In the fall 2017, PA lawmakers were grappling with a $2.2 billion budget deficit and desperate for new revenue streams with the potential to shore up state coffers. Legislators eventually found part of their answer in expanded gambling, passing a landmark bill which legalized a host of new gaming verticals, such as online and satellite casinos, sports betting, PA lottery and fantasy sports.
To get the money rolling in quickly, they settled on skyhigh licensing fees and tax rates which deviate sharply from national norms. While state gambling interests were disappointed, the majority have jumped on board, signing up to offer one or more of the newly-regulated verticals.
So far, the bill has provided a windfall for the Commonwealth, netting the state $322 million in startup fees. The number is impressive, considering that it doesn’t include tax revenue from the state’s nascent iLotto, fantasy and sports betting industries, all underway. What’s more, online casinos and poker sites haven’t even launched yet, and are expected to be a steady moneymaker for the state, which averaged $270 million/month in brick-and-mortar gaming revenue this year.
Let’s take a look at where the influx of cash is coming from, and which casinos stand to be the biggest players in the state’s new age of expanded gambling.
Mini-casinos – $127 million
As part of the omnibus gambling package, the state authorized an auction of 10 licenses for so-called mini-casinos, also known as satellite casinos.
Satellite venues are smaller than the state’s 12 current brick-and-mortar properties, and are allowed to offer 300-750 slot machines and up to 30 table games.
The law established general guidelines for where the mini-casinos could be located. A mini-casino could not be located within 25 miles of a Category 1,2, or 3 casino, or in a municipality that opted out. During the auctioning process, candidates would choose general locations for their prospective venues, and would later be tasked with choosing exactly where their property would be built.
Auctions kicked off in January, with the minimum bid starting at a modest $7.5 million. The first permit was scooped up by Penn National for the eye-popping price of $50.1 million, surely delighting state lawmakers.
The next two auctions generated an additional $62 million, with the fourth and fifth seeing permits sold for close to the base price. While last year’s bill provides authorization for 10 satellite casinos total, the bidding process has been halted due to lack of interest.
So far, mini-casinos have brought in just under $127 million:
- Penn National: $50,100,000
- Stadium Casino: $40,100,005
- Mount Airy: $21,188,888.88
- Parx: $8,111,000
- Penn National: $7,500,003
Online casinos and poker sites – $114 million
Online casinos and virtual poker sites have been the second biggest moneymaker in terms of licensing fees for the state.
During an initial exclusivity period, the state’s land-based casinos had the opportunity to purchase a package of iGaming licenses, which included online slots, table games and poker, for the discounted (and we use the word lightly) price of $10 million.
Nine casinos took up the state on its offer, dispelling fears that PA’s online gambling industry was DOA. After the exclusivity timeframe, Mohegan Sun decided to purchase all three licenses piecemeal for $4 million each, while Presque Isle Downs decided on a slots and table games license, opting out of online poker.
Later on, though, several casinos had a change of heart. Rivers, owned by the same company that operates SugarHouse Casino, decided to rescind all of its online gambling licenses, with Mohegan Sun and Stadium Casino following by giving up their online poker permits.
With several licenses left over, PA opened up the process to qualified outside entities. MGM and Golden Nugget soon appeared and scooped up a handful of the leftover permits, with MGM purchasing all three verticals and Golden Nugget claiming slots and table game licenses.
Along with Rivers, the Meadows and Lady Luck Nemacolin were the only other casinos to opt out of iGaming entirely. As it stands now, five poker licenses, along with a singular table games and slots license remain.
- Parx: $10,000,000
- Stadium Casino: $8,000,000
- Mount Airy: $10,000,000
- Hollywood Casino: $10,000,000
- Valley Forge: $10,000,000
- Harrah’s: $10,000,000
- SugarHouse: $10,000,000
- Sands Bethlehem: $10,000,000
- Presque Isle Downs: $8,000,000
- Mohegan Sun: $8,000,000
- MGM: $12,000,000
- Golden Nugget: $8,000,000
Sportsbooks – $70 million
PA legalized sports betting along with several other gambling verticals, but the act was contingent on the federal government repealing the Professional and Amateur Sports Protection Act (PASPA), which for several decades limited sports wagering mainly to Nevada.
In May, the Supreme Court did just that, unleashing a frenzy of activity from domestic and international stakeholders hoping to become big players in what could be a massive market.
In PA, buying into the industry is outrageously expensive, and not something which casinos have done lightly. To get started, properties must pay a $10 million licensing fee and contend with a 36% tax on gross gaming revenue.
While in New Jersey (where the fees and rates are much more reasonable) casinos jumped at the chance to build their own sportsbooks, there was no such fervor in the Commonwealth. As it stands now, sports betting licensees face a long road to profitability, and may see the vertical as nothing more than a loss leader.
Even so, seven casinos have ponied up the eight figure fee to offer sports wagering:
- Penn National: $10,000,000
- Parx: $10,000,000
- Presque Isle Downs: $10,000,000
- Valley Forge: $10,000,000
- Harrah’s: $10,000,000
- SugarHouse: $10,000,000
- Rivers: $10,000,000
Software platform providers and vendors – $7 million
PA’s casinos are now allowed to pursue online gambling, but few have experience in the arena. Fortunately, the state allowed experienced gaming software providers to team up with land-based casinos to get their sites up and running quickly and efficiently.
Of course, the state won’t greenlight these companies for operation without whetting its beak a little first. So far, seven platform providers have confirmed that they will be working with PA iGaming licensees. For the privilege, they’ll be paying $1 million each. Below are the companies which have gone on the record thus far. Several others, like SG Digital, have not been confirmed, but will likely enter as well.
- 888: $1,000,000
- The Stars Group: $1,000,000
- BetAmerica: $1,000,000
- SBTech:$1,000,000
- IGT: $1,000,000
- GAN: $1,000,000
- Rush Street Interactive: $1,000,000
Fantasy websites and miscellaneous fees – $4 million
While paltry compared to the state’s other fees, fantasy sports websites have brought in $500,000 for PA, with 10 sites paying $50,000 each. FanDuel and DraftKings completely dominate the space, with competitors earning just peanuts in comparison.
The state has also found a way to make more money via casinos classified as resorts, which include Valley Forge and Lady Luck.
The gambling expansion bill allowed these casinos to open up their gaming floor to non-hotel guests for $1 million, something which was not allowed previously. Valley Forge immediately purchased a license to do so, and has seen a surge in revenue as a result. Lady Luck has so far declined to do the same.
Valley Forge will also pump an additional $2.5 million into state coffers through the purchase of a license to offer 250 additional slot machines.
2019 outlook
While the state has so far raked in a whopping $322 million from expanded gambling licenses, the remaining permits, not to mention actual tax revenue, will net it even more in 2019.
A handful of brick-and-mortar sportsbooks have only recently launched in the state, with online casinos and online sports betting set to go live in the coming months. With land-based proceeds stagnant throughout 2018, the verticals will provide a much-needed infusion of tax revenue.
There are a variety of gambling licenses left which could add even more to state coffers. Here’s a breakdown of the remaining permits:
- Online table games: One license
- Online slots: One license
- Online poker: Five licenses
- Sports betting: Six licenses
- Satellite casinos: Five licenses
- Gambling manufacturers: Unlimited
- Fantasy sports operators: Unlimited
The state can still pad its bank accounts by selling off several more licenses. Online casino could net an additional $28 million, while sports betting could bring in upwards of $60 million. Satellite casino auctions are on hold, and could potentially bring in at least $7.5 million for each of the remaining five licenses.
More gaming manufacturers are also set to enter the space, which, at $1 million a pop, could be another welcome revenue stream.
In all, the state has already profited a tidy sum, and not a hand of online poker or casino has even been dealt. Lawmakers had a goal of making money fast, and by all accounts, have partially achieve it.
