Wednesday, May 24th was a momentous day in United States online gambling legal history, as a bill which would legalize and regulate online gambling, including online poker, passed a vote of the full Pennsylvania Senate. H 271 was passed easily, by a vote of 38-12, just one day after making it through two committees: the Senate Community, Economic & Recreational Development Committee (11-3 vote) and the Senate Appropriations Committee (24-2 vote).
The bill is an over-arching gambling bill, covering a number of different state gambling areas, including local host fees, airport tablet gaming, daily fantasy sports, and online lottery sales. The most important to many readers of this site, though, is likely online poker.
The Pennsylvania Gaming Control Board would oversee the online gambling industry and would be authorized to issue up to a dozen online poker licenses and a dozen online casino gaming licenses. Yes, there will be separate licenses for online poker and casino gambling, and yes, twelve is the same number of land-based casinos that exist in the state. That is not a coincidence. If the licenses aren’t all claimed by the Pennsylvania casinos (Sands Bethlehem, for instance, has lobbied against online gambling because it is owned by Sheldon Adelson), the remaining licenses could be granted to operators outside of the state.
The big problem with the dual-license setup is the cost to operators. Each license – both the online poker and online casino games license – comes with a $5 million fee. When we carry the one, that means that an operator will have to shell out $10 million to offer everything. That might not be easy for some of them.
But that pales in comparison to the oppressive tax rate. Online casino games revenue, which includes things like slots and blackjack – would be taxed at an insane 54 percent. This bonkers tax rate (on top of the $5 million licensing fee) would likely result in most or all casinos to pass on offering online casino games.
According to an April article from Online Poker Report, online casino operators in neighboring New Jersey only profit about five cents from every dollar in online casino revenue. While Pennsylvania also taxes its brick-and-mortar casinos that same 54 percent on slot machine revenue, profit margin is higher – 15 to 20 cents per revenue dollar in New Jersey) and there are many other revenue streams from the casino’s restaurants, shops, and hotel.
Online poker, which in New Jersey generates far less revenue than casino gaming, would only be taxed at a 16 percent rate, which is much more reasonable and generally in line with other states.
From here, H 271 moves on to the Pennsylvania House, where it is certain to be amended before any sort of vote. One would think that the House would meddle with that screwed up tax rate, but that could affect the Senate’s support of the bill. The other non-online gaming aspects of the bill are a factor, as well, so perhaps if those – like the host fees, for instance – are seen as more important, perhaps the Senators would be more amenable to a more reasonable tax rate. But then, starting at 54 percent, how reasonable could it really get?