Other PA gaming measures don't provide quick infusion of revenue
Online Poker Report

Lawmakers Need To Pass PA Online Gambling If They Want Revenue, Balanced Budget In The Short Term

PA online gambling revenue
If Pennsylvania wants to balance its budget and not raise taxes, it might have no alternative but to legalize online gambling.

PA lawmakers are trying to hash out a gambling package designed to help fill a growing hole in the state’s budget.

The legislature has already earmarked $100 million in revenue from the yet-to-be-passed gaming measures for the 2016/2017 fiscal year budget. The proposed 2017/2018 budget earmarks even more.

There are multiple reasons the bill has been held up. But the bottom line is there isn’t a consensus when it comes to precisely what should be included in a gaming bill and how certain reforms should be structured. Lawmakers are busy debating their options.

But the state needs revenue quickly. Can it afford not to legalize iGaming?

When will a PA gambling package emerge?

According to GamblingCompliance’s Chris Krafcik, a gaming package could emerge from the Senate CERD committee as early as this week.

It’s now looking like the bill may have to wait until early May.

A House Gaming Oversight Committee hearing scheduled for May 3 is now listed as a joint hearing between that committee and the Senate CERD.

On that front, GO Committee Chairman Scott Petri recently said: “In the end, the plan that causes the least disruption and the most and quickest revenue is going to come out on top.”

Petri’s comment separates the wheat from the chaff. Pennsylvania needs money, and it needed it yesterday. Based on the need for immediate money coupled with the goal of little disruption, online gambling is the only rational answer.

An alternative doesn’t exist

Online gambling is the only proposal being considered that will eclipse $100 million (thanks to one-time upfront licensing fees) in the near-term.

Everything else under consideration has flaws:

  • The legalization of VGT’s (video gaming terminals) at bars, truck stops and other select areas could produce the revenue. However, it’s the most controversial proposal and would be the most disruptive.
  • The removal of the host amenity requirement from Category 3 casinos for a one-time fee that would amount to about $10 million over the course of five years is a pittance of what the state requires.
  • There’s not enough meat on the bone when it comes to tablet gaming at airports. The proposal requires a one-time fee of $1 million, Tablet gaming will take time to roll out, and will deliver only a slow trickle of tax revenue.
  • The legalization and regulation of daily fantasy sports will provide very little in the way of revenue. Licensing fees are likely to be small, as is potential tax revenue. In New York, a state much larger than Pennsylvania, DFS operators sent just $2.8 million to the state over a five-month period. That’s a fraction of what New Jersey online poker and online casino sites send to the state each month.

PA online gambling is a good answer

On the other hand, online gambling ticks off all of Petri’s boxes.

According to a white paper by Robert DellaFave, online gambling would generate an estimated $126 million in upfront licensing fees. It will also create close to $50 million in tax revenue over the course of its first year. DellaFave projects that number will reach $77 million by 2022.

Over its first five years. DellaFave estimates online gambling will reap a $400 million windfall for Pennsylvania.

Just as important as the revenue, online gambling isn’t disruptive, as it’s already taking place in Pennsylvania via black market sites. Legalization help protect consumers. It would also take an activity already occurring out of the shadows, to the financial benefit of the state and its land-based casino operators.

In neighboring New Jersey, online gambling has:

  • proven to be beneficial to land-based casinos;
  • helped Atlantic City casinos post their first annual gains since 2006; and
  • as the AP recently noted, “There’s no longer much of a debate about it: Internet gambling is helping to save Atlantic City’s casinos.”

By doing nothing, Pennsylvania would simply maintain the status quo, which is a thriving black market.

But PA has to legalize online gambling in the right way

Of course, Pennsylvania politicians could set the industry up for failure by killing the goose that lays golden eggs.

Lawmakers are considering a proposal to tax the industry at 54 percent. If that happens, the $126 million in upfront licensing fees will drop to zero, or very close to it. That would create a barrier for entry that no operator would be able to overcome.

If Pennsylvania wants to hit the revenue targets it set forth in the budget, the legalization and regulation of online gambling is the only real option.

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Steve Ruddock
- 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.