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Top 10 facts and figures from PlayPennsylvania's online gambling report

6 Nov 2017

By Abby Messick
Having given more than enough props to Pennsylvania since the news hit that its Senate gave the go-ahead to online gambling, we can finally start delving into the nitty-gritty facts of the matter. How's this going to play out? What sort of revenue will the state see? What's with the crazy tax rate?

PlayPennsylvania's latest online gambling report details many of these key issues, and we've gone ahead and picked out its most noteworthy facts and figures.

10. Unique license structure
One of the most notable things about H 271 is the way it handles licensing. Usually, online gambling licenses apply to all forms of gaming. Pennsylvania decided to do things a little differently by splitting the license into three categories: Poker, table games and slots.

Operators could choose to buy one, two, or all three licenses, depending on their needs. Cost per is $4 million, while buying all three is a bargain at just $10 million.

This legislature also caps the number of active Interactive Gaming Certificates at 36, or 12 per gaming category. Land-based operators will have a first go at obtaining these licenses.

Pennsylvania joins as the fourth state to legalize online gambling.

Pennsylvania joins as the fourth state to legalize online gambling.

9. High taxes
The other most notable thing about this bill is the tax structure. (And, if you've been keeping yourself abreast of the news, you'll know that many are skeptical about it.)

Pennsylvania's land-based taxes are already pretty high, and lawmakers decided this will be the standard for online games, too. Each category will have a different tax rate: 16% for poker and table games, 54% for slots. Taken together, that's much higher than the rates in Nevada and New Jersey.

According to the report, experts say that an under 20% tax rate is ideal. Nevada and New Jersey – whose rates stand at 6.75% for poker and 17.50% for poker, table games and slots, respectively – have seen great success. Meanwhile, Delaware's tax rates – 29% for poker and table games, 43% for online slots – have proved prohibitive for operators. Very little is spent on marketing in the state, meaning generated revenue is minuscule.

8. Interstate agreements?
Recently, Delaware, Nevada and New Jersey came to an agreement that they should share their poker liquidity, thereby increasing the number of players and revenue for each state. This was a big move.'

Pennsylvania is poised to be added to the mix. According to the report, New Jersey operators are already in talks with Pennsylvanian counterparts. It won’t be the case that online poker will come out of the box sharing player pools, but it’s likely players will only have to wait a few months.

7. Market size prediction
Right now, we can only look at other state markets. The report predicts a first-year gross gaming revenue of $154 million, scaling up to $275 million in GGR in year five. This makes the assumption that Pennsylvania will combine its poker player pool with Delaware, New Jersey and Nevada.

6. Implications for other states
The report intimates that other states could be spurred into legalizing online gambling by Pennsylvania's new legislation.

New York, for instance, attempted to pass bills in 2016 and 2017, to no avail. Another push for online gaming will come in 2018, and it may prove to be any more successful than previous efforts. According to the report, "the opportunity to share player pools with a combined population roughly equivalent to New York's will help bolster the online poker opportunity for New York."

Additionally, the report mentions Ohio and West Virginia, states that, although they don't seem to have any prospective legislation on the horizon, may open talks on the subject.

PlayPenn notes a few other states that have put forth online gambling bills in the recent past, such as California, Massachusetts and Michigan. It lists Illinois and Michigan as having a fair chance of passing legislation — both states could benefit from the financial opportunity that online gambling provides. If Pennsylvania sets a good example, that could serve as inspiration for them to try again.

5. How many sites allowed?
The short answer is: we're not sure.
While we have a solid figure on how many licenses will be allowed, we're not sure how many brands or websites can operator under a single license. No hard limit is described in the bill, so it may be up to regulators to nail down the details.

In New Jersey, only Atlantic City casinos are allowed to hold a license, and licensees can join forces with multiple brands. We'll see if Pennsylvania attempts the same.

4. Playing catch up
The bill's language suggests that speed is of the essence in terms of bringing online gaming to Pennsylvania's residents. After all, New Jersey and Nevada both have four years of online gaming experience under their belts.
The good news is that Pennsylvania can use those states' templates to move the process of regulation along.

3. Projected early revenue
From license fees alone, Pennsylvania is expected to make up to $120 million.

A pretty staggering number, but that's assuming all 36 licenses are snapped up. We can't forget the somewhat convoluted license structure and high tax rates, both of which may discourage operators from entering the market.

PlayPennsylvania's report says "there's a realistic chance that not all licenses will be sold. For example, it's hard to appreciate how 12 online poker IGCs will be sold." The report also cites thinner online gambling margins (versus land-based gambling) as a potential problem. In the end, Pennsylvania operators will have fewer advertising and player promotion resources as well as less of a budget with which to pay staff when compared with New Jersey.

PlayPennsylvania anticipates operators paring down marketing and promotions by about half.

2. Black market customers
With such a high tax rate, PlayPennsylvania predicts it will be hard to capture black market audiences. The less attractive the regulated product, the less revenue is generated and the less revenue goes to state governments.

The U.K.'s 15% tax rate results in a 98% capture rate, meaning players and operators alike are drawn to regulated markets. That's a win-win for players who want to game with a trusted source and for governments. As we know, players are only hurt by black market practices, which can be shady and unfair, so it’s in PA’s best interest to draw players to a more regulated area for gaming.

1. What’s next?
As we wait for online gambling to go live in the state, we can only speculate on its future success. Will they tackle the tax rates at some point, or is the Keystone State doomed to the fate of other highly taxed states? And could the passage of H 271 inspire other states to draft their own bills? Which operators will be enticed to enter the market, and which will choose to sit this one out?
 
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