Pennsylvania’s long-running effort to regulate online poker and casino games appears poised to take a crucial step toward resolution.
According to the Poker Player’s Alliance, the Senate Community, Economic, and Recreational Development Committee (CERD) is expected to hold a hearing May 9th regarding online gambling regulation.
That echoes CERD Chairman Sen. Mario Scavello’s recent comments to Online Poker Report.
CERD has yet to formally schedule a hearing. Sources close to the process tell OPR that the only goal of such a hearing would be to bring a bill forward for a vote.
The bill in question is H 271. Background here.
What happens if a bill moves out of CERD? The process is relatively straightforward, at least on paper:
What we don’t know is exactly what proposal CERD will advance.
We’ve heard rumblings out of the Senate regarding a number of possible approaches to regulated online gambling, including:
“We want to protect our investment,” Scavello told OPR. The tax rate “will be finalized by Monday, and hopefully Tuesday we’ll have the vote. Could it be less? Yes it can. We just need to have a discussion in our committee on what we can support.”
The tax rate is thought to be the primary point of contention among stakeholders. But strident opposition from Sands Bethlehem, conditional opposition from Parx, and the wildcard of VGT legalization could also throw wrenches into the works.
The House faces similar divisions over tax rates.
Rep. George Dunbar, the primary sponsor of legislation in that chamber, has consistently advocated for a 14 percent tax rate. Setting the rates significantly higher “would essentially kill internet gambling,” Dunbar has said.
But Rep. Scott Petri, chair of the House Gaming Oversight Committee, recently told OPR that setting online tax rates below the rates currently applied to land-based casinos would “be penalizing casinos for having accepted the previous rate.”
Set a tax rate of 20 percent and we project Pennsylvania online gambling operators could generate about $364mm industry-wide from online gambling at maturity, throwing off about $72mm a year in tax revenue for the state:
If lawmakers set the tax rate at 54 percent – which would be the highest rate for online gambling anywhere in the world – we project operators will cut back on player returns, marketing, game libraries, promotions, and just about everything else.
Why? Consider this chart of where an average dollar of revenue goes at a New Jersey online casino:
Such cuts would naturally reduce revenue for operators and the state even in the absence of competition.
But Pennsylvania’s regulated online casinos won’t lack competition. The state’s legal online casinos will compete against black market sites. Black market sites will not face the same tax and regulatory burdens as legal sites. The international experience has proven again and again that black market sites usually win under those conditions, creating an additional drag on revenue and tax receipts.
An excessive tax rate could generate additional unintended consequences, including: