by Steve Norton
CEO, Norton Management

Online Gambling Could Solve PA's Casino Revenue Problems

There is no good model existing that indicates that Online Gaming will have no adverse effect on existing casino win or State gaming taxes. Delaware's results are inconsequential, Nevada's only involve Poker; so Atlantic City is the only meaningful model. But AC is a poor choice when predicting what Pennsylvania might expect.

To begin with, there are no casinos in New Jersey, except in Atlantic City. And 95% of that State's population is closer to a casino or race track slot machines in another state, than they are to AC. AC has also seen it's casino win decrease from $5.2 billion annually, to just over $2.0 billion, since Pennsylvania added slots in 2006; and then added table games. Plus Yonkers and Aqueduct were allowed to add 5,000 slots, each; adding other options to AC's once Eastern monopoly. And line run buses, that we started at Resorts International Casino Hotel in November 1978, grew in the 1990's to over 14 million visitors, but have declined to just over 1 million in 2016. And most of those bus customers came on 6 hour same day trips, primarily during mid-week days and nights; when our resort casinos discount their room rates, by as much as 90 percent.

Now these buses are going to places like Parx and Sands Bethlehem, in PA; and the two racinos in New York; that service the NY City, Philadelphia and North/central New Jersey markets.

New Jersey's introduction of Online Gaming, was a defensive move, to provide an alternative gaming experience for over 8 million NJ residents, that are much closer to a casino in Eastern PA, or slots at Yonkers and Aqueduct, than they are to Atlantic City.

In Pennsylvania, the 5 largest cities and 2 of the next 4 have their own casinos; and the metropolitan areas of Philadelphia and Pittsburgh, have multiple ones. Plus, whereas New Jersey's Online Tax is significantly higher than the AC casino win tax; PA is proposing an Online tax, similar to NJ's, that would be around 15 percent, or 30 points less than the existing taxes on slot win. With at least 80 percent of PA's population, within an easy drive to an existing casino; you have to wonder how many existing slot customers, will play at home, rather than drive to their nearby casino. The total casino revenue will undoubtedly increase; but the overall casino tax revenue could decline.

A better solution for PA, might be to allow bars and restaurants, 25 miles (or more) from an existing casino, to have 5 or 10 slot machines; operated by the nearest casino, and taxed at the existing slot rate. The casino's investment would probably amount to $25 thousand per machine, and using the latest technology, would require minimal direct supervision; with the existing bar/restaurant operator paying winners, and calling the slot technician when a mechanical problem occurs. The casino operator and the bar/restaurant owner would then share the after tax revenues.

Pennsylvania needs a better solution, for raising taxes thru casino gaming, that Online Gaming. My guess is the major reason that most current operators are in agreement with the proposal; is that they could expect to see their tax rates decline, as revenues increase from new Online play.