A new online gambling bill in Pennsylvania, the first one sponsored by the Senate in the state, contains rules that could be looking to attract “bad actors”, operators such as PokerStars. To date all state online gambling bills such as the ones in New Jersey and Nevada have a bad actor clause that looks to exclude operators which took bets from U.S. citizens in the past and the majority of tribes in California seem adamant that a similar clause must be included in any bill that is introduced in that state. The new bill in Pennsylvania does not have that clause. As such it could be an opportunity for the state to try and entice companies like PokerStars to apply for a license there, should they be unable to attain one in neighboring states, particularly New Jersey.

Bill SB900 is sponsored by Senator Kim Ward and co-sponsored by Senators Robert Tomlinson, Elder Vogel and Joseph Scarnati. John Payne, chairman of the House Gaming Oversight Committee, is advancing a companion bill in the House titled HB649.

The full text of the bill can be found here, although the rules for online gambling don’t begin until Section 13B. While the rules have the usual conditions relating to ensuring the fairness of the games and underage gambling (there is actually a rule indicating they can’t market to anyone under 21 years of age) there are some interesting provisions in the bill that could raise some concern.

First, the rules require a licensee to have a physical gambling location (similar to New Jersey) and hold a permit for slot machines and table games. While this could be a concern for a company like PokerStars that doesn’t have a physical location, they would more than likely try to partner with an existing company, like Parx or one of the many racetracks in the state, such as The Meadows or Presque Isle Downs. The permit fee is $10 million up front for a 5 year online license and a $1 million annual renewal fee thereafter. As such, casinos would probably welcome the help from a place like PokerStars to pay the fee. In addition, an existing operator would certainly welcome a brand name like Poker Stars knowing that alone would entice customers.

Second there is a requirement that registration and first deposits must be made at the entity’s physical location, although players could deposit on the website or at another gambling facility if they live more than 20 miles from a licensed facility. While this may not seem like a big deal, it could dissuade many bettors who can’t be bothered driving to a racetrack or casino just to fill out forms. New Jersey noticed this concern originally and enrollments only increased when ways to sign up became easier.

Third and without doubt the biggest sticking point is the enormous tax rate that the bill requires namely 54% of gross revenues. That rate may be unworkable for many companies particularly when the permit fee is factored in as well. In comparison, New Jersey only has a 15% tax on gross yield, which is effectively net revenue after costs are paid out, and Nevada only taxes online gambling at 6.75% of gross revenue. And in the UK, the laws there only require a tax of 15% tax on gross profits. Pennsylvania currently taxes land based casinos 55% of gross revenue on slot machines and 16% on table games.

PokerStars has stated that they expect to be operating in New Jersey by the 3rd quarter of this year (partnering with Resorts Casino) but there is still a belief that they are being stonewalled by other casino operators who don’t want the competition as well as by Governor Chris Christie. And as long as Christie is governor, and possibly taking marching orders from his friend and huge Republican backer, Sheldon Adelson, many believe the license will never happen. Christie denies he is stonewalling PokerStars, but several sources have told me that Christie has indicated in private that he doesn’t want PokerStars there under his watch. If they indeed are being blocked from operating in New Jersey by Christie or any other entity, and if they continue to be blocked by California tribes, who have indicated they still consider PokerStars a bad actor regardless of the ownership change, then Pennsylvania may be PokerStars best chance and quickest entry into the legal online poker market in the U.S. And make no mistake about it – a large portion of the gamblers in Atlantic City live in Philadelphia anyway, so this may be an even better opportunity for them, particularly since they won’t have the same amount of immediate competition that they do in New Jersey.

The consensus seems to be that the impetus for the bill will be at the end of June, when the budget meetings take place. and there is some hope that when legislators see the $100 million in upfront permit fees from current land based operators in the state, it may be too much for them to pass up.

Poker Stars’ lobbyists, no doubt, are working overtime in PA right now. We won’t have to wait long to see if the push from Stars gets this bill passed . . . without any “bad actor” clauses.

Contact Hartley via email at hartley[at]osga[dot]com.

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