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Pennsylvania study says online gambling would complement land-based casinos

TAGs: New York, Pennsylvania

online-gambling-pennsylvania-complement-casinoTuesday saw the introduction of a new online poker bill in New York. Assemblyman J. Gary Pretlow’s Bill A9509 (read it here) is basically a carbon copy of the bill introduced in March by Sen. John Bonacic, but since Bonacic himself has publicly expressed a lack of confidence in the state approving any online gambling legislation this year, there seems little point in discussing Pretlow’s ‘me too’ bill in detail.

Pennsylvania is also unlikely to pass iGaming legislation this year but the state is now contemplating a report on the future of its casino business and how online gambling fits into the picture. The Current Condition and Future Viability of Casino Gaming in Pennsylvania report was commissioned late last year to help legislators determine whether the state should follow the lead of neighboring New Jersey in launching its own intrastate online gambling market. The report has taken on new urgency since Pennsylvania learned its casino biz posted its first collective revenue decline last year.

The report (view it here), conducted with the assistance of Philadelphia’s Econsult Solutions Inc., concludes that the state’s gaming industry will likely suffer a decline when new casinos open in New York and (possibly) New Jersey locations outside Atlantic City, but the decline won’t be as great as Atlantic City has suffered since Pennsylvania opened its market in 2006. Several regulatory factors that might mitigate this decline include allowing casino alcohol sales past 2am, more flexibility in table game rules, lifting the $2,500 cap on check-cashing and allowing for credit card cash advances on the casino floor.

As for online gambling, the report estimates revenue could reach $184m in year one, rising to $307m in subsequent years ($178m from the casino vertical, $129m from poker). It remains to be seen whether the state’s casino operators have the stomach to allow anything other than online poker if/when the state does approve any online gambling activity, but for the sake of argument, the report claims this $307m figure could be reached in year one assuming regulation and product rollout “is done in a way to encourage growth.”

As for taxes, the report suggests something “slightly above land-based rates,” in the range of 20% for online poker and 60% for online casino. In order not to hinder state-licensed sites from competing with internationally-licensed sites, lower initial tax rates may be set, ramping up to those 20/60 figures over time. The state could reap an estimated $68m in tax revenue in year one and $113m after that, but critics are already pointing out that New Jersey was forced to drastically reduce its tax revenue estimates once its online market launched.

More importantly, the report says the available evidence suggests that the effect of online gambling “would be to complement and not cannibalize” existing brick-and-mortar casino revenue. Indeed, the report suggests online gambling ‘may not only be benign … but actually be synergistic and generate an increase in casino foot-traffic and land-based revenues as new gamers become comfortable with playing poker.” The difference to B&M casinos’ bottom lines could range from a loss of $15m to a gain of $92m, with “the balance of evidence” suggesting the impact “would be on the positive side.”

The report also addresses the potential of legal sports betting revenue, but that discussion can be set aside until the Supreme Court weighs in on New Jersey’s last-ditch appeal for an end to the federal PASPA sports betting prohibition. The report suggests fantasy sports betting and prediction markets could not only add new revenue streams but also allow an opportunity to cross-market to non-casino gamblers.

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