[toc]At the end of October, Pennsylvania amended its gaming laws and included provisions for the regulation of online gambling. Now, with auction dates for the new Category 4 Casino licenses announced, it’s possible to see a clear timeline to the state taking its first online bet.
The first auction of five-year licenses takes place on Wednesday, Jan. 10, 2018 at 10:00 a.m. at the Public Hearing Room located on the second floor of Strawberry Square in Harrisburg. Full details are available on the Pennsylvania Gaming Control Board (PGCB) website.
The winning bidders must pay their license bid within two working days. Thereafter, they have six months to submit their license application.
PGCB then has 90 days to approve the application.
Pennsylvania’s new fiscal year begins in July, so there is some pressure to make sure the state receives license income in time to be part of the current year budget.
The new Category 4 license holders can build satellite locations for slots and potentially table games. Only Category 1,2 and 3 licence holders are allowed to apply for the certificate permitting them to offer interactive gaming though.
Nonetheless, these auctions are an important element of the new legislation. They signal that PGCB is moving forward with implementing the new law.
If things move as quickly as possible, Pennsylvanians could be playing legal online poker and casino games as early as late April or May, 2018.
Auction details give preference to existing license holders
The first series of auctions are open to holders of Category 1 (Race Track) and Category 2 (Stand Alone) slot machine licenses.
Ten licenses are available with a minimum price of $7.5 million each. A separate certificate for table games carries a fee of $2.5 million.
The law allows for a Category 4 facility to have “between 300 and 750 slot machines along with a maximum of 30 table games in its first year of operation with the capability of adding an additional 10 tables games after its first year of operation.”
Each bidder must submit a sealed envelope containing their maximum bid. Additionally, they will provide a second envelope giving the location where the facility will be based.
The remaining dates for subsequent auctions in this first series are:
- Jan. 24, 2018
- Feb. 7, 2018
- Feb. 21, 2018
- March 7, 2018
- March 21, 2018
- April 4, 2018
- April 18, 2018
- May 2, 2018
- May 16, 2018
Once PCGB approves an existing license holder for a Cat 4 license, they may not bid again during this auction series.
If there are not bidders for all ten licenses after the first series of auctions, there will be a “subsequent round.” During that round, Category 3 (Resort) license holders will be allowed to participate, as well as “any Category 1 or 2 license holders even if any of those holders have already won a Category 4 auction.”
If licenses remain at the end of this process, PCGB can hold additional auctions until all licenses have been sold.
High taxes unlikely to deter bidders
Slots revenues under the Cat 4 licences are taxed at a 54 percent rate. Meanwhile, the rate for online table games and online poker will be 16 percent.
The 54 percent figure is extremely high by both US and international standards and will squeeze operator margins to the bone. Conversely the 16 percent rate is probably in the sweet spot where both state tax revenues will be maximized and operator profits more than adequate, allowing them to be competitive with unlicensed offshore operators.
In other words, the Pennsylvania licenses provide a mixed bag of opportunity. The current casino license holders are:
- Lady Luck
- Mohegan Sun
- Mount Airy
- Presque Isle
- Sands Bethlehem
- Valley Forge
Which casinos will go for the interactive license?
Sands Bethlehem definitely won’t be putting on online gaming, since owner Sheldon Adelson is a vehement opponent still lobbying to get his Restoration of the Wire Act bill (RAWA) introduced in Congress.
However most of the other casinos have either signed or discussed deals with online providers.
Even though the slots tax is high, online poker and table game revenues should be similar to New Jersey, per our in-house estimates, so total revenues enabled by the new law remain attractive.
By year five, annual market revenues from online poker and casino games are estimated at $275 million.
It’s always possible that not all the ten “mini-casino” licenses will be sold in the first set of auctions. However, even at up to $10 million a pop, big business casino owners can’t afford to miss out on the opportunity.
Online poker and casino game players can look forward to a summer of special offers and launch publicity.