PA Senate Online Gambling Hearing Recap

Pennsylvania Ready To Regulate Online Gambling, But Questions From Key Lawmakers Linger

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The Pennsylvania Senate Community, Economic and Recreational Development Committee held its second hearing regarding online gambling regulation in as many weeks Wednesday

Across a two-hour run time, the hearing offered a mix of reasons for optimism and pessimism concerning Pennsylvania’s chances for passing an online gambling bill in 2015.

Watch video of the hearing or review the legislative hearing packet.

Regulators “confident” online gambling can be “effectively regulated”

On the positive side, Pennsylvania gaming regulators were definitive on the issue of whether or not state regulatory agencies are ready to handle online gambling.

Kevin O’Toole, Executive Director of the Pennsylvania Gaming Control Board (PGCB), testified that “the board is confident that this activity can be effectively regulated.”

In terms of a time frame for launch following bill passage, O’Toole noted that his agency could only control the speed with which they processed applications, and not the speed with which operators submitted applications.

But barring unusual delays on that side, O’Toole said he was anticipating a range between nine to twelve months to begin play after the law took effect.

O’Toole also provided reassurance to lawmakers concerned about the technology underpinning regulated online gambling, saying that he’s confident that current tools “ensure to a reasonable degree that only adults over 21 can register and play over the Internet” and that “age verification at time of registration has a high degree of confidence.”

Read O’Toole’s testimony here.

Michael Cruz, Chief Technology Officer for the PGCB, did indicate that the Board would require additional staff and resources in order to properly oversee regulated online gambling.

Read Cruz’s testimony here.

Revenue impact remains a concern

The question-and-answer periods of the hearing revealed that a number of lawmakers have a range of questions and doubts regarding online gambling regulation.

The most common concern expressed: the impact of regulating online gambling on the tax revenue Pennsylvania draws from the state’s land-based casino industry.

The most comprehensive (and recent) research on the subject concluded that regulated online gambling boosts land-based casino revenues.

Sen. Larry Farnese and Sen. Sean Wiley both raised the issue. Wiley included it among a litany of other points of worry such as geolocation technology and problem gambling ramifications.

In May, Wiley announced his intention to  sponsor a gaming reform bill that would authorize online poker only in Pennsylvania.

Sen. Tommy Tomlinson continued to voice his unease with assigning a lower tax rate to online gambling than the rate for land-based gambling, arguing that to do so would incentivize casinos to steer customers toward the online product, ultimately costing the state revenue.

The leading initiative to regulate online gambling in the Senate – SB 900 – calls for a 54% tax rate.

A chart recently shared by Chris Krafcik of GamblingCompliance illustrated just how much of an outlier that rate would be:

Online gambling tax rates

Numerous Pennsylvania casinos have pushed back against the proposed tax rate. Penn National recently estimated that the company would lose some $30mm in the first 3 years of operating online under such a structure.

The tax rate in the leading House initiative – HB 649 – is set at 14%.

Ward suggests online may still face wait

According to the Pittsburgh Post-Gazette, following the hearing, Sen. Kim Ward (chair of the CERD) suggested that “she does not expect gaming legislation will be ready by June 30.”

“Right now we’re working on a budget in the Senate that does not include any money from gaming,” Ward told the Post-Gazette.

While Ward’s comments may seem discouraging, the hard reality of the matter is that Pennsylvania is facing a substantial budget gap – a gap that will require not just work, but tangible sources of revenue to overcome.

Online gambling is one of the few non-tax tools for raising revenue available to Pennsylvania lawmakers.

In terms of legislation being ready on the technical side, I have little doubt that Pennsylvania lawmakers – who have been involved with the issue for several years, have seen multiple bills move through various stages of the process, and can draw upon the experience of Delaware, Nevada and New Jersey have the ability to produce a finished bill by the budget deadline.

PA hearing coverage and resources

- Chris is the publisher of Grove also serves as a consultant to various stakeholders in the regulated market for online gambling in the United States.
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