When fear-mongering news breaks of the latest deadly virus or bacteria, a simple cough in public can cause panic.
For months, pundits and sportsbooks and the public have clamored about Pennsylvania’s sky-high PA sports betting tax rates and licensing fees. They certainly have reason for concern: $10 million to obtain a license, then pay 36 percent on taxes? Yikes.
In levying those fees, Pennsylvania coughed. And now there is panic and hysteria about the future health of the Keystone State.
And, oh, how much overreaction has ensued.
The case for overreaction
Certainly, those repulsed by Pennsylvania’s sports betting framework have a right to be. On its face, the argument holds water.
How can an industry blossom when the cost for its seed pits operators in a sizable hole? Especially an industry like sports betting that itself stands as a low-margin product?
A properly run sportsbook holds between four and 10 percent of the total handle each month. Yet Pennsylvania wants to put operators in a $10 million deficit out of the gate?
William Hill US CEO Joe Asher has long vocalized his opposition to Pennsylvania’s structure, using the above argument as his foundation. Speaking with the Philadelphia Inquirer in June:
“Pennsylvania is in a different bucket because of the tax rate. We can’t figure it out. Because of it, we haven’t spent the time or effort in Pennsylvania that we have in New Jersey. … If you’re paying $10 million up front for the privilege of paying (high) taxes, plus the infrastructure costs, it’s difficult for me to see how you make money in Pennsylvania.”
His argument is logical. As a result, New Jersey, a state with 8 percent tax on retail sportsbooks and 13 percent for mobile wagering and where William Hill has three partnerships lined up, has become something of a template for future states with legalized sports betting. Conversely, Pennsylvania, with its lofty fees, has become a cautionary tale.
Just ask Illinois state rep Lou Lang. At a legislative hearing discussing the possibility to bringing sports betting and online gambling to Illinois, Lang warned his colleagues to take their time.
“If you go too quickly, you make a real mess as Pennsylvania did.”
Yet the potential earning power of PA does not receive nearly as much attention as the initial shortcomings of offering sports betting within the state.
And it should.
PA has the power…
Speaking on a panel at the Global Gaming Expo in Las Vegas earlier this month, Susan Hensel reasoned why concerns over Pennsylvania’s future should be shelved for the time being.
While noting that the state received five applicants for sports betting licenses (and recently approved two), the Pennsylvania Gaming Control Board Director of Licensing pointed out that expert predictions about anything PA-related have been disproved.
The casino industry, she offered, has boomed, despite an exceedingly high tax rate of 54 percent on slot games. Pennsylvania casinos still generated $3.2 billion in revenue last fiscal year, trailing only Nevada among the country’s top marketplaces.
If using the same math that applies to Nevada, which registers $11 billion in gaming revenue each year and $4.5 billion in sports betting handle, Pennsylvania could accept upward of $1.5 billion in handle when the sports betting industry reaches maturity.
That goal seems optimistic short-term yet still realistic. Consider Pennsylvania’s fandom reputation for its seven “big four” professional teams. The finance website WalletHub compiled a 2017 study for Best Sports Cities in America. The survey sampled 422 cities across the country, sorting them by size and using statistics from the most popular sports: football, baseball, basketball, hockey and soccer.
The study determined that Pennsylvania boasted two of the top six “best cities” (Pittsburgh, No. 4; Philadelphia, No. 6).
With such strong support for the professional teams, as well as college teams, Pennsylvania sportsbooks could rake in somewhere north of $50 million in annual revenue, at least.
… and it needs to be cultivated
Certainly, no projection is met without a proper foundation and development.
In Pennsylvania, it’s no different. Fortunately, the state seemingly only needs to focus on the fundamentals to spark the industry’s growth.
Already, there have been missteps in other states with legalized sports betting (see: FanDuel Sportsbook in New Jersey). Those mistakes only emphasize the need for sports betting operators to educate the public. Moreover, bookmakers’ need to solidify operational procedures.
Incoming sportsbooks in Pennsylvania need not carry the sports betting industry themselves. The presence and prevalence of the NFL, NBA, MLB, and NHL shoulders that load. As PA cultivates its potential earning power, these sportsbook operators need to harness these leagues and franchises.
Promotions prove key. The more successful books in nearby New Jersey have discovered that. Each book is unleashing multiple promotions relating to nearby teams and big games.
Certainly, Pennsylvania’s taxes and other fees take away from what sportsbooks could potentially spend for marketing and promotions. Because of a more lenient tax rate, for perspective, New Jersey properties enjoy an allowance double the size of PA operators to go toward such marketing.
With minimal operators (i.e. fewer competitors) offering sports betting, there is more market share to go around. However, sportsbooks will need to go deeper in their pockets in order to match what the neighboring books are offering in terms of bonus bets and bonuses.
End of the day though, despite the lofty licensing fee and tax rate, the glass remains half-full, at least, for potential earnings.
Regardless of what figures revenue reports show, likely no number will silence critics. The argument will shift to, “Think of how high those numbers could get with lower taxes.” Yet any profit, because of the fees, should be enough to send a message.
And what the country could see, potentially, is a loud-and-clear communication that Pennsylvania boasts one of the top sports betting industries in the country.
