The Importance of a Bad Example

Pennsylvania has chosen to ignore the proven taxation and regulation of online gaming and sports betting, installing fees and tax rates that—almost—scared off potential participants. Author Richard Schuetz (l.) says the Keystone State will now become the poster child for doing it your own way, a valuable tool for jurisdictions going forward.

The Importance of a Bad Example

One of the more interesting chapters in my life was back in the early part of the 2000s when I was hanging out with a character in Laguna Beach, California, known as Father Bob. Bob was a retired Episcopal priest and was mainly spending his retirement helping others. Bob was also a legend in the community for a good reason, that being he was always doing good deeds. He would often call me and say “We are going to do some good deeds today, so join me and bring the Bank of Richard.” Off I would go to meet Bob, along with my checkbook, for often times the doing of good deeds involved a need for funding, and Bob was much better at accumulating friends with money than accumulating funding of his own.

Father Bob had a ton of interesting expressions and one of my favorites was “Everyone serves an important purpose on this earth, even if it is only as a bad example.” Whenever I hear people discuss Pennsylvania gaming, be it in a blog, channels and feeds like Twitter & LinkedIn, or at a conference, I think of Bob’s expression about bad examples, for it does seem that the collective wisdom of the gaming world is that Pennsylvania is basically stupid, especially when it comes to its gaming tax policy. Moreover, people from outside of Pennsylvania appear to feel complete license to ridicule the state for doing what Pennsylvania does.

Here is how stupid Pennsylvania is. For 2018, even if an operator in the state never takes a bet, Pennsylvania will have raised more money for the state through sports wagering than the combined receipts of Nevada and New Jersey. That is the stupidity of Pennsylvania.

To understand Pennsylvania one needs to understand two important concepts. These concepts are:

  • That gambling policy in the U.S. is a subject of state’s rights, and
  • The state will develop a public policy for gaming that best meets the perceived needs of that state.

The state’s rights part of this argument is that what Pennsylvania does is basically Pennsylvania’s business because with state’s right there is no “right” model. This fact alone should tell you that if you are not from Pennsylvania, they really do not care what you think, no matter how important or smart you think you are.

The public policy part of this argument is that Pennsylvania will develop a gaming model that best meets its policy goal, and Pennsylvania’s main public policy goal when it introduced gaming was to fill a huge budget hole, with an emphasis on huge, and to fill it quickly.

You now have all of the information you need to understand why Pennsylvania is doing what Pennsylvania does. Also note that it is not within the public policy goal of the state to make the gaming operators rich, the marketing affiliates happy, to generate massive tourism, or to generate condescending comments from other state’s past and present regulators and other pundits.

I would suggest that Pennsylvania has been pretty successful at doing exactly what it set out to do, and that is to make a ton of money for the state in a hurry, for only the state of Nevada generates higher gross gaming revenues from commercial gaming. Moreover, Pennsylvania also generates more gaming tax revenues from commercial gaming than every other state, period. Not a bad daily double of accomplishments for a state that has been so severely criticized by a bunch of people from states that have accomplished much less.

States are allowed to have different models and that is the point of state’s rights. Nevada is very comfortable having the lowest gaming tax rates in the nation. Nevada is also apparently comfortable having its largest newspaper, owned by one of the richest men in the world who achieved his financial status through casinos, publish a headline this April that said: “Nevada Ranks Last in U.S. for Education, but Officials are Upbeat.” That, my friends, looks lip lipstick on a pig, and the brilliant of the gaming world do not seem to mention this reality when discussing the wisdom of Nevada’s gaming tax rate.

I have no idea why people think there is a one size fits all model for gambling. This is no more realistic than thinking that everyone should have the same type house, car, or life style. Pennsylvania has chosen its path based on a specific set of historical facts, and its historical facts were that it needed to generate a great deal of money in a hurry, and it has done that.

Moreover, from the very beginning of the casino experiment the Pennsylvania was told that its model was stupid, and no one would want to enter the market, and the product would suck. Well, to all of those experts, firms did enter the market and the product doesn’t suck. Many of those same critics recently felt they needed to double down on their prior brilliant predictions when the tax rate was announced for sports wagering, and these experts argued that no one would want to participate. Well, Pennsylvania has a ton of money in its coffers demonstrating that the experts had no earthly idea, once again, as to what they were talking about. Moreover, if this starts to work to the disadvantage of Pennsylvania, I would imagine they might opt to change things. As of yet, the markets have not told them that the approach they re using is wrong – for Pennsylvania.

I do suspect that I should not be so critical of the experts that have dissed Pennsylvania for after all they were serving a purpose…they were serving that glorious purpose so well identified by Father Bob, and that is by being an excellent bad example of understanding state’s rights in gaming.

Articles by Author: Richard Schuetz

Richard Schuetz started dealing blackjack for Bill Harrah 47 years ago, and has traveled the world as a casino executive, educator and regulator. He is sincerely appreciative of the help he received from his friends and colleagues throughout the gaming world in developing this article, understanding that any and all errors are his own.