lawmakers' gamble may kill goose which laid golden egg

This fall, the state Legislature is expected to pass an extension of the gaming law that will help fund the 2016-17 budget. At the center of this move is the introduction to online gaming and fantasy sports.

Not so well-known, however, was a quiet change the legislators made increasing the state's tax take on table games from 14 to 16 percent. Geoff Freeman, president and CEO of the American Gaming Association, criticized this proposal and fears its implementation will prevent casinos from putting profits back into their marketing. This, he believes, could cause the casinos' best patrons to get fewer complimentary inducements and cause them to flee to other states.

Freeman also said that casino gambling has never been more popular, which is why legislators don't want to kill the goose that laid the golden egg. With competition becoming keener in neighboring states, this, he says, is what exactly can happen. New Jersey voters on Nov. 8 will decide whether casinos will be built in northern New Jersey. Now, the law stipulates that only Atlantic City can have them.

Neighboring New Jersey and Delaware are two of just three other states that have legalized online gambling. Nevada is the other. New Jersey's 10-year experiment began in 2013. Revenues, although sluggish at first, picked up starting in 2015 and continue to look more promising today.

The Pennsylvania General Assembly has about a three-month window to approve new gambling legislation. Its members return to work on Sept. 19, and the legislative session ends on Nov. 30. Re-elected and new members of the General Assembly take office on Dec. 1.

There is much grumbling among casino owners over some of the provisions in the expanded gaming law, none the least of which involves the 15 percent increase in taxes on table games. If this passes, it will mean state casinos will fork over another $17 million annually to the state in addition to the $1.4 billion they already pay. The 54 percent taxes the casinos pay on slots would remain the same.

On top of that, Sands CEO Mark Juliano said if the legislators pass an expanded gambling bill adding up to 20 slots parlors across Pennsylvania, the Bethlehem casino will halt what could have been hundreds of millions of dollars in new investment in the Christmas City. Juliano said the new satellite locations will siphon customers from every casino in the state.

Whether the powerful casino corporate lobbies and their CEOs will prevail is dubious, because the state is desperate to fund this year's budget, and they can't do it with nickels and dimes. They have to look for big bucks - the kind of bucks that casino gambling and, if passed, online gambling can generate.

The Republican Caucus' House Appropriations Committee estimated the gambling bill would generate an additional $266.5 million in fees and taxes for the state, but only if all parts of the bill are passed as is, which is unlikely.

The House-approved bill would legalize online gambling and fantasy sports betting. It also would add up to 5,000 slot machines at 20 new slots casinos, and let two existing casinos add 250 slot machines each. Gov. Tom Wolf is waiting on the sidelines to see what kind of a final bill reaches his desk before deciding what to do.

Casino companies will pay an $8 million licensing fee to get in on the online gaming action. Casino owners are balking at this amount and are working behind the scenes with legislative leaders to lower it. Smaller licensing fees would be charged to game operators working off the casinos' websites.

Proceeds will be taxed at 16 percent: 14 percent would be routed to the state; 2 percent will be the local share that the state Department of Community and Economic Development will release through a new grant program.

The state is also looking to cash in on the explosion of interest in fantasy sports. The legislation allows 18-year-olds to engage in fantasy sports participation, while 21 is the age limit for other forms of gambling. Unlike Internet gaming, the fantasy sports provisions do not require commercial companies to partner with the state's casinos, though the casinos will be able to begin their own fantasy contests if they choose to do so.

The bill would require participating commercial companies such as DraftKings to get a license through the Gaming Control Board and pay 5 percent of their revenues - after payouts - to the state. An important feature of this proposal is that betting would be restricted to professional sports.

The state's five racetrack casinos, including Mohegan Sun in Plains Township near Wilkes-Barre, would be allowed to install as many as 250 slot machines at up to four off-track betting parlors each. They must be no closer than 50 miles to an existing casino. The casinos would pay a $5 million license fee for each off-track facility with slots. The slots are taxed at 54 percent of daily gross revenue: 92 percent of which goes to state general fund, 4 percent to the host county and 4 percent to the host municipality. Here again, casino owners are trying to cut this fee significantly.

Under the legislation, casinos can petition the gaming control board to install slot machines in six international airports. The number would be set by the board, after examining plans developed by the casinos in conjunction with airport managers.

The licensing fee is $5 million in Philadelphia, the state's largest airport; $2.5 million in Pittsburgh; and $1 million apiece at the four others, including Lehigh Valley International Airport in Hanover Township near Allentown and the Wilkes-Barre/Scranton International Airport near Avoca in Lackawanna County. Airport slots would be taxed at 54 percent, with 34 percent going to the state and a 20 percent local share that's to be pumped back into the airport.

The bill would also allow the Sands, Mount Airy and other so-called Category 2 casinos to offer patrons simulcast horse-racing betting.

Look for some bitter battles during the upcoming legislative session; there will be big winners and big losers. Let's hope that we taxpayers are in the former category and not the latter.

By Bruce Frassinelli | tneditor@tnonline.com