Pennsylvania Senate Starts 2017 with New Gambling Bill

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After spending much of 2016 grumbling over online gambling bills, a Pennsylvania state senator has announced that he intends to try and legalize both online gambling and daily fantasy sports (DFS) in the state of Pennsylvania. Senator Jay Costa mentioned that he would like to both of these laws enacted in the “near future.” Given the early mention of these agendas in 2017, it is clear that the online gambling provisions that failed to see the light of day in 2016 are currently high on the priority list of some lawmakers in the state.

The Online Gambling Bill

Senator Jay Costa posted a co- sponsorship memorandum earlier this week. This is a common first step taken by senate members before they introduce any new legislation in the state of Pennsylvania.

The legislation Costa is likely to introduce would tackle a number of issues.

He wrote in a memo, “In the near future, I plan to introduce legislation amending the Pennsylvania Race Horse Development and Gaming Act to allow the Commonwealth’s gaming industry to continue to evolve and remain competitive in a responsible manner, respond to the Pennsylvania Supreme Court’s September 2016 ruling that declared the slot machine local share provisions of the Act unconstitutional, and generate an estimated USD 137 million in revenue for the Fiscal Year 2016- 2017 budget.”

The bill will primarily look to legalise and regulate online gambling in the state of Pennsylvania. It will also do the same for DFS. The state already operates a lottery service. The new legislation would see the state lottery offer online games alongside their traditional options. Through this bill, Costa would like to also outline taxes on the gaming facilities that benefit jurisdictions that host casinos.

Online Gambling

Under Costa’s proposal, the online gambling component of the bill would generate USD 125 million for the state just in the current fiscal year. The governor of the state promised a USD 100 million injection of funds though gambling expansions earlier in 2016. It seems like the USD 125 target might be aimed to deliver on the same promise.

According to the memo, internet gaming licensing fees would contribute USD 100 million to the state. It is estimated that 10 out of the 12 casinos will seek to obtain online gaming licenses at USD 10 million apiece. A further USD 25 million will be contributed to the revenues for the fiscal year of 2016- 2017 through Internet gaming vendor fees. These are expected to be issued at USD 5 million each. The senator has outlined that approximately five vendors will be looking to acquire these licenses in the first year.

Looking deeper into the legislation, we can see that it has been planned that any of their 12 casinos in the state may offer online gambling. A license fee of USD 10 million will be imposed on the casinos and vendors must pay a licensing fee of USD 5 million. Furthermore, online gambling revenues will be taxed at a rate of 25 per cent. DFS operators looking to obtain a license in the state will have to pay a fee of USD 2.5 million. According to the plans, DFS revenues will also be taxed at 25 percent.

It is unlikely that the high tax rates would allow for online poker in the state. However, it would be favourable to other forms of online gambling, especially online casinos.

It has been speculated that it would be difficult for any of the DFS operators to be able to afford the high fees and taxes. This would include the DFS moguls – DraftKings and FanDuel. The two companies have mentioned plans to merge later this year. However, the cost of operation in Keystone State might prove too pricey still for any of these DFS companies.

Online Gambling Bill 2017

The Pennsylvania House has passed online gaming legislations twice in the past but both times the bills failed to clear at the state senate. The Senate refused to vote on the bill when the House added a number of gambling expansions to an existing bill. However, with the start to the new year, several lawmakers have been heard openly discussing the issue. This includes Senator Kim Ward, who met with officials at a number of Pennsylvania casinos. Senator Robert Tomlinson also drafted a memo to the house regarding the matter. Finally, State Representative, Rosita Youngblood, openly talked to the media about potential gambling expansions in the state in 2017.

The planned bill from Costa shows there may have been some compromise with the House. The senator is looking to legalise and regulate all the gaming provisions at once. This suggests a lively year for the matter ahead of us.

Legalisation of DFS

A key component of Costa’s bill would look to legalise and regulate DFS services. They looked to impose fees and taxes on DFS operators. The licensing fee and tax rates that have been suggested by the senator outpaces any other that has been introduced in the country

He stated in his memo, “The bill will also authorize daily fantasy sports games in the Commonwealth. A license fee of USD 2.5 million will be imposed. Daily fantasy sports revenues will be taxed at a rate of 25 per cent, and all tax revenues will be deposited into the State Lottery Fund.”

The memo also noted that they expect a minimum of USD 5 million for the state from two such licenses being procured. Presumably, Costa is assuming both DraftKings and FanDuel would pay the licensing fee.

Interest from DFS Operators

Looking at the outline Costa has described for DFS company, the question on everyone’s lips is whether anyone is going to set up in the state. It is safe to assume that no one will be able to afford the fees of USD 2.5 million except the likes of DraftKings and FanDuel. However as they have been going through merger talks, we might be looking to a merged entity instead of two. Even for the largest DFS companies, the fees outlined are very steep. Even if companies could afford it, they might not agree to such exorbitant rates of pay.

None of the other states in the country have set such high DFS licensing fees. Besides that, the 25 per cent tax rate would also be the highest, by far, of any state in the country. The states that impose the highest tax rates at this moment are New York, where tax is charged at 15.5 per cent and Missouri, where tax is charged at 11.5 per cent of the revenue minus the prize money.

Future of DFS in Pennsylvania

Unless the numbers mentioned in Costa’s bill can provide some level of flexibility, DFS companies may not agree to return to the state. However, this is not the first time lawmakers have brought up DFS regulation in the state. Also, there is a long way to go before Costa’s bill can be transformed into law. It is currently much closer to the start than the finish line.

Most DFS operators also already serve users in the state without explicit legalization. So, the bill might actually force most of them out of business entirely. Therefore the senate should expect a certain level of protest against the numbers in the coming weeks.

DFS companies have worked hard to establish their offerings as a game of skill and not one of chance like those offered at the country’s many casinos. However, it seems like it will continues to be tied to online gambling and larger gambling expansion in the state of Pennsylvania and that is unlikely to change in the foreseeable future.

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