The Pennsylvania House of Representatives was expected to vote on a gaming reform package (HB 649) this week that would, among other things, legalize online gambling in the Keystone State. The gaming reforms contained in the legislation would then act as one of the funding components of the 2016 Pennsylvania state budget, which the legislature and Governor Tom Wolf are frantically working on finalizing before Christmas. With the reforms in HB 649, most notably online gambling expansion, the state would garner some $300 million in annual revenue, which is why HB 649 is seen by some as a necessary part of the state’s budget, and a key funding mechanism that could bring the governor and legislature together. Unfortunately, the vote never happened, as a late amendment that added video gaming terminals (VGT’s) to the package was added on Wednesday, and appears to have slowed down the bill in the House. The House adjourned on Thursday without voting on HB 649, and will not return until Saturday, when they will hopefully pass HB 649 and send it on to the Senate — where the VGT amendment will either be removed or act as a poison pill that kills the bill. The VGT problem The reason the VGT amendment (or some other unknown change) could act as a poison pill is, all of this is taking place at lightning speed. Both the Senate and House have proposed budgets in place (the state budget is nearly six months past due; a historic delay), and in addition to reaching an agreement on the budget, the legislature is also busy passing bills that fund the budget. But with time running out, the slightest hiccup, such as the VGT amendment, could upset the entire process. The amendment passed by a whisker on Wednesday, (96-93) in the House, and by all accounts has even less support in the Senate where it will likely be eliminated. The amendment would allow VGT’s in specified private establishments, something the casinos in the state do not support. One possible scenario for HB 649 is for the Senate to remove the VGT amendment from the bill and send their version of HB 649 back to the House for another vote. Considering the small margin by which the amendment was initially passed, the House could simply accept the Senate version in what would likely be another close vote that could go either way. Another option would be a joint committee to quickly craft a compromise and whip up votes in the House and Senate, but there might not be enough time for this to happen. The real concern in the iGaming community is that the Senate might make other adjustments to the bill, such as increasing the tax rate on online gaming operators. This would be very troubling, as there simply isn’t enough time remaining before Christmas break for the two legislative bodies to hash out an agreement on multiple issues, and iGaming would likely be taken off the table and replaced by some other funding vehicle. History of HB 649 HB 649, sponsored by House Gaming Oversight Chair John Payne, and cosponsored by House Gaming Oversight Democrat co-chair Nick Kotick, began as an online gambling expansion bill back in February. The bill had broad support in the House and from the state’s potential iGaming stakeholders, but as the year wore on it was the Senate’s bill (SB 900) that garnered more attention. SB 900 was a comprehensive gaming reform package, and even though the online gambling component was less appealing to stakeholders due to an exorbitant tax rate, the potential revenue from iGaming and the other reforms pushed HB 649 to the sidelines. However, SB 900 never gained traction, and with budget talks at an impasse, HB 649 was resurrected in November — complete with an omnibus amendment package attached with other gaming reforms. The bill easily passed the House Gaming Oversight Committee, was mentioned as one of the funding mechanisms in the House budget, and is waiting for a full floor vote — which will hopefully take place on Saturday. Why HB 649 needs to pass The question a lot of people have is; why does the legislature need to pass HB 649 if it’s going to be included in the state budget anyway? The answer is procedural. Every state (and the federal government) has their own way of doing things, and Pennsylvania is no different. When the Pennsylvania legislature crafts a budget they must explain how much money they need for each department and program and explain precisely where that money is coming from. However, the Pennsylvania budget only appropriates the money to pay for these programs; the funding mechanism, in this case HB 649, must still be passed by the legislature on its own accord. Essentially, the budget outlines where they plan on getting the money from, but the funding source (assuming it’s a new source) must still be passed by the legislature and signed into law by the governor.

Sands Bethlehem has been fined $36,000 by the state of Pennsylvania for alleged underage gambling violations. The Sands violations The Pennsylvania Gaming Control Board announced the violations via its website this week. From the PGCB: No other fines for underage gambling were levied against any other Pennsylvania casino. A fine was issued to Rivers Casino in Pittsburgh for an automatic shuffler error. A report at LehighValleyLive.com had more details on the violations, and other Sands Bethlehem violations in the past: Underage violations from an Adelson property? Given the stance of Sheldon Adelson — the owner of Sands Bethlehem and a variety of other casinos around the world — on online gambling, the fines are pretty ironic. Adelson’s lobbyists and politicians who support the Restoration of America’s Wire Act — a bill to ban online gaming — contend that children could gamble online if it were easily accessible. For instance, from the Coalition to Stop Internet Gambling website: That assessment has little merit based on the experiences of the regulated online poker and casino markets in New Jersey, Nevada and Delaware. Seeing as underage gambling a major point of contention in the fight against allowing regulated online gaming, one would think Adelson’s brick-and-mortar gaming establishments would have a sterling track record on the subject. However, that is obviously not the case. Sands Bethlehem is the only property that is opposed to legislation that would allow Pennsylvania online casinos. The latest on online gambling in PA Online gambling appears to be a part of ongoing budget discussions in the state, although to what extent is unknown. At worst, it appears that online gambling will be considered in the spring, apart from budget talks.

A new budget proposal (for the FY 2016/2017 budget) by Pennsylvania Governor Tom Wolf would impose an 8 percent tax on promotional play at the state’s 12 casinos. Based on 2015 promotional play numbers, this new tax would create an additional $50.9 million in revenue for the state. But the numbers don’t tell the entire story. Promotional play vouchers are generally given to active and inactive players in a casino’s database to entice them to visit the casino, and can take the form of a free $10 in slot play (or more depending on the person’s betting habits), or even a $20 match play on table games, where the casino matches a person’s $20 bet. Promotional play is also a huge lure for organized bus trips, where riders receive promotional play dollars that usually exceed the cost of their bus ticket. The governor’s proposal is universally opposed The state’s casinos are unlikely to approve of this new proposal, and are already pushing back against the idea. In response to the news, Las Vegas Sands spokesperson Ron Reese, whose Sands Bethlehem Casino is the biggest purveyor of promotional play coupons, told the Morning Call, “Any time money is taken out, it’s going to affect reinvestment in the property and the creation of future jobs. This proposal is bad for jobs in the Lehigh Valley and beyond. There’s certainly no shortage of taxes already being paid.” Promotional play is already a loss leader for the casino, and a state-imposed tax will likely curtail a casino’s usage of it. With less promotional play, casinos may see a drop in traffic, which would of course lead to a loss in revenue – revenue the state collects 54 percent of when it comes to slot machines, and 14 percent of when it comes to table games. Mohegan Sun’s CEO Michael Bean said as much to the Morning Call, indicating that while only an 8 percent tax, it could be the straw that breaks the proverbial camel’s back. “It’s a primary marketing tool for us, but there’s a tipping point,” Bean said. “It’s going to cost us $3.7 million on top of the $125 million we already pay. At some point, if it’s going to be a handicap, you’re going to have to spend less. That’s not good for us or the state.” Essentially, Wolf’s proposal, meant to increase the state’s tax revenue from casinos, could have the unintended consequence of lessening the amount of money the state collects from gaming overall. A letter, signed by all 12 of the state’s casinos and sent to the governor last week said as much: Budget problems and other gaming reforms As noted in the opening, this proposal is for the 2016/2017 Pennsylvania budget, but the state still hasn’t passed its 2015/2016 budget, which was due back in July of 2015, a stalemate that becomes more and more of a crisis with each passing day. The proposal is also strange considering the state legislature is expected to vote on a massive gaming reform bill that would generate far more tax revenue than Wolf’s proposal, and in a less controversial way. Among the state’s brick and mortar casinos, there is a near unanimous consensus when it comes to the omnibus gaming reform bill, HB 649, which includes the addition of slot machines at designated airports and off-track betting parlors, and the legalization and regulation of online gambling. However, HB 649 has been earmarked to fix the state’s state pension deficit, and is not being used to solve the state’s budget stalemate – although there have been halfhearted attempts to shift HB 649 into the budget. According to the bill’s sponsor, Representative John Payne, if HB 649 were shifted to the budget it would lead to the legislature having to vote on tax increases to solve the pension deficit. Payne noted this is something few legislators were likely to do in an election year. Image George Sheldon / Shutterstock.com

The American Gaming Association has come out against a recent proposal by Pennsylvania Governor Tom Wolf that seeks to impose a tax on promotional credits handed out by the state’s casinos. The AGA’s position on the tax In a letter sent to Governor Wolf and key legislators, AGA Senior Vice President of Public Affairs Sara Rayme wrote: “… the American Gaming Association (AGA) has serious concerns with your proposal to tax promotional credits, a crucial marketing tool for casinos that generates millions of dollars in tax revenues for the Commonwealth of Pennsylvania each year.” The AGA letter goes on to say that the new tax would likely have the opposite effect the Governor intends; a concern I broached when the governor’s plan was first introduced a week ago. As Rayme notes, “While we appreciate the difficult budget deficit facing Pennsylvania, taxing promotional credits would likely lead to a decrease in tax revenue from casinos – the exact opposite of the intended result.” If Wolf’s plan were adopted it’s likely the value of promotional credits would reach a tipping point, and many casinos would drastically cut down on the amount of promotional credits they give away. As the AGA notes, this could lead to less visitation and traffic in the state’s casinos and therefore less revenue for the state. The letter also makes note of the already high tax burden Pennsylvania casinos pay, as 55% of slot machine revenue and 14% of all table game revenue goes directly to the state. According to the Morning Call, the casinos that would be hardest hit by Wolf’s proposed tax would be AGA members, Las Vegas Sands (Sands Bethlehem), Greenwood Racing (Parx Casino), Rush Street Gaming (Rivers Casino and Sugarhouse Casinos), Penn National (Hollywood Casino), Caesars Entertainment (Harrah’s), and the Mohegan Tribal Gaming Authority (Mohegan Sun at Pocono Downs). Two of those entities, Las Vegas Sands and Caesars are among the heavy hitters of the casino industry and the AGA. Wolf’s proposal Under Wolf’s promotional tax plan, casinos would have to pay an 8% tax on free slot play and match play coupons and vouchers for table games, essentially charging them to run what have historically been considered marketing campaigns to attract customers. These giveaways are seen as the fuel that brings day trippers to the casinos by bus from as far off as New York City. The AGA likened these promotional credits to grocery store coupons, or a BoGo offer sent to specific customers by a shoe store, although I would have compared them to free appetizers at a bar or some other loss-leader. In the letter Rayme made the following case for promotional credits: “Promotional credit marketing programs in casinos are no different than grocery store coupons, which are widely used to attract more customers to purchase and consume more goods. Direct marketing, which involves sending promotional free play to patrons, is much like a shoe store sending a customer a buy one, get one free coupon. Promotional credits are a critical part of casino marketing because they:
Incentivize customers to increase their real-money wagering and spur increased visitation;
Empower casino operators to respond to market conditions, customers’ preferences and the broader economic environment; and
More than triple the return on investment of issuing promotional credits.” The bigger picture It should also be noted that this fight is taking place amid a backdrop of a budget stalemate between the governor and the Republican-controlled House of Representatives that has gone on for over six months. Wolf’s proposal could very well be the governor throwing every idea against the wall to see if anything sticks, since the longer the stalemate goes, the worse it will be for all Pennsylvanians. The legislature is also considering a massive gaming expansion package that would legalize online gaming in the state; add slot machines to select airports and off-track-betting parlors; make structural changes to casino licenses; and perhaps legalize daily fantasy sports in the Keystone State.