October 30, 2017 marked a historic victory for online gambling proponents. It was on that day that Pennsylvania Governor Tom Wolf signed an omnibus gaming expansion bill, HB 271, into law.
With the signing, Pennsylvania became the fourth US state to legalize online gambling, thus ending a four-and-a-half year drought in which several states came close to pulling the trigger on iGaming — often on multiple occasions — but ultimately fell short.
Pennsylvania was one of these states, with discussions about online gambling dating all the way back to 2013, the same year that New Jersey, Delaware, and Nevada went live with their respective online gambling operations.
What follows is a brief look at the long road toward iGaming legislation in Pennsylvania.
Inside the provisions of HB 271
HB 271 is a comprehensive bill that underwent many revisions, with the final version clocking in at over 900 pages. We’ve dissected the bill, and pulled the important parts relevant to those interested in the online gambling provisions.
- Legalizes online poker, slots, and table games.
- 12 total licenses available, one for each of the state’s 12 land-based casino. Each license is broken down into three categories: poker, slots, and table games.
- For the first 90 days of the licensing period, casinos can apply for a collective license covering all three verticals for $10 million.
- After 90 days, casinos will be allowed to apply for an individual segment of a license for $4 million a pop.
- After 120 days, any unclaimed licenses can be purchased by qualified entities that aren’t PA land-based casinos. The cost per segment is $4 million.
- Vendor licenses will cost $1 million.
- The tax rate on online poker and table games is set at 14% of gross gaming revenue with an additional 2% allocated for a local share assessment. The slot rate is a hefty 52%, also with an added 2% reserved for the local share.
In addition to online gambling, HB 271 legalizes the following:
- Video gaming terminals (VGTs) at truck stops
- Online lottery
- Daily fantasy sports
- The construction of up to 10 Category 4 (satellite) casinos.
- Sports betting, pending the federal law that currently prohibits sports betting in most states is overturned.
Pennsylvania online gambling legislation timeline
The first rumblings from lawmakers regarding online gambling took place in 2013. In the ensuing years, there were multiple instances where legislators came frustrating close to passing a bill, only for the process to get derailed at the 11th hour.
It wouldn’t be until 2017, which was the third consecutive year that advocates made a concerted push to legalize online gambling, that iGaming legislation crossed the finish line.
Rep. Tina Davis (D) of District 141 spearheaded the earliest official effort to legalize online gambling in Pennsylvania back in April 2013 with the introduction of House Bill 1235 (HB 1235). The provisions in HB 1235 enabled existing casinos and slot machine license holders to apply for supplemental licenses that would have allowed them to set up online operations. Licensees would have been subject to a $5 million non-refundable authorization fee and would have paid a 28 percent tax on revenue from online gambling.
The bill made it as far as the House Committee on Gaming Oversight. It was there that committee chair and PA State Rep. Tina Pickett suggested that the bill be stalled until 2015. Reportedly, concerns about the possible detrimental effects of gaming expansion – as well as a high degree of uncertainty at the time about how successful New Jersey’s then-nascent online gambling industry would be – led to what amounted to a tabling of the bill for the balance of the 2013-14 legislative session.
Despite the defeat, it soon became clear that PA was taking online gambling seriously, evidenced by the passage of SR 273 in December 2013 — a bill which commissioned Econsult Solutions to conduct a study measuring the economic impact of iGaming.
2014 was a year of relative inaction. In June Sen. Edwin Erickson proposed online gambling bill SB 1386. However, it failed to generate much interest and was never brought up for a vote.
The bill was prompted by the positive results of the Econsult study, which were published in May. It stated that Pennsylvania stood to generate $184 million in first year revenue and $307 million in subsequent years from online gambling.
More importantly, the study concluded that iGaming would have a complementary, not cannibalistic, impact on land-based revenue, stating that ” iGaming may not only be benign in terms of land-based gaming but actually be synergistic and generate an increase in casino foot traffic and land-based revenues.”
Interestingly, Econsult used a 60% tax rate on slots, and 20% on other games for the basis of its analysis — figures that weren’t too far off the mark of those in the bill that would eventually pass.
In either case, the study would pique enough interest in PA online gambling for legislators to make a concerted push in 2015.
2015 saw no less than four online gambling bill being proposed:
- HB 649: Proposed by new Gaming and Oversight Committee chair Rep. John Payne, who would unofficially become the face of the pro-online gambling side in 2015/16. The bill, introduced in February, called for a blended 16% tax rate on gross gaming revenue, and a $5 million licensing fee for operators.
- HB 920: Proposed by Tina Davis in the spring, the bill was essentially a carbon copy of HB 649.
- HB 695: Rep. Nick Miccarelli proposed an online poker only bill, that called for a licensing fee of $5 million per operator, and taxed all interactive gross gaming revenue at 14%.
- SB 900: The first serious effort by the PA Senate to push iGaming legislation, SB 900 was a joint effort of Senators Kim Ward, Robert Tomlinson, Elder Vogel, and Joseph Scarnati. It differed radically from Payne’s effort, suggesting a $10 million permit fee and an otherworldly 54% tax rate on gross gaming revenue.
Of these, HB 649 would emerge as the leading candidate. In June, the PA Senate Community, Economic and Recreational Development Committee held two hearings on online gambling. There were some positive takeaways from the hearings, but questions still lingered as to the economic impact.
After a quiet summer, the stars finally appeared to align for online gambling. PA was facing a significant budgetary shortfall, and in October, Gov. Tom Wolf’s tax plan was defeated in the House, prompting a search for new revenue sources. Online gambling emerged as a means of filling the gap.
To increase potential revenue from gambling expansion, HB 649 was inundated with provisions, including ones that would legalize slot terminals at airports, allow for the addition of video gaming terminals (VGTs), and change the face of Category 3 casinos. Ultimately, all this proved too much to digest for legislators, who were torn on the bill’s more controversial points.
And while HB 649 did pass by a margin of 18-8 in the Gaming and Oversight Committee, legislators would kick the can down the road.
Pennsylvania emerged as a leading candidate to pass online gambling legislation in 2016. But as was the case the year before, lawmakers teased online gambling proponents with passage before allowing the bill to die.
After months of inaction, online gambling conversations sprung to life in June, when an omnibus gaming bill emerged in the House. HB 2150 was the first bill to link online gambling and daily fantasy sports. The bill called for an $8 million license fee for Pennsylvania online casinos and $2 million fee for “significant vendors.”
An amendment to the bill to include controversial VGTs at bars and taverns would not find passage in the House, but shortly thereafter, a new amendment proposed by Rep. Rosita Youngblood that did not include VGTs passed by a margin of 115-80.
In late June, the newly amended HB 2150 was passed by the House — the first time an iGaming bill sailed through one of the state’s two major legislative chambers. And the following month Gov. Wolf earmarked $100 million for online gambling expansion as part of a $1.3 billion revenue package.
All looked good, that is until the Senate decided to sit on gaming reform until the Fall. This despite the pressing need for a local tax share fix mandated by the PA Supreme Court, which found the current local tax share section of the Gaming Act of 2004 unconstitutional.
The Senate only met for nine days that fall, and did not use them to consider HB 2150. Instead, it tried to tack on a temporary local share fix amendment to a responsible gaming bill, HB 1887. This was viewed as a way to address the more pressing problem, while pushing the larger issue of gaming reform to 2017.
The House had other plans, further amending the bill to include a permanent local share fix and gaming reform provisions. Soon after, HB 1887 became the second bill to include online gambling to pass in the House in 2016.
However, the Senate’s stubbornness ruled the day, and it did not address gaming reform before recessing.
In 2017, Pennsylvania finally passed online gambling legislation, but the path toward legalization was anything but a smooth ride.
Gaming expansion quickly became a hot topic, with State Sen. Jay Costa issuing a memo stating his intentions to introduce legislation early in the legislative cycle.
In May, HB 271 emerged and was quickly passed by both the Senate Community, Economic & Recreational Development Committee and the Senate Appropriations Committee by substantial margins. The bill held some controversial provisions however, particularly the 54 percent tax rate on slot machine and table game revenue. Online poker would be taxed at a more reasonable 16%, but a $5 million licensing fee would be imposed upon operators. This stood in stark contrast to the situation in New Jersey, where online gambling licensing fees were low and the tax rate was just 17.5% across the board.
Nevertheless, HB 271 passed in the Senate by a margin of 38-12, becoming the first iGaming bill to navigate the Senate’s waters.
In June, a starkly different version of the bill narrowly passed (102-89) in the House. The new HB 271 featured a flat 16% tax rate on all online gambling verticals, and a comprehensive licensing fee of $8 million. Another big differentiator was that VGTs were included in the House version of the bill, but not the Senate.
VGTs remained a contentious issue throughout the summer. And compounding matters, was that the legislature became mired in a months long budgetary impasse, with the respective chambers unable to find common ground on how to fulfill a $2 billion shortfall. The impasse ultimately prompted Standard & Poor’s to hit Pennsylvania with a credit downgrade.
Frustrated, in October Gov. Wolf took matters into his own hands, proposing to close the state’s budget deficit by borrowing against future payments from the PA Liquor Control Board, and thus nullifying the need for new revenue sources — like those gambling expansion would provide.
Luckily, this perceived threat prompted a response from the Senate and the House, who worked diligently to find their own solution. Compromises were finally reached, and on October 25 the Senate passed an amended version of HB 271 by a margin of 32-18. The bill was swiftly sent to the House where on October 27, it passed by a vote of 109-72.
On October 30, Wolf signed the completed budget, which included HB 271, into law, and Pennsylvania became the fourth US state to legalize online gambling.
Pennsylvania’s land-based casino history
Pennsylvania boasts the second largest land-based casino industry of any US state; quite impressive given just how young the industry is.
It wasn’t until 2004 that PA lawmakers authorized a whopping 61,000 slot machines at horse tracks and slot parlors. The law allowed the newly minted Pennsylvania Gaming Control Board to issue up to 14 licenses, and set up the board to act as the regulatory and oversight committee for the industry.
After a two-year lull, the board issued casino licenses to 11 operators in the final days of 2006: six to standalone casinos, and five more to venues that already featured horse racing.
From that point forward, the floodgates were officially open. 2007 – 2010 saw a frenzy of activity, with 10 casinos opening their doors to the masses. And today, there are 12 land-based casinos in PA, including two Category 3 (Valley Forge and Lady Luck Nemacolin) casinos, and industry frontrunners Sands Bethlehem, Parx Casino, Rivers Casino, and SugarHouse Casino.
2010 also marked the year that table games were legalized, transforming slot parlors into full-service casinos. It was around that time that revenue really took off, spiking from $1.96 billion in 2009 to $2.49 billion the following year, and coming close to its all-time peak at $3.02 billion in 2011.
Table games, which included poker, were only taxed at 14%, compared to slots at 54%. So it was little wonder that casinos began placing a greater and greater emphasis on their virtual felt games, eventually even expanding into stadium style table gaming. As of late 2017, table gaming accounts for nearly 28% of the industry’s gross gaming revenue — high by industry standards.
Since 2011, the industry has mostly stabilized with table game revenue gains offsetting modest losses on the slots side. With increased competition from satellite casinos pending, and the inevitable expansion of the casino industry in other states, Pennsylvania casino will look to online gambling — both as a new stream of immediate revenue for the affiliated casino, but also as a traffic driver.
Whether or not iGaming will spark another Golden Age for PA gambling is questionable, but it should put he land-based industry back on a positive trajectory.
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