News

Pennsylvania online gambling ruling remains uncertain

19?October?2016
By?Abby?Messick

It's been a whirlwind journey for online gambling in Pennsylvania, where a hearing was held today to discuss the fate of the industry.

The House Gaming Oversight Committee's hearing on Tuesday morning sought to provide an update on the uncertain status of daily fantasy sports and online gambling. Overall, the meeting was positive for iGaming proponents, though some concerns were voiced over the treatment of smaller fantasy sports operators.

Chairman John Payne, the author of HB 2150, implored all speakers to use the CliffsNotes versions of their testimonies. Reasonable cases were made as to why online regulation is necessary, but no vote was held. The House of Representatives already voted on and passed HB 2150 back in June; the Senate's last chance to vote on the bill will be from 24-26 October, at which point it may have to be shelved until next year.

Tuesday's hearing examined the local share tax, an issue that could be combined with the proposed online gambling legislation. Enacted with the state's 2004 gambling law, the local share tax requires all casinos except those in Philadelphia and the resort venues in Valley Forge and Nemacolin to pay 2% of their gross revenue or $10 million, whichever sum is greater, to a host municipality.

On 28 September 2016, the Pennsylvania Supreme Court ruled this tax unconstitutional on the grounds of unfair treatment, and gave the legislature 120 days to suggest a fix. If no fix is applied, townships and counties across the state will face budget difficulties, as many of them rely on the casinos' revenue. Distribution of these revenues is also a hurdle, since towns without casinos desire some portion of the revenue, and towns with casinos are clamoring for more.

Pennsylvania has been toying with the idea of online gambling since 2013, but only in the past year or so has the idea taken any real shape. Rep. John Payne introduced HB 649 in February 2015 in an effort to generate additional revenue by way of online gambling. Payne pointed to the success of online gambling in Nevada, New Jersey and Delaware as proof that regulation works. Though HB 649 eventually failed to pass vote, a new bill, HB 2150, took its place. This passed and was sent to the Senate, and has been stuck there ever since.

At today's hearing, John Pappas, executive director of the Poker Players Alliance, spoke first, commenting that there is no political justification for delaying the regulation of Internet poker. Immediate concerns included the lack of consumer protection and revenue that is continually lost by players using unregulated sites.

Pappas mentioned Full Flush Poker, an unregulated online site that ate millions in player deposits when it shut down unexpectedly earlier this month, leaving players no way to get their money back. Regulator accountability and trusted gaming companies are essential for player safety, Pappas argued.

New Jersey, in particular, was pointed out as an example of what can go right with regulated online gaming. The state has had success in its use of geolocation services, the prevention of underage access and help for problem gamblers.
Online poker can only benefit from Pennsylvania joining the player pool since, as a peer-to-peer game, a certain number of players is required for games to be viable. Pennsylvania joining a network with other poker-friendly states would increase revenue and keep players coming back.

A few Pennsylvania-based casinos, such as SugarHouse Casino, are already setting up online gambling in New Jersey, something Pappas called "unfortunate outsourcing."

"Regulation works," Pappas said. "It is not a theoretical."

The passage of this bill would mean more revenue for the state of Pennsylvania, safer players and more trustworthy sources of gambling.

The hearing continued with a discussion on daily fantasy sports. Steve Brubaker, executive director of Fantasy Sports Trade Association, remarked that many of the DFS bills passed in 2016 have been a burden for smaller operators. Large-scale companies DraftKings and FanDuel brought the fantasy sports industry to the forefront of legislators' attention earlier in the year, driving the passage of laws that do not consider small businesses for whom the high tax rate and regulatory burdens can be an unnavigable obstacle.

Brubaker stressed that small and large companies require different treatment in terms of licensing fees and regulatory burdens such as state-specific audits.

The state of Virginia, in particular, requires a $50,000 licensing fee – nothing to sneeze at for a business that operates on a relatively small scale. A fee structure based on percentage of revenue was named as much more desirable.

"Please do no harm," Brubaker said. "Find a solution that lets us operate."

Representative George Dunbar said that the current version of the bill did not aim to force anyone out.

Later on, Scott Ward, representing DraftKings and FanDuel, stepped up to the plate. The two companies do not want barriers of entry and, according to Ward, pushed for percentage-based taxes during previous talks regarding the bill. "My clients fully support the language in HB 2150," he said. "I think it is a smart balance between regulation and making sure that we don't create barriers to entry."

The need for consumer protection took the spotlight toward the end of the hearing, with "legal certainty" cited as a must-have.

"This is about doing what's right for the gaming industry in Pennsylvania and protecting our consumers," said John Payne.

It remains to be seen if the Senate will move forward with HB 2150.