Will Pennsylvania iGaming Be Hurt By Slot Tax?

by Jim Hall

PennsylvaniaThe high tax rate set for online slot gaming in Pennsylvania may end up hurting the industry before it even begins.

In a positive turn of events last week, the state of Pennsylvania finally passed an online gambling measure. Players are ready to get started enjoying online casino games and operators are ready to obtain licensing. The state has allowed for poker, slots and table games to take place online with taxes set at 16% for poker and table games while slots will be taxed at 54%. This amount is really high when compared to the three other states offering online casino gaming. With the rate being so high, it may mean less operators vying for licensing as they do not want to pay such a high amount.

What’s the Issue?

When it comes to casino games in general, slots are the most popular. Whether you look at online game play or land-based, players flock to the slot machines. When comparing states that offer online slot gaming, New Jersey is the top operator, with as much as 70% of their revenues from online gaming coming from slot machines. Table games and poker are a very small percentage.

While New Jersey relies on slot games for the bulk of their online revenues, Pennsylvania might not be so lucky. Operators might not want to offer slot games in order to avoid the high amount of taxes set for this gaming category.

For Pennsylvania, the licensing fee is higher as well. $10 million to $12 million must be paid. This amount is much higher than the $400,000 paid by New Jersey online operators.

Tables Games and Poker

Pennsylvania may be able to gain some ground with online table games and poker offerings. Table games are already a top producer in the state, over slot gaming, so they might prove to be the most popular choice among online gamblers. Operators will have to place emphasis on table games in order to earn the revenues needed by pushing players to enjoy these games over other options.

Online poker earnings could reach nice numbers due to interstate agreements. Nevada and New Jersey are set to share poker player liquidity while Nevada and Delaware already do so. If Pennsylvania were to get in on the shared poker player traffic, then they would be able to earn even more percentage wise. Online poker could account for as much as 20% of the total online gambling revenue if players are receptive to online poker gaming.

Licensing

The climate has found to be unfavorable for operators and it may be that Pennsylvania will end up with online gambling licenses left over. Pennsylvania has left themselves open to success. At the beginning, licensing will be left open for current casino license holders in the state. Once the time frame is up, the licensing will be open to others located outside the state.

It could be that land-based operators in the state decides to take up the online gaming license in defense, to keep outsiders from coming into the market. It could also be that operators obtain licensing in the hopes that the tax rate will be lessened in time.

With the high tax rate set on slots plus taxes on table games and poker, it will be hard for an operator to see a profit in a short time frame. When you include the licensing fee, there will be even more difficulty to see a profit.

For now, we will have to wait and see what happens in regards to online gaming in Pennsylvania. Will operators decide to obtain licensing for online gaming when they already operate in land-based form? Or will licensing remain unused as Pennsylvania casino owners have no interest in paying such high fees to move services online?