Pennsylvania skill games regulation is expected to generate a significant amount of revenue for the Commonwealth. The Independent Fiscal Office predicts the state will generate $421 million in tax earnings from skill games by FY 2028/2029.
The IFO is a government agency providing revenue projections and analysis. It has skill games revenue starting out slowly, generating just north of $100 million in FY 2024/2025, which is lower than Gov. Josh Shapiro’s projections.
However, revenue is expected to climb linearly as more regulated skill games enter the state. Strict safeguards on the machines should alleviate the concerns of the regulated industry, including PA online casinos.
IFO projects revenue growth from Pennsylvania skill games regulation
Gov. Shapiro recently addressed the Commonwealth in February, detailing his proposed budget for the FY 2024/2025. In doing so, he included a 42% tax on skill games, which would translate to $150 million in earnings the first year. Over the next five fiscal years years, Shapiro recorded the following estimates, according to his budget:
- 2024/2025: $150 million
- 2025/2026: $313.4 million
- 2026/2027: $314.8 million
- 2027/2028: $316.8 million
- 2028/2029: $317.9 million
The IFO has calculated different totals. It has a more conservative projection the first year, with bullish targets over the next four years, according to its report:
- 2024/2025: $103 million
- 2025/2026: $308 million
- 2026/2027: $376 million
- 2027/2028: $397 million
- 2028/2029: $421 million
The IFO provided rationale for its earnings projections:
“The estimate assumes that: (1) 15,000 machines are regulated and operating in FY 2024-25 and that number increases to 29,000 by FY 2028-29, (2) the average gross gaming revenue per machine is $30,000 in FY 2024-25 and that average grows by 2.5% per annum, and (3) 25 wholesalers are licensed.”
Potential PA skill games regulatory fees
Not only are skill games owners and distributors going to be taxed 42% under Gov. Shapiro’s plan, they’re also going to have to pay regulatory fees for operating the machines, too. Those include:
- Initial distributor/Operator license: $1 million
- Annual renewal of distributor/Operator license: $100,000
- Initial establishment license: $1,000 per machine
- Annual renewal establishment license: $500 per machine
There are multiple plans for skill games regulation. Pennsylvania Senator Gene Yaw’s (R-23) proposal includes a 16% tax with the following regulatory fees:
- License application fee of $1 million for skill game distributors
- $25,000 fee for operators
- $250 fee for establishments
- Yearly renewal fee structure
Asked about proposed fees, skill games manufacturer Pace-O-Matic told PlayPennsylvania in a statement:
“We are supportive of the governor’s efforts to regulate and tax the industry. We believe that registration and licensing fees will be part of the legislation.
“Pace-O-Matic is committed to working with the governor’s office and the legislature to negotiate rates that balance support for the regulatory process and also allow our small businesses to continue to operate.
“As far as the distributor registration fee, we fully support the governor’s proposal. If a company wants to participate in the skill game market, it must invest in the commonwealth.”
Despite Philly ban, doubtful skill games will be banned state-wide
Recently, Philadelphia banned skill games inside convenient stores and gas stations within city limits. That ban has led to a lawsuit by Pace-O-Matic.
But, it is extremely unlikely that skill games will be banned after the Commonwealth Court ruled the machines as legal last December. It’s now a matter of lawmakers and Gov. Shapiro finding common ground on a sound structure.
The majority of Pennsylvania casinos still believe the games should be illegal and banned. However, Parx CEO Eric Hausler opened the door for skill games to exist. He told PlayPennsylvania in February:
“A rigorous regulatory and tax structure for skill games should remedy many of these concerns and put sensible limits on the location of these games.”
Perhaps there is a world where strict skill games regulation and casinos can coexist.
