54% online gaming tax betrays lack of understanding
As proposals for legalizing online casino gambling in Pennsylvania lurch from one bad idea to another, one thing becomes apparent: Legislators need a better sense of the business and attraction of gambling.
Debates in Harrisburg about online gambling are nothing new; the first bill to legalize it was introduced in 2013. Last year, the House twice passed online gaming measures, but they died without a vote in the Senate, even though the state's 2016-17 budget includes $100 million in additional gambling revenue, presumably from licensing fees paid by online operators.
Several gambling measures have been introduced this year besides the legalization of Internet gaming, including daily fantasy sports betting; skill-based games; online gaming tablets in airport passenger areas; ancillary slot locations operated by casinos; and up to five slots at bars, restaurants and clubs that hold a liquor license.
All merit consideration as the Legislature considers what's best for all Pennsylvania residents, as well as its gamblers and the operators who provide more than 18,000 jobs in the No. 2 state for casino gambling revenue.
Approval of online gaming within state borders should be an easy decision. While only Nevada, New Jersey and Delaware allow it now, they've set a solid example for consumer protections and enhanced tax revenue.
Estimates of Pennsylvania's gross online gaming revenue range from $307 million, made in a 2014 study done for the Legislature, to $413 million in a report presented in March by Paul Irvin of the Innovation Group. Using those estimates and the originally proposed 16 percent tax rate, the state would get $49 million to $66 million a year from online gaming, in addition to one-time licensing fees that totaling $100 million or more.
But with the abandon of a gambler refusing to pocket a sure win, some legislators argue instead for a 54 percent rate, saying online and land-based slot revenue must be taxed the same.
What could possibly go wrong with that? That is, other than insisting on 54 percent of nothing?
At that tax rate — more than triple New Jersey's and higher than France, the Czech Republic and Greece — operators simply wouldn't offer online slots and table games in Pennsylvania.
“You're not going to get any takers,” at that rate, internationally renowned online gaming expert Sue Schneider tells Player's Advantage. “It's just not feasible.”
That's not a new argument. A parade of Pennsylvania casino executives made that point at a March legislative hearing. In 2016, Matthew Katz, founder and CEO of CAMS LLC, a California company that provides software for online gambling operators in Nevada and New Jersey, told me that he would look closely before committing to work in Pennsylvania because recouping his New Jersey setup costs will take “years and years and years.” A 2012 study by PricewaterhouseCoopers examining tax rate scenarios for online gambling in Sweden said a 10 percent rate would lead to the most revenue in the long term.
Schneider, editor in chief of the monthly Gaming Law Review and a founder of the Interactive Gaming Council, points to an Online Poker Report chart detailing how online revenue is spent in New Jersey: about 44 percent for advertising and player retention, 20 percent in taxes and regulatory fees, 18.5 percent in payment and platform costs, 12.5 percent in staff and administration and 5 percent in profit.
Online gaming would be an additional amenity for Pennsylvania casinos, appealing to an audience that by and large does not play in traditional casinos. It would strengthen an industry that has proved to be a positive for the state and its residents.
Imposing an onerous tax rate would be a huge mistake. So would two other ideas that popped up recently: putting the state lottery, rather than the Gaming Control Board, in charge of online gaming and allowing operators other than casinos to get online licenses.
“We seem to be going in the wrong direction in Pennsylvania,” Schneider says. “It belies a lack of understanding of how things work.”
Mark Gruetze is the Tribune-Review's gambling columnist. Reach him at PlayersAdv@outlook.com.
Eldorado Resorts takes over Lady Luck Nemacolin
Eldorado Resorts, which owns Mountaineer Casino in West Virginia and Presque Isle Casino in Erie, now operates Lady Luck Nemacolin as well.
The Fayette County operation is one of 12 casinos that Eldorado added to its multi-state portfolio through the $1.7 billion purchase of Isle of Capri Casinos Inc. The sale closed on May 1. Eldorado, based in Reno, Nev., now operates 19 properties in 10 states.
According to the company history, founder Don Carano started the firm in 1973, when, against the advice of business associates, he built Eldorado casino hotel on the north side of the railroad tracks crossing downtown Reno.
Lady Luck Nemacolin is one of two resort casinos in Pennsylvania, with 595 slot machines and 27 table games.