When Gov. Tom Wolf signed legislation making Pennsylvania the fourth US jurisdiction to legalize online gambling, regulated industry proponents were ecstatic. However, widespread optimism is quickly turning into concern as analysts and researchers delve deeper into the effects the final version of House Bill 271 will have on the entire Keystone State gambling world — both live and online.
Aside from opening up the market to online lottery, slots, tables games and peer-to-peer gambling within Pennsylvania’s borders as well as in airports, the new law drastically reshapes the brick & mortar landscape with the addition of Video Gaming Terminals (VGTs) and Category 4 mini casinos — effectively devaluing the worth of land-based casino licenses sold roughly a decade ago to the 12 locations that currently operate in PA.
And while online gambling provides these casinos with a great opportunity to cross-promote their respective brands while offering services to a larger number of PA casino-goers, the jaw-dropping license fees, unprecedented level of control, and sky-high slot machine tax rates implemented by Pennsylvania lawmakers could pave the way for a failed business model that threatens future iGaming legislation in other states.
In an effort to share publicly available information with industry stakeholders and casino patrons alike, this article will focus on Pennsylvania land-based slot machine Return to Player (RTP) percentages, and how they correlate with an approximately 54% tax rate of Gross Gaming Revenue established by lawmakers.
Pennsylvania slot machine returns
To make it quite clear from the outset, Pennsylvania land-based slot machine returns are among the worst in the United States, and pale in comparison to percentages enjoyed by slot players in Las Vegas, where customers are afforded a far superior Time on Machine Entertainment experience.
For the past 30 months, Pennsylvania slots have returned the following percentages of “total amount wagered” to its players.
|Casino||Slot RTP (8/15 - 12/17)|
Compare that to Las Vegas casinos where slot machine enthusiasts routinely have an average return expectation exceeding 92% on the dollar — or “riverboat” options that can exceed even those friendly RTP figures. Brick & Mortar slot terminals in neighboring New Jersey average 91% RTP while New Jersey’s regulated online slots pay back between 95% and 96% of total amount wagered to players.
PA land-based casinos are far less attractive to out-of-state tourists who are likely to forego Keystone State destinations in lieu of more attractive options — and you don’t have to look much farther than the brazen 54% tax rate on Gross Gaming Revenue to decipher why Pennsylvania’s slot terminal RTP margins are lower than in other jurisdictions.
Does better slot RTP increase overall revenue?
Parx Casino in Bensalem is Pennsylvania’s market leader in terms of total Gross Gaming Revenue on slot machines since Fiscal Year 2015 with close to $1.2 billion in GGR. Although the table above shows that Pennsylvania slot payouts are very similar, Parx ironically boasts the best overall RTP in the state in that time frame at 90.88% — which could be a direct cause for the Category 2 casino’s popularity among slot players.
Interestingly, we note a similar phenomenon in New Jersey, where the Borgata is both by far the biggest Atlantic City casino, and the one that offers the best returns on slots.
On the flip side, Penn National property Hollywood Casino in Grantville has the lowest payout rate since 2015 at 89.25%, a number that may very well be a reflection of the lack of competition in the surrounding area.
If Hollywood had been forced to raise its RTP just one percentage point higher during this time, it would have cost the casino over $6 million. So this could partly explain why its parent company is so concerned with protecting its terrain, evidenced by its imminent acquisition of Pinnacle Entertainment and the exorbitant fee of $50.1 million it paid to build a mini casino facility in York County.
Slot machine tax rates will have a greater impact on PA iGaming
Online slot machine GGR in Pennsylvania will be taxed at the same amount as land-based slots, which will place even more pressure on the iGaming space that it already does on brick & mortar businesses.
For one, online slots tend to have a significantly higher baseline RTP than their land-based counterparts, with operators granted less control over returns. But even more importantly is the fact that B&M’s are capable of maintaining their business models through higher margin, non-gaming revenue generators such as food and drink, lodging, and entertainment.
Given the pressure Pennsylvania’s online slot tax rate will place on incoming licensees, it is difficult to see how more than a small number of deep-pocketed operators can survive such an environment.
Regulated online gambling in the Keystone State is a big deal, and an important win for proponents of iGaming around the country. However, it is apparent that Pennsylvania lawmakers have parlayed the widespread desire to regulate online gambling into an unprecedented money grab that reaches far beyond the iGaming space.
At the same time, the US gambling industry as a whole now faces growing pressure from a number of interests looking to cash in on potential sports betting legalization that will force operators to adjust either by relaying the added cost to customers, merging to ensure market competitiveness — or both.
Regulated iGaming proponents in the United States would do well to closely monitor slot machine GGR figures once Pennsylvania online games become a reality. If land-based casinos have been forced to lower their RTP to remain competitive with the state’s high tax rate, one can assume that Pennsylvania online slots operators will invoke their own cost-cutting strategies — which could in turn negatively affect the health of the industry as a whole.