coming months, we expect to regularly ask the board for approval of additional temporary regulations that will move us toward a launch of this new gaming initiative.”
The law permits any current Pennsylvania casino to offer sports betting both through on-site books at casinos and off-track betting parlors, as well as online via mobile sports-betting apps.
However, it remains to be seen how many operators will seek licensing for either sports betting or iGaming, because of onerous taxes and fees written into the state’s gaming legislation. The law requires a $10 million up-front application fee each for sports betting and online gaming, and will tax sports-betting revenues at a whopping 36 percent—both costs by far the highest of any state that has passed a sports-betting law thus far. The 36 percent tax is higher than any sports-betting jurisdiction in the world.
Most other state sports-betting laws would impose a tax somewhere around 10 percent. In New Jersey, the tax will be 9 percent. In Nevada, it’s 6.75 percent.
Comments from operators indicate cost is going to be a big problem in creating a viable sports-betting program in Pennsylvania. “In their push for higher revenues, they wanted to not just squeeze the golden goose, but in this case strangle the goose with higher tax rates,” said Eric Schippers, senior vice president of Penn National Gaming Inc., in an interview with the Associated Press.
“If you’re paying $10 million up front for the privilege of paying 41 percent in (combined state, local and federal) taxes, plus the infrastructure costs, it’s difficult for me to see how you make money in Pennsylvania,” Joe Asher, CEO of William Hill US—the British bookmaker that runs sports books in Nevada and will create a book for the new Ocean Casino in Atlantic City—told the AP.
“You can’t run a casino in an underground black market and pay zero taxes, but you can run (an illegal) bookmaking operation that way. A bookmaker will be able to offer a 25 percent rebate on losses to his customers and still have an advantage over the legal market.”
Asher reiterated his stance in a panel at last week’s GameON conference staged by gaming supplier AGS. “The Nevada model for sports betting has worked well for decades,” he said. “Why reinvent the wheel?”
Most observers, though, have predicted that at least the larger Pennsylvania casinos will move to offer sports books in any event, even with the high cost. Whether the high cost will cause losses that outweigh sports betting as a loss-leader remains to be seen.
Meanwhile, the iGaming tax rates in Pennsylvania are just as bad—16 percent for online table games and an unfathomable 54 percent for online slots, the same tax the state sets for brick-and-mortar slots.
In April, the state opened its 90-day application period for accepting full iGaming licenses—the $10 million fee would cover both slots and tables. Halfway through the application window, no operator has applied. After 90 days, operators will be able to apply for individual online slot or table licenses, at slightly higher individual fees.
“The hefty upfront fee and the tax rate of 54 percent on slots makes it virtually impossible for any operator offering all three verticals (slots, table games, and poker) to realize a profit in its first five years,” iGaming analyst Steve Ruddock told Online Poker Report.
