PA online gambling creates nearly $100 million in taxes in first year

A Story Of Unparalleled Growth: Year One Of Online Gambling In Pennsylvania

Pennsylvania has just turned the page on a first year of legal online gambling that was, by most measures, a resounding success.

Operators in the state combined to earn more than $240 million in iGaming revenue through the end of June, numbers that surged as the coronavirus interrupted land-based gambling.

The reopening of PA casinos starting last month did spawn the first decrease since launch, but it’s no cause for concern. The small dip comes in the context of a 30% increase from April to May, which itself comes on the heels of a 73% leap the month before.

More dramatically, the $50 million in online revenue operators collected in June is nearly a 15x increase over the first full month of operations in August 2019.

Three factors for PA online gambling growth

The bulk of the recent gains stems from the shutdown of the state’s brick-and-mortar casinos. But there are a few other factors contributing to the growth over the longer term.

First, there’s the steady addition of new brands to the PA online casino market. For the first months of online gambling in the state, there were just three: Hollywood, Parx, and SugarHouse. Now there are 10.

Three launches in particular caused revenue to leap:

Another factor, of course, is the natural growth of the industry itself. When a new type of product comes to market, it can take time for consumers to warm to it — or even to become aware of it. Legal online casinos and poker sites are still a novelty for most Americans.

Even with new brands launching, the state’s three original operators nearly tripled their combined revenue from August 2019 to February 2020. They’ve tripled it again since then, and some amount of that growth should prove to be lasting and organic even with casinos reopened.

Online slots skyrocketed during shutdown

When it comes to casino gambling, slot machines are king. That’s as true online as it is in brick-and-mortar casinos. It isn’t equally true for all operators, though.

In the early months of PA online gambling, slots made up around 75% of total revenue. With the launch of PokerStars, the only company offering PA online poker, it dropped closer to 50%. PokerStars draws less than a third of its revenue from slots.

DraftKings and FanDuel, which also have a different focus, likewise generate proportionally more revenue from table games than their more traditional competitors.

Counteracting that trend, however, is the fact that slots have grown more than other products during the casino shutdown. This may indicate that slots players in PA are more likely to see online play as a viable alternative than their peers who prefer table games.

Since March, the share of overall revenue contribution from slots has crept back up toward 75%.

Nearly $100 million in PA taxes after one year

One major talking point after Pennsylvania passed its gambling expansion bill was the exorbitant cost of doing business there. Some were concerned that the high taxes and fees might cause operators to shun the market.

The tax rate for slots received particular scrutiny. Operators pay 34% of gross slots revenue to the state, an additional 13% for county grants, and a 7% local share assessment for a total of 54%.

Even that rate, however, has not had the expected chilling effect.

Through 12 calendar months of PA online gambling, operators paid $97.2 million in taxes to state and local governments — two-thirds of that in just the last three months. Across all nonsports verticals, the effective monthly tax rate fluctuates between 35% and 44%.

Pennsylvania is now pulling in roughly twice as much in monthly iGaming taxes as New Jersey despite the fact that NJ online gambling has been around for nearly seven years.

- Alex is a journalist from Dartmouth, Nova Scotia, Canada. Now site runner for Online Poker Report, he has been writing about poker and the online gambling industry in various capacities since 2014.
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