Pa Lottery Run iGambling Not a Good Fit

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Monday, May 15th, 2017 | Written by Adam Brown

For some time, Pennsylvania has been favorite in the slow-paced race to see which state will become the fourth to legalize and regulate iGaming. However, lawmakers in the Keystone State continue to complicate the proceedings by proposing amendments and changes to any potential bill that have served only to delay the process.

The most recent example of this is an ill-conceived proposal from State Senator Joe Scarnati (photo) that the Pennsylvania State Lottery, and not the casino operators themselves, should be the ones to provide any iGaming services. While on the surface, the idea might seem to have merit, there are a number of reasons why it is less than ideal, including:

– Lower Upfront Revenue. Taxes on gross gaming revenue are not the only income generated by online gambling, as states can also make millions through the licensing process. By simply entrusting the Pennsylvania State Lottery with the task of providing online gambling, the Keystone State would miss out on what’s estimated to be $100 and $130 million in licensing fees. The only upfront revenue the state could expect to receive is supplier fees, which would likely total less than $10 million.

– Lack of Experience. Casinos partner with established online operators to provide iGaming, and bring their own experience with gambling management to the online gambling industry. The Pennsylvania State Lottery has no previous experience managing brick-and-mortar gambling and has never been responsible for operating even an online lottery ticket sales site before. As a result, gamblers would likely get a sub-par product, and this would limit the potential for the state to generate income from taxes on gross gaming revenues

– Slow Startup. Being inexperienced, the Pennsylvania State Lottery has nothing in place to get online poker and casino sites up and running. The state would therefore be starting from scratch, and it could take years before any site was ready to accept players. By comparison, casinos and online operators have the tools already in place, and are simply waiting to expand their operations in Pennsylvania. By going with this option,instead,, the Keystone State puts itself in the position of starting to benefit from increases in revenue much sooner.

– Inefficient Marketing. In order for online gaming to be successful, it must be adequately supported with effective marketing. Casinos already have experience marketing to gamblers, and will therefore not need to go through extensive trial and error to find out what works. By comparison, the Pennsylvania State Lottery would likely go through growing pains, and could potentially waste thousands or millions on marketing ineffectively.

– Guaranteed Income. With casinos running online gambling, taxes are paid on gross gaming revenue, so even if the sites are not profitable, the state still receives income. If the Pennsylvania State Lottery was at the helm, the state would only receive money if the lottery made money, and that could prove to be challenging, especially during the early years of online gambling expansion.

– Loss of Income for Casinos. In New Jersey, online gambling has helped to support the casino industry and keep it thriving. Having the Pennsylvania State Lottery oversee online gambling would only hurt casinos that are already counted on for providing income for the state.

Casino Revenues Contracting

While lawmakers in Pennsylvania delay the whole drive towards online gambling legislation, and contemplate handing over the industry to an organization ill-equipped to handle its potential, the state’s casino market continues to head in a downwards trajectory.

Up until October 2016, Pennsylvania’s slots revenues were posting impressive growth each month, but that all changed six months ago with the trend continuing ever since. In December, for instance, business was down by 6.17%, as it was in January (-2.44%), March (-0.6%), and now April (-1.6%). As a result, last month’s slots revenue came in at $205.7 million compared to $208.9 million for the same month in 2016, with $109.6 million subsequently collected by way of taxes.

The worrying trend should therefore help highlight the state’s need to adopt a new revenue stream that could help boost its gambling industry, especially with analysts predicting that a legalized internet gambling market could generate an additional $230 million in annual revenue for Pennsylvania.