Pennsylvania State Senator Kim Ward recently submitted SB 900 for consideration as a potential fix for Pennsylvania gambling laws. The bill was cosponsored by a number of prominent state lawmakers, including Senate President Pro Tempore Joe Scarnati.
The legislation contains provisions for Video Lottery Terminals at bars and off-track betting facilities. SB 900 waives membership fees at Category 3 gaming facilities, which has been a contentious issue in Pennsylvania's gaming industry in recent years. More important for the online gambling industry in the United States, SB 900 contains provisions which would legalize online gambling in the state.
For that reason, one would think the bill would be celebrated by the Internet's gaming media. That has failed to be the case, though.
Tax Rate Seen as Outrageous
The tax rate on online gambling is see as "insurmountable", which is a good word for an outrageously-high tax system. If SB 900 were passed, the tax on online gambling would be 54%, which is the same as that imposed on Pennsylvania slot machines. It is obvious the 54% tax rate was chosen by Senator Ward because of the slot machine precedent.
The rate is far above industry standards. A bill proposed by Pennsylvania State Representative John Payne in February 2015 (HB 649) set the rate at 14% on gross online gaming revenue. The rate in nearby New Jersey is 15%. Thus, Sen. Ward's bill sets the tax rate 3.5x higher than most comparable laws in the nation.
High Licensing Fee
The licensing fee for online gaming is seen as high by national standards. To secure a license, operators would have to pay $10 million upfront. The fee was $5 million in John Payne's bill.
Paired with the 54% tax rate, the high licensing fee likely would be a poison pill for many of the states 12 gaming operators. Of those operations, 11 of the 12 have expressed support for online gambling, with only the Bethlehem Sands owned by Sheldon Adelson's gaming company, the Las Vegas Sands Corporation, saying it would prefer to have no online gambling.
If a company had to pay a $10 million fee to even launch a website, invest in startup costs, and then hand over 54% of revenues to the state, it would be a long time before it could expect profits--if ever. In the New Jersey online gambling industry, many of the operators likely still would not have made a profit.
In-Person Registration
That might not be the most harmful provision, though. Senate Bill No. 900 would require gamblers to register for an online account in-person at a land-based gaming facility. To gamble online, people would have to drive to a casino location and register an account, which most pundits say is outrageous and backward in the 21st Century. With the ability of people to pay tickets and taxes and monthly bill online, the need to register in-person at a casino is nonexistent.
Many see the in-person registration requirement as an inclusion by Parx Casino. The theory is that Parx Casino's prime location would give it an advantage over the remaining operators in the state. In fact, such a provision likely would quell signups for every casino in the state, hamstringing the online marketing promotions of Parx Casino and everyone else.
Misunderstanding Online Marketing
Those responsible for such a provision obviously have no understanding of the power of online marketing, with its ability to reach tens of millions of Pennsylvanians at any given time. Limiting marketing and registration to offline facilities limits the potential of signups by several orders of magnitude.
Category 3 Casinos Rejected
SB 900 also limits online casino licensing to Category 1 and Category 2 casinos. The Category 3 casinos, which have a limited number of slot machines and table gambes, would not be allowed to launch online gaming portals.
The differences in the Category 3 casino operators and other offline gaming operators in the state are stark. Category 1 and Category 2 casinos must pay a $50 million licensing fee upfront, but they are allowed to have up to 5,000 slot machines and 250 table games. Category 3 casinos only pay a $5 million licensing fee, but they are allowed only 600 slot machines and 50 table games. Play is restricted to gamblers who become "members" of the casino, along with hotel guests.
Kim Ward's law would ban the smaller gaming venues from operating online casinos. This further discrimination would limit competition in the state for online players, but also has a cumulative effect of limiting the tax revenues the state of Pennsylvania would collect. In fact, it is estimated the various provisions would undermine the very reason for instituting such a law in the first place: few casinos would even participate.
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