For the last year, the state of Pennsylvania has been battling it out in the state legislature over the funding of the government. Neither the GOP-controlled General Assembly nor the Governor, Democrat Tom Wolf, can come up with a suitable budget that all parties can agree on. In this case, however, it is having an impact on whether the Keystone State will join the small fraternity of states who have passed online gaming and poker legislation.
Last week the Pennsylvania Senate voted against a budget package from the House that would have cleared the way for the budget to pass and online gaming and poker legislation to become a reality. In a resounding 43-7 defeat, the Senate rejected the overture from the House, citing that the House was depending on “one time” revenues and that it wasn’t a long-term solution for the state’s budget crisis. Pennsylvania’s budget deficit is currently projected to be $2.33 billion and growing due to unfunded spending.
Gaming and poker, both online and live, was expected to be a big part of the new budget, but it is also proving to be a major obstacle for the politicians. Although it accounts for a paltry $225 million in revenues, it is the expansion of live gaming (with video gaming terminals, or VGTs) located in bars or airport terminals that is proving to be difficult for some legislators to get behind. In many cases, the elected officials are trying to keep the VGTs from existing rather than allowing them into the mix.
Something that is holding solid in the budget discussions is the regulation of online gaming, poker, and daily fantasy sports (DFS). Under the budget discussions, the licensing of online casinos and poker rooms would be $5 million. The state has toyed around with what would be the taxation on the rooms once in operation, with many saying the talked about rate of 54% is unsustainable. A more realistic taxation rate of 10-12% has been in discussion, but it has ranged up to 25%. The licensing would be limited to those casino operations that exist (or will exist) in the state.
Legislators have a few concerns on the potential regulations. First, they are concerned that there may be a great deal of overestimating of the potential revenues from online casinos, poker and DFS. When looking to pass their regulations in 2013, New Jersey governor Chris Christie touted the potential of $250 million in net revenues in the first year of operation (the state barely earned $100 million in the first full year of operation). As Pennsylvania is only slightly larger than its neighbor (12 million to nine million), the suggestion is that the revenues are being overestimated.
There is also the expansion of gaming that some legislators are looking to prevent. Especially in the case of the VGT passage, legislators are wont to pass additional gaming locations or licenses in fear of impacting the bottom line of gaming that is already in existence. Although many studies show that online gaming is an aid to live gaming rather than a detriment and more live options present competition, the legislators are looking for the balance between competition and oversaturation.
Where the legislators do like the online gaming, poker and DFS regulations is that it is a permanent fixture. By being able to count on revenues from the online industry, it would not be a “one-off” that some of the projected revenue builders would be. Although they might not like an expansion of gaming in their state, the other option – raising taxes – isn’t any more palatable for the elected officials.
The serious issue at hand is that Pennsylvania’s General Assembly continues to punt the can down the road. It makes one concerned that, if they could find the revenues elsewhere, that the legislators would cut the passage of online gaming, poker and DFS legislation. After teasing their fellow Pennsylvanites with the potential of online gaming being licensed, could they pull the rug out from under their feet at the last minute?
