It took a while before the Pennsylvania Gaming Control Board (PGCB) received any sports betting license applications, but Hollywood Casino and Parx Casino have committed the $10 million fee and are the first casinos to submit their applications.
As far as state Rep. Robert Matzie is concerned that’s enough to prove that the exorbitant 36 percent sports betting tax rate is not too high for the market to bear.
Matzie told the Pittsburgh Post Gazette (PPG):
“Since the dominoes have begun to fall with the two filings, I think it’s inevitable the rest will also,”
Matzie was the sponsor of the original legislation that led to state-regulated sports betting in Pennsylvania.
Voters have something to thank him for, but the sports betting companies may not be quite so enthusiastic.
They will be hoping that over time, PA lawmakers will revisit the tax issue and bring taxes into line with those in Nevada (6.75 percent) or New Jersey (8 percent in casinos and racetracks, 12 percent for online sports betting).
Matzie isn’t offering any support for their position:
“I thought all along it was a non-starter to open anything up [in terms of the tax rate], and I think this pretty much puts the nail in the coffin.”
Matzie originally had the sports betting tax rate at 18 percent, the same as the table games rate. After further examination, the rate was simply doubled because sports betting was considered to be more similar to slots, which are taxed at 54 percent.
High taxes can have unpleasant consequences
Matzie shouldn’t be too quick to gloat over casinos paying the high tax rate. The enthusiasm of casinos to apply for sports betting licenses doesn’t mean that the high taxes are workable for them.
If the experience of regulated sports betting in Europe is a guide, then the short-term future doesn’t look good.
After five years of regulated sports betting in France, only three sports betting operators had managed to make a profit in any quarter. France has taxes that are roughly at the same level as Pennsylvania.
Players also react to high taxes.
In France, around 40 percent of sports bettors ignore the nationally regulated sites to play at unregulated sites which offer better odds. In Portugal, which has taxes set at 16 percent of sports betting handle, the figure is even worse.
A report from Copenhagen Economics states that only 52 percent of online gambling in Portugal takes place at nationally regulated sites.
In the UK and Denmark which have 15 percent and 20 percent tax rates respectively, only a few percent of players play at unlicensed sites.
The knock on effect is significant. Copenhagen Economics found that state tax revenues start to reduce when taxes get over 20 percent.
The 36 percent rate in Pennsylvania may look good to lawmakers, but state budget accountants won’t be as impressed.
Casinos are not so sanguine
The PPG took the trouble to contact Eric Schippers, Penn National SVP and asked why the Parx Casino had applied for a license after being so critical of the high taxes and license fees, he replied:
“While we continue to have concerns about the tax rate, we ultimately decided to make a go of it, while continuing to educate the Legislature on the importance of a competitive tax rate. We felt the best way to do that is to share our first hand experience with them.”
Hold off on hammering in that coffin nail Rep. Matzie, there are a few casinos that would like to share their experiences with you first.