Doubts remain over iGaming slot tax
Pennsylvania Governor Tom Wolf last week signed a budget reconciliation bill into law that also enacts the largest expansion of gaming since the state first legalized casinos in 2004.
Wolf’s signature makes Pennsylvania the fourth U.S. state to legalize online gaming, joining New Jersey, Delaware and Nevada. In Pennsylvania’s case, iGaming comes with a unique twist—casino operators both inside and outside of Pennsylvania may apply for licenses to operate gambling websites for PC and mobile applications for use by people located within Pennsylvania’s borders. License fees are $4 million each for online poker, online table games and online slot games—or $10 million for all three.
Current Pennsylvania casino licensees get first preference for the licenses, but If licenses remain unclaimed after the initial rollout, the state will license out-of-state operators piecemeal on those three segments at a fee of $4 million each.
The out-of-state provision was added because it is unclear how many current Pennsylvania casinos will apply for iGaming licenses, particularly to operate online slot games, which are by far the most profitable for New Jersey and Delaware online sites. (Nevada has online poker only.) The law sets the revenue tax at 14 percent for online poker and table games, but at a brick-and-mortar-style 52 percent for online slots. Many operators have already stated they cannot operate online slots profitably at a 52 percent tax rate.
“The rate for slots is high, and I don’t know how well casinos will do with that,” state Rep. George Dunbar told the Associated Press. “It’s something they’ll have to figure out internally. Hopefully, we didn’t put too high a number that will be prohibitive. The more casinos that are involved, the better finished product that we’ll have.”
Aside from the slot element, the potential to combine Pennsylvania’s population with the other three iGaming states to create pooled games is being viewed as a potential profit-generator for the poker sites created under the law.
Online gaming is only one of many gaming expansions enacted when Wolf signed the budget law. Gaming is projected to fill $200 million of the state’s $2.2 billion budget deficit with not only iGaming, but with a smorgasbord of other gaming expansions. Among the most prominent is a provision for up to 10 satellite casinos spread across the state in areas that do not currently have casinos.
Each of the state’s 10 larger casinos may bid on a satellite casino license that would allow up to 750 slot machines and 10 table games at a location that is outside a radius 25 miles from an existing casino. Bidding will start at $7.5 million, with table-game licenses costing an additional $2.5 million. License fees and taxes will go to local and state governments, public schools and civic development.
In addition to new satellite casinos, the law expands gambling to the airports, where current licensees can apply to operate interactive gaming parlors with tablet gaming at eight regional and international airports; and to truck stops, which are authorized to add five video gaming terminals, or VGTs, with revenue split among the operators, the state and the local host municipalities.
The VGT provision applies to truck stops that sell an average of 50,000 gallons of diesel fuel a month, have at least 20 parking spaces for trucks, have a convenience store, are current lottery retailers, and occupy at least a 3-acre parcel of land not owned by the Pennsylvania Turnpike. It falls far short of the VGT bill passed by the state House, which would have authorized up to 10 VGTs at each of thousands of liquor-licensed establishments. Many House members have vowed to continue fighting for expanded VGT authorization.
The law contains a provision allowing counties hosting current casinos to opt out of the VGT authorization, banning the truck-stop VGTs within their jurisdictions. Counties seeking to opt out must adopt a resolution in council and submit it to the state no later than December 30.
Among other changes in the law:
• The state’s two Class III resort-style casinos can now pay a fee to be relieved of the entry and slot-number limitations of the 2004 law.
• The new law also authorizes regulation and tax of daily fantasy sports betting, with DFS operators charge a $50,000 license fee with 15 percent of revenues going to the state. The law makes Pennsylvania the 17th state to enact a DFS law.
• The Pennsylvania Lottery is now authorized to offer instant ticket, lotto keno and other games online. The lottery may not offer casino-style games other than keno.
• Should the federal ban on sports betting be lifted, Pennsylvania casinos can apply to the gaming board to offer sports betting for a license fee of $10 million. Online sports betting will also be allowed.
• The casino host fee to local governments, struck down last year by the state Supreme Court, is reinstated at a flat $10 million annual fee to local governments.
Wolf, who previously opposed many of the gaming expansions he signed into law, told reporters after signing the bill that the package represents the best scenario for gaming expansion. “There’s been a lot of pressure from a lot of places in the commonwealth to actually expand this, and we do need some recurring revenue,” Wolf said, according to the Allentown Morning Call.
“Again, the goal has been all along to do what’s prudent, and not cannibalize existing gambling revenue coming to the state. And, I think what we’re settling on will actually do that.”
Some stakeholders in Pennsylvania moved quickly upon enactment of the legislation. Valley Forge Casino, one of the two resort-class properties, has already paid the $1 million fee to remove the restrictions of the 2004 law, which required membership fees or a minimum non-gaming spend for entry to the casino. The casino released a press release announcing the change to customers.
“Since opening five years ago, we have been constrained by the amenities requirements and membership fees which have confused and frustrated our guests,” said Valley Forge Casino Resort President and CEO Eric Pearson in the release. “We are thrilled to be able to welcome our guests to our casino in the same manner as the other Pennsylvania casinos. Lifting this special requirement for guests to enter the casino allows us to better serve our existing guests, and puts us in a better position to attract new visitors to our property.”
In Lawrence County, the Western Pennsylvania location of the ill-fated Lawrence Downs casino project—a license that is still dormant—Commissioner Dan Vogler announced that the county will pursue one of the satellite “mini-casinos” authorized under the law. According to a report in the New Castle News, county commissioners will meet with tourism and local chambers of commerce to determine the best location for the casino before submitting a bid.
And in the Lehigh Valley, the bill caused a surprise about-face from state Senator Lisa Boscola, one of the chamber’s biggest opponents of casino gaming and particular online gaming, as she represents the district where Sands Bethlehem—its parent company run by well-known iGaming foe Sheldon Adelson—is located.
Boscola voted for the expansion package and the online gaming it brings, because one of the perks in the law is release of $20 million in local-improvement funding to be used for a new science center in her jurisdiction.
Other potential reactions came in from as far away as Great Britain. Major iGaming news website Onlinecasino.co.uk speculated that Pennsylvania’s regulation of online poker and daily fantasy sports could reignite discussions of a possible customer-sharing pool with British iGaming sites.
“As part of the UK Gambling Commission’s drive to improve its services and make its market the best in the world, sharing resources with other countries has long been discussed,” wrote columnist George White for the site. “In light of this, the regulation of online poker, casino gaming and daily fantasy sports in Pennsylvania could bring talks of a possible deal back to the fore.”
Pennsylvania’s legalization of online gaming comes at the end of a five-year legislative battle, but lawmakers in some other states considering iGaming see it as a potential momentum-builder for their own online gaming proposals.
Lawmakers in West Virginia and Louisiana last week called for updates to their own gaming laws in wake of the Pennsylvania passage. “With (Pennsylvania) passing sports betting, online poker and daily fantasy legislation today, we must act this session or be left in the dust,” West Virginia state Rep. Shawn Fluharty said on social media, according to Card Player magazine.
And Louisiana state Senator Ronnie Johns has initiated a review of that state’s 1991 gaming law with an eye toward remaining competitive in light of the new Pennsylvania law, according to a report on the America’s Cardroom website.
Meanwhile, problem gambling groups, while not outright opposing Pennsylvania’s gaming expansion, are advising caution going forward. “At a minimum, (legislators should) make sure that there are protections that follow along with the National Council on Problem Gambling’s recommendations—both for the online option as well as for the stand-alone satellite casinos,” said Josh Ercole, chief operating officer of the Council on Compulsive Gambling of Pennsylvania, in an interview with WITF Radio Pennsylvania.
The law new doesn’t take effect until December 22—60 days after Wolf’s signature. After that, the state Gaming Control Board will promulgate regulations and hand out licenses to conduct iGaming, satellite casinos and the other expanded offerings. Observers predict that online gaming sites should be ready to launch by the second half of 2018.
