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PA Online Gambling Bill Passes Despite Multiple Flaws

Posted on by John Lathram

PennsylvaniaAn “ill-conceived and hasty” bill to regulate online gambling in Pennsylvania may face a legal challenge from one of the casinos it is intended to support.

Last Thursday, Pennsylvania´s House of Representatives passed HB271 – a massive gambling expansion bill intended to support the state´s brick-and-mortar casino industry and generate tax revenue. Among its many measures, the bill lays a framework for the regulation of online slots, table games and poker, authorizes Video Gaming Terminals (VGTs) at truck stops, and allows for up to ten satellite casinos.

The passage of the bill concludes years of lobbying by advocates of regulated gambling; and, although some were in self-congratulatory mode on Thursday evening, many have acknowledged the bill has multiple flaws. Indeed, one of the brick-and-mortar casinos the bill is supposed to be supporting has announced it is considering legal action to challenge the bill in court.

What´s the Matter with the Online Gambling Legislation?

The primary issue with the online gambling legislation is the tax rate of 54% on Gross Gaming Revenues from online slots. The bill places the same tax burden on online slots as it does on slots in brick-and-mortar establishments and puts casinos in a difficult position. If a casino declines to apply for one of the ten online gambling licenses available, the license will be made available to an out-of-state operator.

The bill relating to online gambling is also lacking in consumer protection measures. Whereas tax revenues from online gambling have to be held in trust accounts, and prizes for fantasy sports competitions have to be held in escrow, there is no protection for online gamblers should an operator go out of business or unscrupulously disappear with their bankrolls overnight.

What´s the Matter with the VGT Legislation?

The regulation of Video Gaming Terminals is a hot political potato. Despite there being an estimated 40,000 machines already operating illegally throughout the state, brick-and-mortar casinos opposed regulation on the grounds it would cannibalize their industry. Lobbyists and politicians opposed to an expansion of gambling also chose to target VGTs without giving a justifiable reason why.

However, in order to achieve an agreement between the anti-VGT Senate and pro-VGT House, a limited number of VGTs were authorized at truck stops. The legislation has upset veterans clubs and small bar owners who have been losing money since the state allowed large retail chains to sell liquor off the shelf, and who were hoping for a way in which they could recover some of their lost income.

What´s the Matter with Satellite Casinos?

The issue most likely to prompt a legal challenge to the bill is satellite casinos. Under the legislation, up to ten satellite casinos – each housing up to 750 slot machines and 30 table games – will be allowed, provided they are situated at least 25 miles away from an existing casino to prevent cannibalization – an “ill-conceived and hasty” idea according to Penn National´s Senior VP for Public Affairs Eric Schippers.

Schippers is concerned because the majority of visitors to Penn National´s Hollywood Casino travel from outside a 25 mile radius. He fears that satellite casinos surrounding the Hollywood Casino will have a “profoundly negative effect” – cannibalizing business and resulting in job losses. Schippers told Penn Live the casino´s legal team was studying the bill, hinting that a legal challenge is not out of the question.

Bill Could Still be Vetoed by Governor Wolf

Although the gambling bill has passed both legislative chambers, there is still the possibility it could be vetoed by Pennsylvania´s Governor. Governor Wolf has fifteen days in which to either sign the bill, allow it pass without his signature, or block its progress by vetoing it. There is a precedent for a Governor vetoing a gambling expansion bill – Chris Christie did it in 2011 in New Jersey.

Christie´s concerns related to a lack of consumer protection – similar to what is lacking in the current online gambling bill. The Governor will also be under pressure from the casino industry to address the 54% tax on slots and the satellite casino issue. As the Governor does not have the power to change specific areas of the bill, he will either have to sign the whole bill or veto the whole bill.

Industry observers feel a veto is unlikely. Although the Governor has said in the past he would not accept a “zero-sum” outcome, and appears in favor of the regulation of VGTs, the revenues that will be generated by the application fees and license fees ($238 million according to the bill´s Fiscal Note) should be enough to influence his decision. Thereafter, we shall have to wait and see whether a legal challenge to the bill is forthcoming.

Whatever Governor Wolf decides to do, the road to regulated online gambling in Pennsylvania may not yet have come to an end.

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