Why Regulated Online Gambling in PA could fail to Meet Expectations

Posted on by Phil Duncan

PennsylvaniaRather than starting a new wave of legislation, there are a number of reasons why regulated online gambling in Pennsylvania could fail to meet expectations.

In October, the Pennsylvanian legislature passed a Bill (H271) allowing for a massive expansion of gambling. The Bill makes Pennsylvania the fourth state in the USA to regulate online gambling, authorizes ten satellite casinos and permits truck shop owners to install video gaming terminals (VGTs).

Advocates of regulated online gambling initially heralded the passage of H271 as a major success, and one that could start a new wave of pro-regulation legislation. However, it might be wise for neighboring states to sit on the fence a while longer, as there are a number of reasons why regulated poker in Pennsylvania could fail to meet expectations.

A Bit of Background to H271

Before looking at the reasons why regulated gambling in PA could fail to meet expectations, a little bit of background to the Bill. H271 was passed as a knee-jerk reaction to resolve a budget crisis. Alternatives to an expansion of gambling had been discussed, but involved more borrowing or an increase in personal taxes – both of which were considered unacceptable by the legislature.

The Bill consisted of more than 500 pages of legislation and – having been passed by the Senate – was given to the House to pass within two days. Although elements of the Bill had been discussed individually, few House Representatives were prepared for the compendium of legislation that landed on their desks. Many were – and still are – concerned about the effect such a large expansion will have.

A Bad Bill that Pleases Nobody

The Bill has been widely criticized. Online gambling operators have complained the 54% tax rate on slot games makes entering the market unjustifiable. Brick-and-mortar casinos have argued satellite casinos will cannibalize their existing client base, and bar owners – who are suffering from a recent law allowing retail chains to sell liquor – are upset they have been excluded from being allowed to install VGTs.

Even advocates of regulated online gambling have raised concerns the Bill fails to protect them from affiliates who promote both regulated and unregulated gambling sites. The Catena Media Group is widely expected to dominate affiliate marketing in Pennsylvania, but has already started lobbying for regulations similar to those in NJ that require affiliates to refrain from promoting unregulated sites.

Side-by-Side Comparisons Don´t Look Good for PA

As well as looking after their own interests, the advocates of regulated online gambling have a point. As regulated online gambling operators in PA will have a substantial tax burden, they are not going to able to afford to offer the same level of promotions and player reward programs as unregulated sites. Comparing regulated sites and unregulated sites side-by-side will not do regulated sites any favors.

Furthermore, even if regulated online poker sites in Pennsylvania enter into a pool-sharing compact with other regulated states, the size of the combined player database will still be much smaller than unregulated online poker networks. Tournament prize pools will continue to remain uncompetitive and, as the majority of any combined player database is in the same time zone, there will be long periods of time during which players will find it difficult to get a game of poker on a regulated site.

It´s Been a Long Time since Black Friday

Another consideration why regulated online gambling in PA could fail to meet expectations is the length of time unregulated gambling has been available to Keystone State residents. Many online gamblers, particularly online poker players, will have been playing on the same sites now for more than five years, and – other than at anonymous poker sites – will have a knowledge of their opponents´ playing styles.

Also, at the time New Jersey, Nevada and Delaware passed legislation to regulate online poker, player protection was a key issue. The demise of Full Tilt Poker was fresh in the memories of online poker players and Lock Poker was already in trouble. Other than the well-telegraphed disappearance of Full Flush Poker, no such issues have occurred recently; plus there are currently no player protection safeguards written into Pennsylvania´s online legislation as there is elsewhere.

Regulated Online Poker Sites Don´t Accept Bitcoin

One key development in recent years has been the popularity of Bitcoin as a means of funding an online poker account. Some poker players have become extremely wealthy due to adopting Bitcoin at an early stage, and it is a currency they would prefer to continue using to fund their online action. Unfortunately, if they want to use Bitcoin to fund a regulated online poker account, they will not be able to do so.

As a result, players will likely continue to use online poker sites that accept Bitcoin. This will have the consequence of limiting the number of players willing to play on regulated poker sites, which will then find it harder to maintain a competitive level of promotions and player rewards, host valuable poker tournaments or keep the action running around the clock. This is one of the biggest reasons why regulated online gambling in Pennsylvania could fail to meet expectations.

How we see PA´s Regulated Market Shaping Up

Undoubtedly, once the first regulated online poker sites go live, there will be a large number of players registering accounts for the first deposit bonuses and the novelty value. However, once the first deposit bonuses have been cleared and the novelty of playing on a regulated site has worn off, players will likely return to unregulated sites for the better promotions, more valuable tournaments and levels of action.

It is a scenario that has been seen before – not just in the US, but in regulated jurisdictions around the world. Therefore, although the initial licensing fees may resolve Pennsylvania´s budget issues in the short term, the long term financial consequences of the gambling expansion could be neutral, if not negative. There is, after all, only so much money to go around.

Pennsylvania relies on its tax revenues from gambling more than any other state, and expectations for an increase in revenues are high. As doubts exists about the long term viability of regulated online gambling in Pennsylvania, it may be wiser for neighboring states that are contemplating regulation to sit on the fence for a while longer – possibly permanently.