Pennsylvania iGaming Report Forecasts Nearly Half-Billion in Tax Revenue Over First Five Years

As lawmakers in Pennsylvania begin the latest round of legislative debate over legalizing online gambling,
the analysis of potential tax revenue – commissioned by local iGaming lobby group Play Pennsylvania in collaboration with industry news outlet OnlinePokerReport – estimates that nearly half a billion dollars can be collected over the industry’s first five years.

Specifically, the report lays out a growth pattern whereby Pennsylvania would collect $426,300,000 in revenue from licensing fees and taxation between 2017 and 2022.

Of that amount, $126 million would be generated in 2017 alone, via the $8 million licensure fee applied to brick and mortar casinos seeking to launch iGaming entities, combined with the $2 million fee paid by online gaming firms partnering with casino brands.

In terms of tax revenue, the analysis uses a rate of 20 percent applied to gross gaming revenue, which would produce annual hauls of $46 million, $51.8 million, $59 million, $66.2 million, and $77.3 million between 2018 and 2022, respectively.

That 20 percent rate used in the report is noteworthy, as it may serve to inflate initial estimates given Pennsylvania’s current iGaming legislation – House Bill 392 – calls for a lower 14 percent tax.

Penned by OnlinePokerReport managing editor Robert DellaFave, the white paper titled “Regulated Online Gambling: A Billion-Dollar Opportunity for Pennsylvania” is based primarily on comparative analysis between Pennsylvania and neighboring New Jersey.

With that state’s comprehensive iGaming industry beginning to flourish in its fourth year of operation, DellaFave relies on New Jersey’s precedent to establish a baseline for Pennsylvania’s potential:

“Much of our optimism stems from the strong performance of the New Jersey online gambling market.

Although New Jersey initially underperformed its exaggerated expectations, the market has grown at a torrid pace, with revenue climbing from $122.9 million in 2014 to $196.7 million in 2016: a growth margin of 60.1 percent.

And it hardly appears as though New Jersey has reached maturity – in December 2016, industry revenue was up 30.9 percent year-on-year.”

DellaFave expects a similarly rapid rate of growth for Pennsylvania’s proposed iGaming industry – which would include online poker, casino games, and daily fantasy sports (DFS). The white paper predicts $230 million in combined revenue for the first year (2018) of regulated iGaming, before steady growth increases revenue to $364 million by 2022 – good for a 58.2 percent rate of growth.

The report’s publication was timed to coincide with recent developments within Pennsylvania’s legislature, where a pair of nearly identical iGaming proposals were approved by the House last year, only to stall in the Senate.

On March 7, the state’s Senate Community, Economic & Recreational Development Committee and House Gaming Oversight Committee held a joint hearing to discuss the merits of HB-392. The shift to a joint committee was widely viewed by local legislative watchdogs as an encouraging sign for iGaming proponents, but that hearing revealed several lingering concerns.

State senators Lisa Boscola and Robert Tomlinson questioned whether a 14 percent tax rate for iGaming – vastly lower than the 54 percent rate paid on land-based slot machines – might compel casino companies to shift their operations online, thus nullifying the potential tax benefits.

Respectively, Boscola and Tomlinson represent the districts where Sands Bethlehem Casino and Parx Casino are located, and both venues have opposed iGaming legislation in the past based on the so-called “cannibalization” argument.

David Satz, Senior Vice President of Government Relations and Development for Caesars Entertainment, refuted the cannibalization claims by pointing out that 80 percent of new players signing up for online accounts in New Jersey were not existing customers in its land-based casinos.