PA Senate Considering Committee Considering iGaming Vote
Online Poker Report

How Soon Is Now? Pennsylvania Senate Could See Critical Committee Vote For Online Gambling This Week

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UPDATE May 9, 7:46 A.M. PST: The CERD hearing was scheduled, then canceled. Sources tell OPR the committee continues to work toward consensus on which version of legislation to advance, and that they will continue to schedule hearings throughout the week.

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.

The path from there for Pennsylvania

What happens if a bill moves out of CERD? The process is relatively straightforward, at least on paper:

  • The Senate votes. If the Senate passes the bill, it moves back to the House.
  • If the House makes no changes to the bill and passes the bill, it moves to Gov. Tom Wolf’s desk.
  • But if the House makes changes to the bill, it returns to the Senate.

Simple enough.

But what bill will they vote on?

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.

No consensus in House, either

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.”

How much does the tax rate matter?

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:

PA tax revenue from online gambling

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:

NJ revenue chart

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:

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Chris Grove
- Chris is the publisher of OnlinePokerReport.com. Grove also serves as a consultant to various stakeholders in the regulated market for online gambling in the United States.