PA Online Gambling Hearing Highlights Fault Lines In State

Pennsylvania Online Gambling Hearing Highlights Fault Lines Among Industry, Lawmakers

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The battle lines were drawn on Pennsylvania online gambling during a legislative hearing on Tuesday afternoon.

Online gambling was the subject of a joint hearing of the Senate Community, Economic & Recreational Development Committee and the House Gaming Oversight Committee.

The hearing was a mixed bag for supporters of online gambling.

Opponents were particularly strident in pushing against a proposed tax rate perceived by some as too low, and the possibility that revenue would not meet expectations.

Still, many of the witnesses were supportive of online gambling, and there were reasons for optimism.

You can review a full list of submitted testimony here.

Cannibalization, tax rate are going to be the key online gambling issue

Near the start of the hearing — and then throughout the hearing — Sens. Lisa Boscola and Robert Tomlinson questioned whether online gambling could cannibalize existing land-based casino revenue and the potential problems resulting from tax rate. (Boscola represents the district that houses Sands Bethlehem Casino, which has opposed iGaming. Tomlinson’s district houses Parx Casino, which has the same position.)

The tax rate for iGaming

They argued that the tax rate for online gambling — as low as a suggested 14 percent rate — could mean that casinos move away from their land-based operations. (Slots are taxed at a 54 percent rate in Pennsylvania.

Pennsylvania Gaming Control Board Executive Director Kevin O’Toole, who was the target as these questions came up, fought back against those assertions. He said that the experience in neighboring New Jersey has not borne out these concerns that online gambling.

Tomlinson’s analysis also ignores the fact that a prohibitively high tax rate would basically stop the online gambling industry before it ever got stated in PA. (Basically, the fact that Pennsylvania passed a very high tax rate on land-based slots shouldn’t mean it simply makes an equivalent — or similar — tax for online.)

That was backed up by the next testifier, David Satz, Senior Vice President of Government Relations and Development, Caesars Entertainment. Satz dismissed the idea that the lower tax rate would affect his or other gaming companies, or incentivize them to turn away from their land-based business.

Cannibalization in PA?

Despite a host of research and anecdotal evidence to the contrary, the possibility that online gambling could cannibalize casino revenue still comes up in statehouses. That’s not a stance that has any basis in reality, but it’s an argument that continues to be advanced.

Satz — both in prepared and spoken testimony — actually testified that online gambling helps the bottom line of land-based casinos. At core, iGaming often activates new customers and reactivates lapsed ones.

Still, from the questions from lawmakers, it’s still an angle that needs to be addressed to ease their concerns.

Revenue for PA from online gambling

It should be beyond reproach that online gambling would generate new revenue for the state. Estimates put the revenue possibility for online gambling in the hundreds of millions in taxes and fees over the first five years.

But that’s not the narrative that many were advancing on Tuesday. That included Tomlinson and Anthony Ricci, CEO of Parx Casino. Parx generates the most revenue of any of the state’s 12 casinos.

Ricci argued the points above: that the lower tax rate and cannibalization would result in less tax revenue for PA. There’s obviously a wide gulf between the casinos that want online gambling and their perspective that it will be additive to revenue and Parx’ argument that the opposite will occur. Almost every other casino supports iGaming in PA.

Will the consumer protection angle work?

Here’s the fact of the matter: Online gambling and poker are being played in Pennsylvania

Satz noted that online casinos exist in PA an unregulated environment right now, with zero consumer protections and provides zero tax revenue to the state. It was a stance that was reiterated by the Poker Players Alliance and Rep. George Dunbar. Dunbar, perhaps a bit too late into the hearing, tried to make the case that the bill was regulating an unregulated business.

The Coalition to Stop Internet Gambling argued that the legalization and regulation of iGaming would create dangers for minors, an idea that at least one lawmaker disputed, saying that regulation would be preferable.

The idea that online gambling regulation can stamp out a black market is one that should be one that resonates with lawmakers. But it’s not clear that argument took hold on Tuesday.

The PA Gaming Board’s perspective

O’Toole classified his agency as “supportive” of the one gambling bill that surfaced in the House, one that includes online gambling. (A Senate bill was just introduced as well.)  The bill would put the PGCB in charge of online gambling, a task O’Toole embraces, as he has in the past:

“The Board has the expertise to recommend that any expansion of casino-style gaming, including Internet gaming and fantasy sports, be placed under the purview of the Board if enacted by the General Assembly and the Governor,” O’Toole said. “We believe that efficiencies can be achieved by using the experience of our employees and that we can adequately protect the public and the integrity of gaming in these areas.”

For more details a live blog of the proceedings, go here.

Submitted testimony

- Dustin Gouker has been a sports journalist for more than 15 years, working as a reporter, editor and designer -- including stops at The Washington Post and the D.C. Examiner. He has played poker recreationally for his entire adult life and has written about poker since 2008.
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