PA Still Desperately Looking For New Gambling Revenue, And Some See VGTs As The Answer

Tax Rates Aren’t The Only Thing That Could Derail Online Gambling In Pennsylvania

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Online gambling could have problems on the horizon in Pennsylvania, with a controversial source returning to the larger gaming debate in the state.

The VGT issue in PA

Last summer, the House of Representatives passed a comprehensive gaming reform bill that included the legalization of online gambling. That was the first of two gambling packages the House sent to the Senate in 2016. The Senate chose not to act on either piece of online gambling legislation. That is why the legislature is working on another package this year.

The bill passed by the House in the summer, HB 2150, was not without issue.

HB 2150 was one of two nearly identical proposals from which the House had to choose. In fact, there was only a single difference between the two gambling packages. One bill included a provision that would allow licensed bars and taverns to offer as many as five video gaming terminals (VGTs) on premises. The other bill did not.

The similarity between the bills led to quite a bit of confusion and delay in passage. In the end, the House voted against the package with VGTs. It was believed to be dead on arrival if it went to the Senate.

But VGTs in bars and taverns had sizable support last session. The support appears to be growing. VGTs are seen as another, or an alternative, way to increase gambling revenue for the state.

“When I was watching testimony on iGaming, I said, ‘He’s making the argument for VGTs,’” Rep. Mark Mustio, the sponsor of last year’s effort, told CDC Gaming Reports following a March 7 online gambling hearing.

Mustio plans to reintroduce his VGT bill this session. It could be tackled as a standalone measure, or more likely, be absorbed into the existing gambling bill, provided it garners enough support.

Where the casinos stand on VGTs

Last year, casinos were largely opposed to VGTs. This opposition is now showing signs of cracking. There are rumors the new bill will contain some concessions that could create opportunities for some current licensees.

Will these concessions be enough to get a VGT amendment through the House? That’s unclear, but VGTs have more support than they did last year. Then, the bill with VGTs failed by a 122-66 vote.

As one legislative source told Online Poker Report, “I don’t think it’s a slam dunk, but it definitely has some legs.”

Most casinos opposed VGTs at the March 7 hearing

Even with a couple defections, the casino opposition to VGTs is still very strong. Four of the five casino representatives who spoke at the March 7 hearing opposed VGTs. The fifth not did not mention VGTs at all.

Submitted testimony from Parx Casino also painted VGTs negatively:

“When factoring the significantly lower tax rate into the equation (59% vs 30%), one can easily see how the Commonwealth will actually lose tax revenue … This is without considering the devastating impact on our industry and the loss of thousands of jobs and substantial ongoing investment. In our view, the only winners in this proposal are the out-of-state game manufacturers who will sell significantly more machines.”

Caesars did not discuss VGTs during its testimony. It could be one of the casinos that sees VGTs as an opportunity.

Small casinos against VGTs

In its submitted testimony, Mount Airy Casino stated, “Mount Airy is adamantly opposed to the legalization of VGTs as they will only serve to cannibalize the existing casino licensees, which will dramatically reduce the tax revenue collected by the Commonwealth and ultimately hurt the Commonwealth’s taxpayers and local communities.”

Valley Forge Casino Resort CEO Eric Pearson submitted testimony ahead of the hearing:

“I would be remiss if I came before you today and did not mention our staunch opposition to proposals which would legalize Video Gaming Terminals (VGT) in Pennsylvania’s bars, taverns and licensed restaurants.

VGTs put the health and well-being of Pennsylvania’s gaming industry at risk. Some estimates project the legalization of VGTs would triple the number of legal slot machines currently operating in the state. This massive expansion will cannibalize the industry, reduce local share distributions, and put thousands of Pennsylvanians currently working in PA casinos on the unemployment line.”

Representing the Lady Luck Nemacolin, Donn Mitchell, chief administrative officer for Isle of Capri Casinos testified:

“… the implementation of slot machine gaming at bars, taverns, social clubs, fraternal clubs, truck stops and bowling alleys will quickly close that path and likely close the Lady Luck Casino, putting 300 Pennsylvanians out of work.

As soon as tens of thousands of additional slot machines are placed around the state, you dilute the gaming product, cannibalize existing revenues and threaten the employment of thousands employed by the casino industry.”

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The cannibalization effect

VGTs are one form of expanded gambling for which there is growing evidence that they do in fact cannibalize land-based casinos. As many as 8,000 of Pennsylvania’s 12,000 bars would likely add VGTs if allowed. (The estimate is a total of 40,000 machines statewide.) It would be hard to envision a scenario in which VGTs are beneficial to the state’s casinos. Those casinos are in the middle of a prolonged slot revenue slump.

The opposite side of the argument is that there are an estimated 40,000 illegal VGT machines already. So instead of cannibalizing casinos, legalization would simply bring these machines into the light (regulated by the Pennsylvania Gaming Control Board). It could add much-needed revenue to the state’s coffers in the process, the argument goes.

- Steve covers nearly every angle of online poker in his job as a full-time freelance poker writer. His primary focus for OPR is the developing legal and legislative picture for regulated US online poker and gambling.
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