Pennsylvania is a pig. And gaming operators would be right to call it out.
The Keystone State prides itself on taxing gaming at one of the highest rates in the country – more than 50 percent of revenue in many cases for slot machines, table games and internet gaming. Now it wants to tax sports betting at 34 percent (plus a 2 percent local tax).
That’s just wrong. And Pennsylvania gaming operators would be wise to walk away.
State lawmakers seem to think that gaming is a cash cow. Just listen to what Representative Robert Manzie (D-Ambridge) had to say in the Pittsburgh Post-Gazette last week.
“I think any of that discussion [about reducing tax rates] is more about thinking of their shareholders and saying ‘Let’s get as big a piece of the pie as we can get,’” he said. “No matter how the economy’s going, whether it’s in recession or booming, the one business that never goes out of business is the casino.”
Spoken like a true politician. Isn’t Manzie trying to get “as big a piece of the pie” as he can get? After all, states don’t have to balance their budgets, they usually just tax their citizens more if ends don’t meet. Manzie sees free money from gaming and wants to grab as much as he can as fast as he can.
Manzie’s statement is laughable and a clear example of the disconnect between government and business.
Pennsylvania’s Astronomical Licensing Fee and Tax Structure Make it Unappealing for Gaming Operators to Consider PA Sports Betting.
When the state made sports betting legal in 2017, it did so with a $10 million licensing fee in addition to that 34 percent state tax. Those numbers are grossly out of whack. The licensing fee is 100 times – and in some cases, 1,000 times – what many other states are charging or planning to charge. And the 34 percent state tax is more than five times the current sportsbook tax in Nevada – and don’t forget there’s a 2 percent local tax to boot.
I’m not going to claim to know much about running a sportsbook. But I do know about running a small business. And in my experience, politicians equate owning a business with wealth. That couldn’t be further from the truth.
In the early 2000s, my husband and I owned and ran a bed and breakfast and a restaurant in northern Florida. The margins were thin – after paying for our mortgage, insurance, maintenance, labor, supplies, marketing, taxes and fees, we couldn’t make a buck unless our inn was booked. The costs associated with running our restaurant were so high that we couldn’t turn a profit.
We were novices, and more front-end research may have led us to the conclusion that neither business could be solvent. Gaming operators are not novices and even to my untrained eye, there is little benefit to doing business in a state that is going put the squeeze on from Day 1.
And really, why should they? There are plenty of states out there, including Nevada, New Jersey, Delaware and West Virginia that are friendly to gaming businesses. In fact, earlier this week, during a hearing in New Jersey, Dan Spillane of the NBA referred to New Jersey as “inhospitable” because state lawmakers have no interest in taking an additional cut off the top of sportsbook revenues to pay the professional leagues.
It’s a good word, “inhospitable.” But I’d go a step further when talking about Pennsylvania. The state is downright hostile.
A chart showing where the money goes on a sports bet, provided to Kansas lawmakers earlier this year, shows how thin the margins are. For every $100 bet, $95 goes back to the bettor. That leaves the operator with $5 to cover space, marketing, labor, technology, taxes, fees, and other operating expenses. The chart, provided by Kansas Entertainment LLC, show that sportsbooks would make 6 cents on every $100 wagered in Kansas.
Obviously, the numbers can vary, tax rates are different in every state and the chart was provided by a gaming operator, but think about it — $5 on every $100 wagered is available to cover operating expenses. And the proposed tax rate in Kansas is below Pennsylvania’s 34 percent.
Gaming Operators Should Teach Pennsylvania a Lesson and Just Say No to PA Sports Betting.
Legislators in the state of Pennsylvania sure are acting like sportsbooks are printing money. And, I suppose if you’re sitting in a cushy state house somewhere, schmoozing, negotiating or voting, then the sportsbooks (and many other businesses) are printing money. It’s a payout to the state, just for the privilege of doing business there.
“If you’re paying $10 million up front for the privilege of paying 41 percent in [combined state, local and federal] taxes, plus the infrastructure costs, it’s difficult for me to see how you make money in Pennsylvania,” Joe Asher, CEO of William Hill US, the largest sports book operation in Nevada, was quoted as saying the Post-Gazette.
I think he’s right and that Pennsylvania is in for a rude awakening. Penn National Gaming, William Hill or any other operator thinking about setting up a sports betting shop in Pennsylvania should kill the idea.
It may be the only way to get the state to recognize that it’s a pig.