Mini-Casino Sportsbook Fee Is A Thorny Issue

Should Stadium Casino LLC have to pay the $10 mm Pennsylvania sportsbook fee twice, even though one sportsbook would be at a mini-casino?

The prospect of an uneven playing field has emerged when it comes to sports betting at Pennsylvania’s future mini-casinos, which a lawmaker explains as an unintended consequence of the “sausage-making” involved in the gambling expansion law.

The issue is whether Stadium Casino LLC should have to pay a $10 mm licensing fee to operate a sportsbook at its Westmoreland Mall satellite casino, on top of $10 mm for a sports wagering license at its under-construction Philadelphia Live! casino.

That doubling-down requirement is pending due to an initial Pennsylvania Gaming Control Board legal staff interpretation of the 2017 law that authorized both mini-casinos and sports wagering. Stadium Casino officials and the Westmoreland County legislators supporting them argued at an Oct. 30 gaming board hearing, however, that it is unwarranted, unfair, and economically unrealistic to attach a $10 mm fee to any mini-casino’s sportsbook development.

It’s a law of unintended consequences

Rep. George Dunbar, who represents the district where the mini-casino will be located, said the broad gambling expansion legislation consisted of multiple bills and concepts that were consolidated into one without much discussion.

“Some of you know how the sausage-making takes place over here,” Dunbar told the board. “Each bill [originally] stood on its own and was dropped into an omnibus bill … Sports wagering didn’t exist at the federal level, so it was just dropped in, and there wasn’t a whole lot of thought as to how it would affect everything else. It was put in with the idea of authorizing sports wagering at as many places as possible.”

The result was a situation in which, following the U.S. Supreme Court ruling in May 2018 that allowed states to legalize sports betting, most existing Pennsylvania casinos have been willing to pay for a $10 million sports wagering license.

Under a separate section of the 2017 law, four casinos, including Stadium Casino with a bid of $40.1 mm, also won at auction the right to develop five mini-casinos.

Three of the mini-casinos are being developed by Hollywood Casino and Parx Casino, which are among the state’s Category 1 racetrack casinos. The sports betting section of the law allows them to provide sports wagering with no additional fee at any off-track betting parlors, as Parx has already done at two Philadelphia locations. Parx and Hollywood thus plan OTB parlors within their mini-casinos.

Stadium Casino and Mount Airy Casino Resort, which is planning a mini-casino in Beaver County, are in a different situation as Category 2 casinos without racetracks and OTB parlor authorization. The legislation did not specifically address sports betting fees for mini-casinos, but as it stated a $10 million fee would generally be required for sportsbooks, Stadium Casino officials were notified in August of an initial interpretation by the board’s legal staff that they should expect to pay that fee to operate a mini-casino sportsbook.

It’s about common sense as well as intent

Sen. Kim Ward of Westmoreland County concurs with Dunbar that such an interpretation flies in the face of the Legislature’s intent and practicality, considering the size and purpose of the Category 4 satellite casinos.

“An additional $10 million was never considered for newly established Category 4 casinos and it doesn’t make economic sense,” she told the board. “There is no way they can pay $10 million for a facility a fifth the size of these larger facilities … We’re looking at getting as many people into these facilities as we can, more people to play table games and slots. We need to make sports wagering accessible and affordable, but it is not at $10 million.”

The local lawmakers both said the board has the discretion to interpret the law as not requiring a fee, rather than expecting the Legislature to revisit the issue with another bill for clarification.

Officials from Baltimore-based Cordish Companies, owner of Stadium Casino and the Live! developments, said they were excited about the prospects for offering sports betting at both the Philadelphia and Westmoreland properties, based on the increased excitement and traffic they draw, which boosts other casino revenue.

But given the size of the mini-casino, paying more for sports betting there is not justifiable, they said.

“As you look at the direct revenue associated with sports betting, though it’s been an impressive start [at existing Pennsylvania sportsbooks], it’s a very small fraction of overall gaming revenue,” said Rob Norton, president of Cordish Gaming Group. “When you transmit that to expected profitability, we expect profitability of sports betting to be marginal at best.”

Bypassing fee could be a win-win-win-win

He and others from the company said that if the gaming board fails to let the mini-casino piggyback on the primary $10 mm license of the Philadelphia casino — which is slated to open in late 2020 like the mini-casino — it will mean less revenue for the commonwealth, fewer jobs created, and a lesser entertainment experience for patrons.

“We think it’s a four-way win” to allow mini-casino sports wagering with no additional fee, said the casino company’s lawyer, Mark Stewart. “It’s the best solution for Pennsylvania, for the host community, for patrons, and licensees.”

While Mount Airy is facing the same potential licensing obstacle in offering mini-casino sports betting, as it has stated its intent to provide, Mount Airy is not as far along with its Beaver County project and so has not spoken publicly on the topic.

But if both Stadium and Mount Airy would be expected to pay a prohibitive fee that the racetrack casinos could avoid, Stewart said, “you’re setting up a situation where all Category 4 casinos are not on equal footing. We don’t think that advances the policies of the Gaming Act.”

Board members were generally mum on their own opinions while asking a few questions of casino representatives at last week’s board hearing. A member of the board’s legal staff said that the board possessed the ability to interpret any vagueness or ambiguity in the law as it chose, but the board deferred taking any action at the meeting.

Board already made one practical interpretation

The board next meets Nov. 20, and spokesman Doug Harbach said he could not predict whether a decision will be rendered then.

In a separate sportsbook matter at the meeting, the board voted in favor of a request from Stadium Casino that it be allowed to operate online sports betting prior to completing work on its Philadelphia casino and opening a retail sportsbook there. The state’s gaming law seemed to preclude that sequence, but the board’s action also acknowledged that in the era when federal law prohibited sports betting outside of Nevada, the Legislature had not really considered the possibility a casino might have an opportunity to offer online sports betting while still constructing its facility.

“That’s an example of how the board looks at the real world and says, ‘Here’s how we can interpret this and allow something to make sure the Gaming Act is getting its benefits out to the commonwealth,’” Harbach said, while noting it had no bearing on the pending decision about mini-casino fees.

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