Distributed Gaming Next Frontier For Pennsylvania Industry

October 9, 2023
Although Pennsylvania has spent the last two decades growing into the second largest U.S. gaming market in terms of revenue, a Senate committee has begun to consider further potential updates to the state’s gaming law.

Although Pennsylvania has spent the last two decades growing into the second largest U.S. gaming market in terms of revenue, a Senate committee has begun to consider further potential updates to the state’s gaming law. 

“Gaming has, in fact, been a tremendously successful source of tax revenue in the Commonwealth,” said Republican state Senator Chris Gebhard, who chairs the Senate Community, Economic and Recreational Development Committee, during hearings last week.

Gebhard said since slot machines were first legalized in 2004, the industry has provided broad economic opportunities for state residents but stressed that now policymakers have to decide what, if any, changes need to be made to the state’s Gaming Act.

Casino executives have expressed their strong opposition to any further expansion, but distributed gaming companies are lobbying for an expansion of the current law overseeing video gaming terminals (VGTs).

The debate comes just six years after the state last passed a major gaming law to authorize internet gaming, sports wagering, a series of satellite casino properties, plus VGTs limited to certain truck-stop locations.

Eric Schippers, senior vice president of public affairs and government relations with Penn Entertainment, said tax revenue, capital investment, jobs and local share payments are at “grave risk of significant impairment” with any VGT expansion to additional locations beyond truck stops.

“The risk is created by the seemingly endless threat of continued cannibalistic gaming expansion in any of its various forms, including distributed gaming,” Schippers said in written testimony submitted to the committee.

“To be honest, at Penn, we are shocked and dismayed that this is once again an issue. The 2017 Gaming Act expansion amendments were supposed to have decided this issue.”

Executives with Parx Casino and Cordish Cos. also voiced their opposition to widespread gambling locations considering the hundreds of millions of dollars invested in their land-based casino businesses in Pennsylvania.

Under Pennsylvania’s 2017 gaming expansion law, VGTs were allowed in airports and truck stops, but those service stations must sell an average of 50,000 gallons of diesel or biodiesel each month to even be considered for licensure to offer up to five machines.

The truck-stops must also have at least 20 dedicated commercial vehicle parking spaces, a convenience store, be a registered Pennsylvania Lottery sales agent, and be situated on no less than three acres of land.

Matthew Hortenstine, general counsel with J&J Ventures Gaming, urged lawmakers to consider implementing a model similar to Illinois’ model of licensing and regulating VGTs in bars, restaurants, veterans’ organizations, truck-stops and fraternal organizations.

“Pennsylvania has a very robust casino environment,” Hortenstine said. “Unfortunately, our VGT world in Pennsylvania is much less mature. We generated just under $22m in tax revenue to the Commonwealth last year.”

Pennsylvania’s commercial gaming industry, which includes casinos, sports betting, iGaming and VGTs, generated $5.21bn total in revenue, with more than $2.2bn paid to the state. Nevada’s gaming industry may have topped the revenue list in 2022 at $14.84bn, but paid only $1.15bn in gaming taxes.

By law, gross gaming revenue from VGTs is subject to an effective 52 percent tax, compared to 15 percent in Montana, 34 percent of net terminal income in Illinois, while in Nevada, the tax on gross gaming revenues is graduated from 3.5 percent to 6.75 percent.

Currently, there are just 78 licensed VGT locations state-wide. Hortenstine said J&J Ventures has about a 35 percent market share with 28 locations.

“We believe it would be in the best interest of… Pennsylvania to expand that to a similar model to include those types of locations,” Hortenstine said in reference to the Illinois market. “Have a six-position model all connected to a centrally located system and with appropriate robust regulations to support that.”

Rick Kirby, executive vice president of Betson Enterprises, said there is not enough opportunity to “recapture the financial investment and operating capital required to get started and stay in business in Pennsylvania.”

Hortenstine is advocating for a three-tiered systems with roughly 33 percent of the revenue going to the local establishment, 33 percent to the terminal operator and 34 percent to the state. 

“We would also support a parity tax position. Obviously, a 52 percent tax rate here is an aggressive tax rate.”

The Illinois Gaming Board reported a VGT count on Thursday (October 5) of 46,470 in 8,402 establishments state-wide. The terminals generated $80.5m in tax revenue in August with $68.7m deposited in state coffers and $11.8m going to local municipalities.

Hortenstine said by opening the VGT market to more terminals and locations, the state could reduce the current tax rate, which would expand the state’s total tax revenue by about $800m.

“The expansion into bars and restaurants would also create a path not only to allow us to achieve those more robust economic numbers, but I think also create a path to legality for those currently involved in the unregulated field of gaming here in the Commonwealth,” Hortenstine said.

“Our industry has no problem with those folks that operate in that industry from that perspective as long as there is regulation parity,” he added.

Senator Anthony Williams, a Democrat and the committee’s minority chairman, said he did not believe there is anything lawmakers could do to stop unregulated gambling in Pennsylvania.

“I think history tells us all that unregulated areas tend to result in bad outcomes for all those involved,” Williams said. “I’m a strong believer in competition. It’s as simple to me as, you are regulated; you’re not regulated.”

At the end of almost five hours of testimony over the two-days of hearings last Monday (October 2) and Wednesday (October 4), there was no indication that the Senate committee would take up any gaming expansion legislation this session.

Currently, Republican Senator Gene Yaw’s Senate Bill 706, which would regulate and tax so-called skill-game devices, has been filed in the legislature. Senator Amanda Cappelletti, a Democrat, has yet to introduce legislation to ban skill games. 

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