High tax rates and licensing fees were supposed to stymy the Pennsylvania sports betting and online gambling industries. Revenue numbers, particularly the tax revenue the state is collecting, suggest otherwise.
The Keystone State’s sports betting operators took nearly $550 million in bets in December, according to the latest Pennsylvania Gaming Control revenue report. Those wagers resulted in $34.1 million in revenue and over $12 million in state and local taxes.
On the online casino front the state’s operators tallied $71.6 million in revenue and sent $29 million to state and local tax collectors.
What About New Jersey?
Cynics will point to operator-friendly New Jersey as a better model, but New Jersey’s superiority isn’t all it’s cracked up to be.
Yes, Pennsylvania has a 25% population advantage over New Jersey and still trails its neighbor, but the markets are at different stages of maturity, and that population advantage is all but wiped out when you factor in the number of New Yorkers betting in New Jersey.
More importantly, Pennsylvania collected more tax revenue than New Jersey from its online casino operators in 2020, despite the Garden State’s $970.3 million to $565.8 million gross gaming revenue edge.
Sports betting numbers tell a similar tale.
Looking at the year-end totals, New Jersey has a significant edge in revenue, but lags when it comes to tax revenue. And as mentioned above, don’t lose sight of the fact that New Jersey’s population is artificially inflated by New York, or that its online gambling has a nearly five-year head start on Pennsylvania and its sports betting industry launched a year before Pennsylvania.
Pennsylvania’s Track-Record of Disproving the Industry
Pennsylvania has an interesting history with gambling expansion. The Keystone State has turned to gambling several times since the twenty-aughts, and each of these expansions was predicated on one thing: money.
With revenue as the goal, Pennsylvania has consistently frustrated the gambling industry by imposing some heavy burdens on operators.
When Pennsylvania legalized casino gambling (slot machines) in 2004 it was told in no uncertain terms the 52% tax rate it imposed on slot machines was a self-inflicted wound. Fast forward to today, and Pennsylvania produces more gambling revenue than any other land-based casino market not named Nevada.
The state legalized table games and poker in 2008, but this time it imposed a more industry-friendly 14% tax on these games – that was later raised to 16%.
When the state legalized online gambling and sports betting as part of a larger gaming package in 2017 it mirrored its land-based tax rates for slot machines and table games and enacted a 36% tax rate on sports betting. During the process, Keystone State lawmakers once again ignored the pleas of the industry, that while the high tax rates were manageable in land-based casino settings, they were unsustainable online.
Just for good measure, the state tacked on a $10 million sports betting licensing fee, and charged operators $4 million apiece for online slots, online table games, and online poker licenses. The state did give operators a chance to use a coupon code and pay the discounted price $10 million for all three licenses for a limited time.
The result? Pennsylvania’s online casino and sports betting industries are doing just fine. And tax revenue looks demonstrably better than in low tax states.
Which Model to Adopt?
These comparisons are likely to come into play as other states look at online gambling expansion. And as was the case in Pennsylvania, these states are looking to maximize tax revenue as they stare down COVID-19-caused budget deficits.
New York is a great example of this. Lawmakers are discussing online sports betting options that are more aligned with New Jersey than Pennsylvania, but Gov. Andrew Cuomo has made it clear that he doesn’t want the addition of online sports betting to be a windfall for the operators, he wants it to be a windfall for the state.
Cuomo’s idea is to have the state lottery run online sports betting, but if he looks to the other state on his southern border he may discover the perfect compromise between a lottery-run monopoly and the operator-friendly market of New Jersey: The Pennsylvania Model.