In the lead up to regulation, the new online gambling states of America overestimated their revenue projections – however, as the debate on regulation rages in Pennsylvania, a new report, commissioned by Pennsylvania’s Legislative Budget and Finance Committee (LBFC), makes a compelling argument in favor of legalization.
The study states that online gambling could be the largest source of increased tax revenue for the state, with the potential to create $68 million in revenue in its first year.
Online gaming would generate revenue of $184 million in year one, with that figure rising to $307 million afterwards, said the report, which was conducted by the firm Econsult. That would swell state coffers by $110 million in tax revenue each year; it’s a projection guaranteed to make legislators sit up and take notice.
The majority of this revenue would come from online casino games, earning $178 million, suggested the report, but online poker would also be lucrative and is expected to generate $129 million.
“Synergy” Between Online and Offline
Perhaps most intriguingly, the report directly contradicts the point of view, strongly felt by Sheldon Adelson’s Coalition to Stop Internet Gambling, that online gambling would damage the state’s ailing land-based casino market – the so-called “cannibalization” of gaming. However, on the contrary, working on the assumption that online gaming would only be permitted through Pennsylvania’s land-based casinos, the report foresees a relationship that will be “synergistic and generate an increase in casino foot traffic and land-based revenue as new gamers become comfortable with playing poker.”
Online gaming would be a substitute for other forms of home entertainment, concluded the report, rather than for land-based gaming, as it could not replicate the social aspects and amenities of brick-and-mortar venues. It also noted that online gambling attracts a different kind of demographic to its land-based counterpart, with customers of the former tending to be younger, more educated and of a higher income bracket.
“Cannibalization of offline gamers would be small,” was the conclusion.
The report did concede, however, that in a partnership between brick-and-mortar casinos and online gaming sites, the bulk of profits may go to the gaming sites, but this would be irrelevant to state coffers, it said. Far more pressing concerns for the land-based industry in Pennsylvania are competition from other states and regulatory issues, such as restrictions on alcohol sales and smoking.
“From the state’s perspective, however, the distribution of profits is irrelevant,” the report continues. “What is important is that synergistic opportunities that increase land-based gaming be realized, and the allocation of profits from iGaming does not affect this. So long as PA casinos are able to market to iGaming players, and so long as the player data is available through these partnerships, then the allocation of profits to operators will not affect the state’s interests.”
The report also tackles the question of taxation, suggesting that rates for online gambling should be slightly above that of land-based venues, to account for lower operating costs.
“However,” it continues, “given the importance of network effects and the competition with illegal offshore sites, as the industry begins, lower rates may be optimal in the short-run… To account for this, legislation could set a lower effective tax rate initially that increases to 20 percent and 60 percent respectively over time.”
Pennsylvania State Senate President Pro Tempore Joe Scarnati said he and Governor Tom Corbett would now examine the report and take its conclusions on board.
“It has become clear that Pennsylvania casinos are facing increasing competition from our surrounding states, some of which have begun to utilize new and innovative gaming revenue generators,” Scarnati explained. “As we move forward, authorization of online gambling in the state will be explored.”
It remains to be seen whether Pennsylvania or California will be the next state to regulate, but at the moment Pennsylvania is certainly making the right noises.