Analysis: Is the Pennsylvania dream fading?

Why the state’s efforts to drive online gambling legislation across the line have withered over the summer months

Hopes of Pennsylvania passing egaming legislation this year are withering in the August heat. At the start of summer, four bills were in play with genuine momentum building behind proposals being swept across the line as part of the state’s budget agreement, due to be signed off by 1 July. But the Republican-controlled legislature has since sailed past that deadline as it continues to thrash out a budget with newly elected Governor, Tom Wolf. But as time ticks by, hopes of the state legalizing egaming are turning to frustration as yet another year without progress looks ever more likely. [private]

Eric Frank, an attorney at Pennsylvania law firm Duane Morris, says that 2016 is now “the safe bet” for internet gaming legislation to pass in Pennsylvania and that there are “still a lot of issues to hammer out”. The most controversial of those is the 54% tax rate proposed in the SB 900 bill tabled by Senators Kim Ward, Robert Tomlinson, Elder Vogel and Joseph Scarnati. While favored by some land-based operators such as Parx Casino –  the bill requires players to sign up for online gaming accounts on premise – in reality the high tax rate would block most operators from entering the market.

The high tax rate reflects the state’s need to plug a $2bn budget black hole. Representative John Payne, sponsor of HB 649, which proposes a tax rate of 14% of GGR, believes regulated egaming could boost state coffers to the tune of $121m in the first full year of the market being live. But legalizing online gaming is just a small part of comprehensive gaming reforms put forward by lawmakers in a bid to generate additional income. However, as the budget talks have progressed, the bulk of the proposed gaming reforms have reportedly been scrapped, apart from egaming.

So there is still a glimmer of hope that online gaming will be included in the final budget proposal and that a bill will be signed into law in the coming weeks. And even if it doesn’t, the budget is not the only vehicle that can be used to drive a bill across the line – legislation could feasibly pass on its own accord. “Online gaming legislation can become law at any time,” says Barbara DeMarco, vice president at Porzio Governmental Affairs. “The budget is a great motivator because new money is always needed. However, it is not a requirement,” she adds.

Need to budget

But Frank believes the budget provides the best opportunity for getting this done. “In all likelihood I see it [egaming legislation] passing as part of a budget because it’s a revenue enhancer,” he says. “That said, if there is enough of a push and the land-based industry is fully on board and has consensus, there could be opportunities outside of the budget.”

But which bill has the greatest chance of success. Of the four bills in play, two in particular are more likely to get across the line – SB 900 and HB 649.The other bills, tabled by Rep. Tina Davis and Nick Miccarelli have major flaws – Davis’ bill sets tax rates at 28% of GGR, while Miccarelli’s is poker only. In all likelihood, however, the bill that eventually passes into law will likely be an amalgamation of all four. “I think all of the bills are the beginning points at the bargaining table,” says Frank. “If it gets through it will be some consensus bill that will be a middle ground somewhere,” he adds.

DeMarco agrees: “I wouldn’t be surprised if none of the bills in their current form become the vehicle for egaming legislation in Pennsylvania. I think you are going to see elements of each bill in the final version.”

All in agreement

While progress seems to have ground to a halt in recent weeks, it must be remembered that the state has made genuine progress in the first half the year. What’s more, unlike in California, the majority of land-based operators appear to be thinking along the same lines when it comes to how the state’s online gaming market should look. And this will prove key to legislation getting across the line either this year or next. In New Jersey, for example, it wasn’t until the land-based operators reached consensus over online gaming that a bill was signed into law by Governor Christie.

“Eleven of the twelve land-based operators came together to support egaming legislation and provided considerable testimony and analysis of the potential benefits for the Commonwealth, including data on projected revenue and a feasible tax rate to be economically viable and competitive in the region,” says Chris Sheffield, managing director of interactive at Penn National. “We were encouraged by the discussions in Harrisburg earlier this year and look forward to continue working with legislators towards comprehensive egaming legislation in Pennsylvania in the near future.”

The worry is that Pennsylvania will become the next California, that not seizing the moment when momentum is building will lead to years of stalemate and inaction among stakeholders. But somehow the mood in Pennsylvania is different, there is a desire to get this done, but done properly. While the US market desperately needs a new state to come online and kick-start the second wave, Pennsylvania will only open its digital doors when it is fully ready to do so. And while frustrating in the short-term, it will lead to the long-term stability the market needs to be successful.