Regulated Online Gambling in Pennsylvania Two Steps Closer

PennsylvaniaProposals to regulate online gambling in Pennsylvania passed two Senate committees yesterday and could have a full Senate hearing as early as today.

With time running out to resolve the state´s budget deficit, Pennsylvanian legislators yesterday took two significant steps towards regulating and taxing online gambling. Having been delivered proposals to allow tablet gambling at the state´s airports (HB 271), the Senate´s Community, Economic & Recreational Development (CERD) Committee loaded the bill with a wide range of measures and effectively created an omnibus bill for the expansion of gambling.

The revised bill passed the CERD committee by a margin of 11-3, and was quickly forwarded to the Senate Appropriations Committee – where it passed by an even wider majority of 24-2. The bill now heads for a full hearing of the Senate, which could take place as early as today. If passed by the Senate, the bill would be returned to the House of Representatives for its approval before landing on the desk of Governor Wolf for a final decision.

A Massive Expansion of Gambling

The Senate version of the bill not only covers airport gambling and online gambling, but also Daily Fantasy Sports and authorization for the Department of Revenue to sell lottery games online. It does not include proposals to [geolink a href=””]regulate Video Gaming Terminals[/geolink] in bars and clubs – a solution to the state budget deficit favored by Governor Wolf – and those proposals will have to be dealt with by the Pennsylvania legislature as a separate issue, if at all.

As far as the regulation of online gambling in Pennsylvania is concerned, the bill´s proposals closely mirror the “[geolink href=””]tax compromise proposals[/geolink]” put forward at the beginning of the month – namely a 54% tax on revenues from online slots and table games, and a 16% tax on peer-to-peer games such as online poker. There would be twelve online casino and twelve online poker licenses made available, each with an initial cost of $5 million.

In a change from the anticipated proposals, Class 3 casinos will be allowed to apply for licenses and, if any of the twelve brick-and-mortar casinos in Pennsylvania decline their option to apply for a license, out-of-state operators will be able to take up the spare capacity. This would enable, for example, the Borgata in New Jersey to apply for an operating license ahead of any shared online poker liquidity arrangement between the two states.

You Can´t Please All the People All the Time

After months of campaigning for regulated online poker with a sustainable tax rate and run by brick-and-mortar casinos (rather than the state lottery), proponents of online poker have criticized the proposals. Despite being practically identical to the proposals they support for regulated online poker in New York, proponents claim the high tax rate on online slots and table games will dissuade operators from entering the market.

They argue online poker alone will only provide a limited revenue stream and, without the profits from online casino games, the money will not be available for marketing, promotions and affiliate kickbacks. Despite the hypocrisy of their arguments (with regard to what they are campaigning for in New York), the proponents have the support of the Poker Players Alliance. The PPA believes that, without a strong regulated market, online poker sites in Pennsylvania will struggle to compete with offshore sites.

A number of compromise measures have been suggested to resolve the concerns of potential operators. These include a relaxation of the tax rates on online slots and table games, or a tax break against licensing fees. However, if it is perceived the reduced revenues will fail to meet the objectives of resolving the state´s budget deficit, it might be the case the online gambling proposals are scrapped altogether in favor of the regulation of Video Gaming Terminals.

There is an old saying you shouldn´t cut off your nose to spite your face – meaning you shouldn´t pursue a self-destructive over-reaction to a problem. Proponents of regulated online poker in Pennsylvania – and the PPA – might be well-advised to consider this saying.

Jacqueline Packett
Jacqueline Packett