Everything You Need To Know About Pennsylvania’s Online Gambling Bill

Pennsylvania held several hearings on the topic of online gambling in the House and State Senate, but this was the first vote on an online gambling bill.

Here is a closer look at the legislation that will be the vehicle for iGaming in the state for the foreseeable future:

HB 649, the same bill, but different

The version of HB 649 that passed on Wednesday is not the same as the bill that was introduced back in February, as an omnibus amendment package was added to HB 649.

The Gaming Oversight Committee did amend the bill on Wednesday beyond the omnibus amendments as well. In a telephone conversation, Chairman Payne indicated that there were two new amendments to the bill; one that allows for the addition of video gaming terminals (VGT’s) at specific locations, and another that increased the buffer zone between video gaming terminals at off-track betting parlors and other casinos from 35 to 50 miles.

However, according to Payne, a previous omnibus amendment, that seems to have been the first vote taken on Wednesday morning, radically altered HB 649 a while back.

Changes to other aspects of gambling in PA

The changes in the omnibus amendment include virtually every gaming reform the state considered this year:

• Allows Category 1 (Racinos) to add slot machines at up to four off-track betting locations that are at least 50 miles from a casino. Each location could house up to 250 slot machines and would cost the primary casino $5 million per location.
• Allows Pennsylvania’s six international airports to partner with casinos (terms to be determined) and place slot machines in secured areas (for ticketed passengers). Licensing cost would vary by location from $1 million to $5 million, and the tax rate would be 34% compared to the 54% casinos and OTB’s would pay.
• Category 3 casinos would be allowed to increase the total number of slot machines by 250 for a one-time fee of $2.5 million, and add 15 additional table games for a one-time fee of $1 million.
• The state would also do away with the membership condition required of Category 3 casinos for a one-time fee of $1 million.
• A report on fantasy sports would be commissioned and submitted within 90 days of the bill (HB 649) passing.
• Liquor service would be extended to all hours. Each casino would pay $1 million per year for a total of five years. Thereafter the renewal fee would be $250,000 per year per casino.
• The PGCB would be able to approve progressive, hybrid and skill-based slot machines.
• Allows the PGCB to test new games via third parties, and requires games to be approved/denied within 30 days or they become conditionally approved.
• Category 2 casinos would be permitted to simulcast horse racing.    

Changes to online gaming licensing, taxation

There were also changes to the online gambling language of HB 649:

• Increased the licensing fee from $5 million to $8 million for online gambling operators (precluded to licensed brick & mortar casinos in PA), and from $1 million to $2 million for significant vendors, such as the online gaming platform providers like 888, PartyPoker and PokerStars.
• In addition to a 14% tax on gross gaming revenue, there is a 2% local share assessment assessed to each operators daily GGR, and a total of $2 million or .002% of GGR (whichever is greater) for problem gambling initiatives and a total of $2 million or .002% of GGR (whichever is greater) for drug and alcohol treatment programs.  

It’s unclear how many of these proposals will survive if the bill continues to progress through the legislature, or if it gets attached to the state budget. More on that later.

Potential revenue from online gambling

With the increased licensing fees Pennsylvania stands to make upwards of $100 million in 2016 from licensing fees alone.

The state has 12 brick & mortar casinos, and only the Sheldon Adelson-owned Sands Bethlehem is likely to not even consider online gambling. The only other casino one can envision passing on online gaming is perhaps Lady Luck, a small, Category 3 Resort Casino in southwestern Pennsylvania.

Essentially, each of the 10 (perhaps 11) operator and platform provider combinations will bring in $10 million to the state. Although, several casinos, such as the Rush Street-owned Rivers Casino and Sugarhouse Casino, will likely use the same online gaming platform, reducing their total license fee to $9 million for casinos sharing a software provider.

In subsequent years the state will rely on a 14% tax of gross gaming revenue from each operator. The GGR estimates for online gambling in Pennsylvania range from $165 million to $250 million in Year 1, and from $214 million to $350 million when the market matures down the road.

If Pennsylvania passes an online gambling bill this year and the industry launches towards the end of 2016 (it will take at least nine months, and likely longer, to craft full regulations, test software, and vet applicants), the revenue generated would look something like this:

• 2016: Around $100 million in up-front licensing fees.
• 2017: Between $23 million and $35 million in taxes on gross gaming revenue.
• 2018 and beyond: between $30 million and $49 million in taxes on GGR.

While not a final solution, online gambling revenue can definitely put a dent in the state’s nearly $2 billion budget deficit.

Potential revenue from other amendments

It’s difficult to project the revenue potential of the numerous gaming reforms, but the up-front fees alone could tally over $100 million on their own, particularly the addition of slot machines at OTB’s, increased hours of liquor service, and the expansion of gaming at the state’s three Category 3 casinos.

The path forward for the PA gambling bill

Now that the bill has passed the GO Committee, there are two potential paths forward for HB 649 to go from bill to law.

The first path forward for HB 649 is the traditional route of working its way through the two houses of the legislature before landing on the Governor’s desk to be signed into law. This path is usually a long slog; a slog the legislature might not be able to complete in 2015. For instance, one potential hang-up would be if amendments are attached to the bill by the Senate. If this occurs the revised bill has to go back to the House for another vote (where it could be amended again), and would only reach the governor if the two legislative bodies pass the same version of the bill. With HB 649’s new omnibus status it would be a Herculean lift for the state Senate and House to come to a consensus.

The alternative route for HB 649 would be to include online gambling, and perhaps some of the other less contentious gaming reforms in the state’s still unfinished 2016 budget — the 2016 budget is nearly five months past due. By incorporating online gambling into the budget, it prevents the Senate from adding toxic amendments to the bill (such as increasing the tax rate) before passing it. With the two sides (the legislature and the governor) looking for common ground, online gambling could be just what the doctor ordered.

If the online gambling bill is attached to the state budget, it could very well become law before the end of the year.