How Many PA Online Casino Licenses Might Be Leftover? And Who Might Try To Get Them?

Pennsylvania is on the brink of opening up the application process for legal online gambling in the state. And that creates a new set of questions.

The baseline for PA online casino licenses

There are a total of 39 online gambling licenses available for different segments of the online poker and casino industry in the state. Conventional wisdom says not all of these will be snagged up for a variety of reasons.

That leaves a variety of questions:

• Who is going to get those licenses?
• Who is going to pass on some (or all) of the licenses?
• Which entities will try to get a license outside of the existing PA casinos, if licenses are available after the initial application process is over?

Short of being privy to the decision-making inside the state’s 13 casinos, these are difficult questions to answer, and they come down to a “best guess.” Still, we know a lot about what PA online casinos are planning.

First, how many licenses there are, and why they might not all be claimed

If we’re placing a sports-betting “over-under” on how many applications there will for online gambling licenses, we would make the “under” on 38.5 a prohibitive favorite.

First, let’s explain how the licenses work. At the start of the application process, any current casino licensee in the state can apply for the ability to offer online gambling. And for the first 90 days, casinos can only apply for “full” licenses, in which casinos can offer all three types of online gambling available in the state — slots, table games and poker. Each is treated differently, in terms of licensure and in how the state taxes revenue from each.

These full licenses cost $10 million, and there are in practice, 13 of them available. It seems unlikely all 13 will be gobbled up. Some may balk at the cost to offer online slots, which are taxed at a rate of 54 percent of revenue. Others may have no interest in poker, which has been an underwhelming product in a ring-fenced New Jersey market after five years.

And then…

After that initial period, casinos can pick which of those three types of games they want to offer — “a la carte” — at a cost of $4 million each. Some quick math: If you’re planning on offering all three types of games, then the full license is a no-brainer, as it comes at a savings of $2 million over the piecemeal licenses.

If a casino has no desire to run online poker now or in the future, for example, it may just skip the online poker license and get the other two. If you think you can’t profit on slot machines at the high tax rate, then you might skip that and just get the table games license. You can also get a license now and run things like slots at break-even or a loss and hope that tax rate is revisited in the future.

Which licenses could go unclaimed?

Despite the problems with the licensing procedure and the tax framework, there is still a very good chance that a lot of the aforementioned licenses are claimed.

Some casinos might choose to play defense, claiming the licenses so someone else can’t have them. They might also look at the licenses as an investment in the future. They may be a bad investment now or in the short-term, but that could change in the future.

For instance, the market for online poker isn’t the best right now. But New Jersey is on the cusp of sharing player pools with Nevada and Delaware, giving us real multistate poker for the first time. Add in PA and perhaps a few more states, and suddenly the market for online poker starts looking more appealing.

Still, there is no way all 13 casino licensees will try to get into online poker. Quite simply, even in a rosy future, there is not a need for 13 different poker networks, nor would that be sustainable. The right number is probably more like less than half of that. There are three major networks in New Jersey (four, if you count the very small Pala Poker).

There are also pretty good odds at least someone passes on online slots, and just tries to do table games, although it’s perhaps equally likely that all of these get snatched up.

Who might pass?

Again, this is a guessing game, but here are some candidates (not an exhaustive list):

• We have no idea what new Sands Bethlehem owner Wind Creek has planned on the online gambling front. It’s old owner — Las Vegas Sands Corp. — was definitely a wild-card, as CEO Sheldon Adelson has opposed iGaming at every turn. Still, what a tribe from Alabama has planned for online gambling is a mystery.
• Penn National, with the acquisition of Meadows, now has access to six of the 39 licenses. (It also owns Hollywood in Central PA.) Will it get all of the licenses it can? Probably not, especially if there are multiple skins allowed under a single license.
• Parx has insisted online gambling is bad for the state and its casinos. Still, it’s probably going to have to be a participant whether it wants to be or not.
• The smallest casinos in the state — like Lady Luck and Presque Isle — are also wild-cards. Golden Nugget is far from the biggest casino on the land-based side of things in New Jersey. But it dominates everyone in online casino revenue. Will small casinos try to replicate this success in PA with an aggressive strategy? The latter casino was recently purchased by Churchill Downs Inc., so it probably has designs on the online casino industry.

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Who else will try to get licenses?

The gaming law opens up online gambling beyond PA casinos if they don’t grab all the licenses.

After 120 days, if any licenses are available, “qualified gaming entities” can submit an application for the remaining licenses at a cost of $4 million per category.

That’s obviously a pretty vague phrase. It implies that you have to be licensed in some other jurisdiction, certainly. But the swath of companies it encompasses is pretty wide.

But if you’re not a PA casino, and you want a foothold in the state for expanded online gambling, you’ll probably be willing to stomach the tax rates and the licensing fee to get in. The potential list is pretty long, but the front-runners are companies that are already involved in the New Jersey market.

The short list

• If the number of casinos who sign up for online poker is low, the online poker sites in New Jersey could go after these licenses themselves. So, PokerStars, 888 Poker NJ, PartyPoker NJ, WSOP NJ and even Pala Poker. If the state limits the number of skins, this scenario may become necessary. All these sites would like to pool players eventually with New Jersey, so getting into Pennsylvania at all costs. But all of these sites will probably be in PA, via a partnership or a license.
• Existing Atlantic City casinos may also make a run at any left-over licenses. PA’s SugarHouse Casino, for instance, operates an online casino in the New Jersey market. It’s not a stretch to think everyone in currently with an NJ online casino might look to snatch up any licenses. After all, they already have existing online casino platforms that can be ported over with minimal effort. Online gambling regulations seem to say that servers could be located anywhere — including New Jersey — making this a relatively low barrier to entry.
• Casinos in neighboring states might be a longer shot to acquire licenses, but it’s not out of the realm of possibility.

Of course how many licenses will be available — and how they might be handed out — will be a mystery for awhile. But it’s just one more moving part in the puzzle in the future of PA online casinos.