Penn National: ‘No One Will Sign Up’ For Online Gambling If Pennsylvania Sets Tax Rate Too High

One of Pennsylvania’s most influential casino operators issued a warning to lawmakers Thursday: If you make the tax rate for online gambling the same as the land-based rate, you’ll end up with an industry that’s finished before it even starts.

That was the message from Penn National’s SVP of Public Affairs Eric Schippers during the company’s quarterly earnings call.

Online gambling remains in the mix, but tax rate is a non-starter

Schippers made his comments in response to an analyst’s question regarding Pennsylvania.

“iGaming is firmly in the mix” in both the House and Senate, said Schippers, noting that the “key question around iGaming right now is focusing on the tax rate that would be applied.”

Current legislative proposals to regulate online gambling call for tax rates ranging from 15 percent to 25 percent. But a movement to mirror online and land-based tax rates (54 percent for slots, 16 percent for table games) has been gaining momentum among key Pennsylvania lawmakers.

Such rates would be the highest in the world for regulated online gambling.

“We are trying to knock down some sort of silly notion that you could have tax parity between iGaming and the slot machines and that it could be a successful industry and we’re trying to convince them that if they do this, no one will sign up for it,” said Schippers.

Pennsylvania Lottery attempting to usurp online operation from casinos

In addition to pushing back against calls for an unsustainable tax rate, Schippers revealed that Penn National is also “fending off an effort by the state lottery to be the provider themselves.”

The idea that the state could effectively operate regulated online casino and poker games is faulty at the core.

The Pennsylvania Lottery’s has a total lack of experience with online product and is unable to meet sales targets for the products it currently oversees.

Delaware’s lottery-run online gambling scheme has been little short of a disaster. The inexperience of the agency, limited choices for consumers, and inverted financial incentives have all added up to a market that has drastically underperformed its peers.

Hundreds of millions at stake for state, casinos

Online gambling has the potential to make a material difference in Pennsylvania, a state currently facing a multi-billion dollar budget shortfall.

Upfront licensing fees could produce up to $126 million in immediate revenue for the state before the sites deal their first hand. Based on New Jersey’s performance, Pennsylvania could realize nearly $300 million more in tax revenue in the first five years of operation.

The state’s casinos stand to benefit significantly as well. Conservative projections put the annual revenue for a regulated online gambling market in Pennsylvania at $230 million in the first year, rising to $364 million by the fifth year.

Per the New Jersey online casino experience, that revenue would largely be new revenue driven by new customers. The Borgata, Caesars, and Golden Nugget have all confirmed that over 80 percent of their online casino customers were not previously active customers at the land-based property.