by Steve Norton
CEO, Norton Management

Effort to legalize video gaming in bars is back with broader support | PennLive.com

If Pennsylvania's 40,000 illegal VGT's are actually finding a way to pay winners in prizes, convertible into cash, then these are major competition to the legal casinos. These machines are being operated by tavern owners, that have been harmed by recent changes, that allow grocery stores to sell beer and wine. But these machines would be far more profitable if legal and operated out in the open; even with a tax involved.

Representative Mark Mustio used a chart to show that Illinois tax revenue increased by $2.1 billion in the first three years after that state introduced VGT's in bars and other places with liquor licenses. But he failed to mention that $1.57 billion of that tax revenue came from 10 pre-existing riverboat casinos, and only $562 million from the new VGT's, which in 2015 had grown to 22,135 machines in 5,222 different establishments.

And because the VGT's took much of their business from the 10 riverboat casinos, their taxes declined from $833 million, as recently as 2007 (from only 9 riverboats), to just $488 million in 2015, and the 22,000 new VGT's, at a lower effective tax rate; produced only $274 million. So the combined win tax in 2015 was only $762 million, or less than the $833 million paid by 9 riverboat casinos in 2007.

The Illinois Legislature was obviously trying to help the liquor industry, rather than the stated purpose of providing more tax revenue from gaming.

And Illinois casinos can only be located on navigable rivers, severely reducing the kind of convenience that Pennsylvania has to its 13 gaming establishments; including multiple casinos in Philadelphia and Pittsburgh; while Chicago and Cook County have no gaming. So unless the VGT tax in PA is similar to the casino slot tax, then the State could be a tax loser, like IL.

My suggestion, to keep the industry whole, would be to let the existing casinos be the operators of the VGTs at liquor establishments nearest to their casinos, fund the rough $125,000 cost for the 5 machines and their connecting control system; and share their profits with the liquor operator.

This means you don't have to investigate the gaming operators, only the owners and appropriate staff at the site. If PA places 40,000 VGT's in 7,500 locations (with 10 machines at truck stops, OTB's and Fraternal locations), and they win $125 per machine per day (IL was $126.85 in 2016); the total revenue would exceed $1.8 billion, and even with the 13 existing gaming locations losing some revenue, the overall win will expand substantially; and as long as the tax rates on VGT's and casino slots are close to each other, then the state should increase its overall gaming tax collections.