The sports betting industry remains young, at least outside Nevada.
Even in nearby New Jersey — where business has boomed and has quickly made the Garden State a sports betting leader this side of Las Vegas — legalized wagering is just over four months old.
Yet already one company is ready to revolutionize sports betting. PointsBet, an Australian company with newly formed offices in Jersey City, nears its November launch in New Jersey. With its unique “points betting,” also known as “spread betting,” PointsBet offers a product no competitor can.
So confident in its offering, PointsBet has leveraged a way to expand its presence beyond the New Jersey borders. Company higher-ups have maintained open lines of communications with representatives in other states. And PointsBet envisions a growing presence in the world of legalized sports betting.
“We want to have a national footprint,” PointsBet US CEO Johnny Aitken said in a phone call.
At least in the short-term future, however, that footprint will not include Pennsylvania. And the reason rings familiar: lofty PA sports betting tax rates.
‘Onerous’ tax rate keeping PointsBet away
Aitken expressed optimism that PointsBet will succeed long term, in part because of its points betting feature. Launched in 2017, PointsBet uses traditional formats as the foundation on which bettors have the potential to either win big or lose big.
For example, a bettors can wager $10 on the over of an NBA game with an over/under point total of 200. For each point beyond that total, the bettor pockets $10. So, for a game ending with 210 points, the bettor collects $100. However, a 190-point total results in a $100 loss.
Formerly with bookmaker William Hill, Aitken said PointsBet continues to have “active conversations” with other state industries for potential expansion.
Pennsylvania, however, does not seem to be a part of PointsBet’s immediate future, according to Aitken.
“The tax there is very onerous. … But to go and bid for a Pennsylvania license, I’m not so much concerned about the $10 million upfront (licensing) fee, but those operating taxes, which when you average it all out tips over 40 percent, it makes it very hard for us to enter, be aggressive on our offers and price, all the things we need to do to try to win money back from the black market.”
The tax Aitken cited includes the 36 percent state rate as well as a federal cut of revenue.
Aitken said Pennsylvania is “very heavily entrenched” in the “black market, illegal bookmakers in the state or offshore.” As a result, he added, “for the moment, we’ll park our ambitions with Pennsylvania. But we’re very active in other states.”
PGCB rep defended rates
Speaking on a panel at the Global Gaming Expo in Vegas last month, Susan Hensel, the Pennsylvania Gaming Control Board Director of Licensing, came to the defense of PA’s sports betting tax rate.
During the question-and-answer portion, Hensel received an inquiry on whether the lofty rate would scare away potential operators, thus preventing the state’s industry from flourishing.
Hensel’s response: “Well, we have five applicants.”
She noted that, historically, expert predictions about the future of various industries in Pennsylvania have fallen flat. Consider, she mentioned, the growth of the PA casino industry, which has indeed blossomed despite a head-spinning 54 percent tax rate on slots. Last fiscal year, state casinos generated $3.2 billion in revenue, trailing on Nevada.
Still, critics have cropped up
Hensel’s defense, and that of other regulators and lawmakers, have done little to quell the unease of potential PA sports betting operators.
Dan Shapiro, vice president of business development for William Hill US, told The Philadelphia Inquirer in July that the tax rate and licensing fee makes “other states … more interesting to us.”
In the same story, Hollywood Casino vice president and general manager Daniel Ihm said the PA rates “are the highest in the world and may make it impossible for a casino operator to make any return on its investment of capital.”
That said, State Rep. Rob Matzie remained confident that casinos would buy in, per The Philadelphia Inquirer.
“For these casinos, competition is everything. If the Sands in Allentown decides to do it, or the Rivers in Pittsburgh, or the SugarHouse in Philadelphia, then all of a sudden everyone will fall in line, and they’ll want to be part of that.”
Indeed that has been the case. Despite their reactions, since making these comments, William Hill and Hollywood Casino teamed up to operate the Hollywood Sportsbook, which expects to open later this month.
PA operators support/accepting of fees
At least one of Pennsylvania’s casino operators still remains opposed to the lofty rates.
During the company’s third-quarter earnings call last week, Penn National CEO Timothy Wilmott tabbed PA’s tax rates as “the highest both in sports betting and online commercial … than any other state at this point and hopefully it stays that way, that not other states are competing with Pennsylvania at these tax rates.”
Still, Wilmott continued, “we’re going to be smart, we’re going to be disciplined, and we’re going to operate these businesses to make money.”
Certainly one reason for casinos accepting the costs of operation includes a limited market. With fees that make discourage outside companies from taking part in PA sports betting, fewer operators will have larger shares of the market.
Such an outlook certainly has caught the attention of said outside companies, like PointsBet, which seems to perceive PA’s rates as a way to protect its properties from out-of-state entities entering and cannibalizing the industry.
As Aitken said:
“Being privy to a few different types of conversations and conferences, I guess the agenda there is being led by land-based casinos, and I guess there’s a lot of protection of interest. I get that from their end.”