Opinion: Tax Rate Not Yet A Problem In PA
Legal Sports Report

PA Sports Betting Off To Reasonably Fast Start Despite High Tax Rate

PA sports betting

Pennsylvania sports betting tallied $16 million in wagers and $2 million in revenue during December.

That’s not a bad haul considering mobile sports betting has not yet launched. Only three retail sportsbooks — Hollywood, Rivers, and SugarHouse — were operational, and the latter two opened mid-month.

The number is even more impressive when you factor in PA sports betting’s heavy hand from the government. The state saddled sports betting operators with a $10 million licensing fee and 36 percent tax rate.

Legitimate fears existed that the burdensome licensing fee and tax rate would hamstring or even cripple the industry. It certainly delayed its start, but the early returns show promise.

Pennsylvania’s history of pushing the envelope

Pennsylvania became the first state to really test the waters with a high casino tax rate.

When the state legalized slot machines in 2004, it imposed a 54 percent tax rate on slot revenue. The unheard-of rate was highly criticized at the time. As was the case with sports betting, pundits and analysts cautioned it would sink the industry.

All Pennsylvania has done is become the second-largest casino market in the United States behind Nevada.

So though the high tax rate means Pennsylvania slots don’t pay out as well as other jurisdictions, their appeal appears strong.

The same goes for online expansion

Similar concerns appeared when Pennsylvania expanded gambling in 2017. It again imposed multi-million-dollar licensing fees and the same 54 percent rate on online slots. It also added the 36 percent rate on PA sports betting operators.

As soon as the law passed, there were calls to revisit the tax rates.

Among the questions asked:

  • Will anyone apply for the licenses?
  • Can operators turn a profit?
  • Will the high costs be transferred to consumers, giving black market operators a competitive advantage?

The answer to the first question is yes, while the answers to questions two and three are yet to be determined.

Regardless, it appears that Pennsylvania might somehow make its exorbitant tax rate work.

The market will adjust

The US gambling market is extremely fractured. Each state has unique circumstances that guide gambling policies, and the result is a hodgepodge of laws and a diverse industry.

Not every market succeeds or lives up to expectations, but what is clear is there’s more than one way to skin a cat. The individual markets proved to be quite malleable and have a knack for sorting themselves out.

As such, high barriers of entry like tax rates and licensing fees might limit the number of operators, but fewer competitors also means each operator has a larger pool of customers to draw on. Since everyone deals with the same high overhead, marketing and promotional budgets should be kept in check.

So while Pennsylvania’s sports betting tax rate is far from ideal, the market will continue to adjust. And it might even thrive.

Will other states follow suit?

If the PA sports betting industry can continue to overcome the high tax rate and replicate the success of its casino industry, it could embolden other state legislatures exploring sports betting to consider higher licensing fees and tax rates.

If a 36 percent tax rate works in Pennsylvania, and the Delaware and Rhode Island lotteries can pocket 50 and 51 percent of sports betting revenue respectively, why should a state be content with the 10 percent tax West Virginia imposed?

Steve Ruddock
- Steve has spent years covering the online gambling industry for a variety of publications, including Bluff Magazine and OnlinePokerReport.com. Follow Steve on Twitter - <a href="https://twitter.com/steveruddock">@SteveRuddock</a>

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