When the bidding concluded for Pennsylvania’s first satellite casino, lawmakers who championed the state’s expanded gambling law were likely ecstatic.
In an attempt to shield its Hollywood Casino location from encroaching competitors, Penn National shelled out $50,100,000 for the coveted license (the first of 10 on offer) – $42,600,000 more than the $7.5 million minimum bid.
The massive payment represented what would be the start of a continuing trend in PA, which legalized satellite casinos, online gambling, daily fantasy sports, sports betting and more last year, in an attempt to shore up its massive budget deficit.
And while not a single bet has been placed at any mini-casino, iGaming site or sportsbook — only DFS and the online lottery are live — the state has already racked up fees of $258.5 million from operators looking to cash in on PA’s new gambling opportunities.
Even better news for the state is that the frenzy isn’t over yet.
Satellite casinos start with a bang
Included in the omnibus gambling package passed last October was the chance for state slots licensees to purchase one of 10 licenses to construct satellite casinos in select locations around the state.
Satellite casino are dubbed Category 4 facilities, and give owners the right to offer between 300-750 slot machines and up to 30 table games inside the properties.
The first mini-casino auction kicked off on January 10, with Penn National locking up a license for a whopping $50,100,000.
Penn had originally lobbied against satellite casinos, arguing that they would choke off traffic to its flagship casino in Grantville. But sensing that it wouldn’t prevail, the company decided to go on the offensive, placing a massive blocking bet to protect its profits.
Four more Category 4 auctions followed, with bids dropping dramatically from one to the next.
While the state initially offered up 10 satellite casino licenses, auctions were eventually put on hold due to lack of interest. Even so, the mini-casino auctions were a huge success, netting the state nearly $127 million in licensing fees.
- 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
Everyone wants in on Internet gambling
One of the key elements of PA’s expanded gambling bill was the legalization of online casino games and Internet poker. After several years of debate, Keystone State lawmakers finally came to a consensus on the industry, voting to allow slot licensees to open their own online casino sites and through partnerships with third-party software providers.
During a 90-day window, which began on April 16, the state allowed qualified properties to apply for an online gaming permit which would include the right to offer online slots, table games and poker, at a price of $10 million. After that timeframe, casinos could buy licenses for any of the three verticals piecemeal, at a cost of $4 million each.
Throughout nearly the entirety of the three month period, the Pennsylvania Gaming Control Board was silent on how many, if any, casinos had decided to apply.
While many operators had been highly motivated to offer online gambling before 2017, the state threw a wrench in their plans by jacking up the tax rate on online slots to an eye watering 54%. What was before a no-brainer of sorts for operators, was now something that they had to consider more closely.
Fears that PA casinos would opt out of online gambling were quelled in July, however, when the PGCB announced that nine of the state’s casinos had applied to purchase permits for all three gambling verticals.
In August, the agency announced that two more casinos had bought into iGaming. Mohegan Sun, arriving late to the party late, bought a three-vertical license for $12 million, while Presque Isle Downs purchased a permit to offer table games and slots for $8 million.
The Meadows and Category 3 casino Lady Luck Nemacolin are the only two properties which have, so far, not applied for a license.
In total, the state has banked $110 million from the iGaming industry, which probably won’t even go live until this winter…or later.
- Parx: $10,000,000
- Stadium Casino: $10,000,000
- Mount Airy: $10,000,000
- Hollywood Casino: $10,000,000
- Valley Forge: $10,000,000
- Harrah’s: $10,000,000
- Rivers: $10,000,000
- SugarHouse: $10,000,000
- Sands Bethlehem: $10,000,000
- Presque Isle Downs: $8,000,000
- Mohegan Sun: $12,000,000
Casinos begrudgingly pay up for sports betting
Pennsylvania was ahead of the curve in terms of sports betting. Lawmakers included in the expanded gambling bill a provision which would make sports wagering legal, should the U.S. Supreme Court overturn the Professional and Amateur Sports Protection Act (PASPA).
In May, SCOTUS struck down the law, opening the door for PA to offer sports betting at brick-and-mortar casinos and via mobile and Internet systems.
Like online casinos, sports wagering should have been a sure thing for PA gambling operators. However, Keystone State lawmakers, notorious for charging outrageous gambling fees and taxes, gave casinos pause by applying an eye-popping 36% tax to sports gross gaming revenue, along with a $10 million start-up fee.
All of a sudden, casinos were forced to rethink their strategy.
After another long period of silence, the PGCB finally announced that it had its first sports betting applicant, Penn National, on August 17. Ten days later, it was announced that Parx Casino had also thrown its hat in the ring, requesting permits for not only its Bensalem property, but for an off-track betting facility in Philadelphia as well.
With two operators committed, the state has gained an additional $20 million – but that number is very likely to rise in the very near future. While operators like Churchill Downs have complained about the state’s onerous fee structure, we predict that several more casinos — Mount Airy seems a near certainty — will bite the bullet and purchase sports betting licenses, contributing even more to the state’s impressive expanded gambling take.
- Penn National: $10,000,000
- Parx: $10,000,000
Apart from the above mentioned verticals, the state has profited from its new gambling reality in other ways. For example, casinos classified as resorts (i.e. Valley Forge and Lady Luck Nemacolin) now have the option to open up their casino to not just patrons but to the general public. Only Valley Forge has paid the $1 million fee to do so, something which seems to have had a very positive effect on its bottom line.
Lest we forget, Pennsylvania also saw 10 fantasy operators pay a rare reasonable fee of $50k each to enter the market.
What’s more, PA launched an online lottery program earlier this year, which could be another big moneymaker for the state. While revenue figures are hard to come by, state officials have estimated that the industry could bring in upwards of $250 million in its first five years.
All told, gambling expansion has been a massive success for the state. Hopefully, the large upfront costs and the massive taxes involved won’t negate what PA has earned by crippling the potential of the industry down the road.
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