If the daily fantasy sports industry wants to gain legal clarity in Pennsylvania, its fate is likely tied to the success or failure of the legalization of online gambling this spring.
The latest in Pennsylvania on DFS, iGaming
Pennsylvania’s legislature is in the middle of talks about a package of gaming provisions. Among the things in the mix: both online gambling and DFS.
The negotiations over gaming come as the state tries to deal with a budget shortfall that reaches into the billions of dollars for the current and next fiscal years.
As always, there are two ways to deal with this: spending cuts and/or new revenue. Neither avenue is easy; and raising taxes is rarely a popular move with politicians or their constituents.
That’s why Pennsylvania — a state that has had great success with its commercial casino industry in the past decade — is turning to gambling revenue streams.
But exactly which measures lawmakers are prepared enact — regulation and legalization of PA online casinos, poker rooms and DFS among them — are unknown.
‘Gambling’ or not, DFS is getting thrown in the gambling bill
The DFS industry, led by DraftKings and FanDuel, has had great success pushing itself 1. with standalone bills and 2. as a consumer protection measure in states around the country. (Eleven states have enacted fantasy sports legislation mostly along these lines.)
To date, neither has been true in PA. While standalone bills have popped up, they’ve gone nowhere. And the will to protect PA DFS players with new regulations hasn’t really caught on, either.
Pennsylvania is not unlike Florida, where DFS has also been tied to a larger gaming expansion, as well as the state’s negotiations with the Seminole tribe on a gaming compact.
At this point, it appears DFS regulation is only going to occur in terms of the larger gaming talks, and not on its own.
While the legality of DFS hasn’t been materially questioned under the state’s current laws, it’s a concern the industry would just as soon render moot with a new law.
The tax rate issue
DFS and online gambling are both at risk of being taxed and licensed at rates that wouldn’t allow the industries to survive in PA.
Some lawmakers want to tax online slot revenue at 54 percent — the same rate as slot machines at land-based casinos. That rate has no basis in reality and would basically mean no one would offer online slots in PA, and in turn, no revenue would be generated.
An excessively high tax and fee structure has also been floated for DFS. One proposal called for a 25 percent tax rate on gaming revenue, as well as a $2.5 million up-front licensing fee. No one would pay these, as they are far out of line with the amount of revenue DFS generates in PA. It also doesn’t constitute a sustainable tax rate for operators.
If lawmakers want prohibitively high tax rates on both iGaming and DFS, then both are on a sinking ship together.
The consumer protection angle should be key
DFS is not going to help pay Pennsylvania’s bills in a meaningful way. Even with an aggressive tax, DFS might generate $1 to $2 million for state coffers. That’s in a budget that is likely to exceed $80 billion.
That’s why DFS — and in turn online gambling — should also depend on the consumer protection angle.
Senate Majority Leader Jake Corman, R-Centre, said Thursday that expanding gambling should be about smart policy, not about fiscal needs.
“That doesn’t mean we can’t expand and modernize, I just don’t think the budget should drive that discussion,” Corman said.
DFS and online gambling are somewhat in the same boat, in this respect as well. Both are going on in Pennsylvania in an unregulated environment. Pretty much all DFS operators — whether they are regulated or not — serve Pennsylvania. Offshore online poker rooms and casinos also serve Pennsylvania, where residents give their money to operators that answer to no one.
The state should want to give PA residents a regulated environment for both activities.
Will Pennsylvania do what’s right for people who partake in both activities? The outcome for both industries appears to be joined at the hip.