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In its 2017 State of the States report of the casino industry, the American Gaming Association (AGA) was pleased to describe 2016 as a “banner year” because “the industry has continued its upward growth trajectory, once again setting a new record for gross gaming revenue.”  The AGA patted itself on the back too, ebullient that it “scored important policy wins for the industry by defeating misguided proposals at both the national and state levels related to resort fees, taxes, reporting of slot machine winnings and player tracking.”

Among other things, the report offers “a detailed picture of the commercial casino industry and the significant economic impacts it has in states across the country… in each of the 24 states that have commercial casinos.” Commercial gaming casinos are defined as “those land-based, riverboat, dockside or racetrack casinos (racinos) operated by private companies under licenses issued by state governments.” 

The 24 states that have commercial casinos include:

  • Colorado
  • Delaware
  • Florida
  • Illinois
  • Indiana
  • Iowa
  • Kansas
  • Louisiana
  • Maine
  • Maryland
  • Massachusetts
  • Michigan
  • Mississippi
  • Missouri
  • Nevada
  • New Mexico
  • New York
  • Ohio
  • Oklahoma
  • Oregon
  • Pennsylvania
  • Rhode Island
  • South Dakota
  • West Virginia

Revenues

From 2015 to 2016, total gross gaming revenue from these 24 states showed modest growth, of just 1.08 percent. The AGA’s report attributes this “modest but steady growth” to “macroeconomic factors including increased consumer confidence, lower gas prices and sustained national job growth, offset by competitive challenges for casinos in certain jurisdictions.”

The revenues in 17 of the 24 states increased, with Massachusetts at the top of that list, at close to 76 percent growth. This is an outlier through, due to the fact that 2016 was the first full year of operations there; its first casino venue opened in June 2015. Even so, removing Massachusetts from the picture does not change things much; the percent change drops from 1.08 percent to 0.91 percent.

The top 10 states, based on 2016 revenue, are these:

STATE

2015 REVENUE, in millions

2016 REVENUE, in millions

% CHANGE

Nevada

$11,114.08

$11,257.15

1.29%

Pennsylvania

$3,173.79

$3,213.42

1.25%

New Jersey

$2,563.12

$2,602.72

1.54%

Louisiana

$2,648.54

$2,537.61

-4.19%

Indiana

$2,215.59

$2,216.00

0.02%

Mississippi

$2,097.07

$2,122.25

1.20%

New York

$1,950.96

$2,017.69

3.42%

Missouri

$1,701.89

$1,714.97

0.77%

Ohio

$1,643.68

$1,691.44

2.91%

Iowa

$1,424.35

$1,446.16

1.53%

 
The top 10 states, based on the percentage change from 2015 to 2016 are these:

STATE

2015 REVENUE, in millions

2016 REVENUE, in millions

% CHANGE

Massachusetts

$88.23

$155.04

75.72%

Maryland

$1,098.43

$1,203.29

9.55%

New York

$1,950.96

$2,017.69

3.42%

Ohio

$1,643.68

$1,691.44

2.91%

Florida

$530.66

$545.95

2.88%

Colorado

$790.08

$810.79

2.62%

Maine

$129.81

$133.12

2.55%

New Jersey

$2,563.12

$2,602.72

1.54%

Iowa

$1,424.35

$1,446.16

1.53%

Nevada

$11,114.08

$11,257.15

1.29%


Tax collections

In light of the “[i]ndustry-wide growth in gross gaming revenues in 2016,” it makes sense that 2016  “also translated into record gaming tax collections for state and local governments.” 

According to the report, the direct gaming tax bill came to $8.95 billion, counting state, county and municipal government collections. This “helped state and local governments across the country balance their budgets and fund education programs, make investments in infrastructure and keep essential services running.” Additionally, certain entities specifically designated in the gaming laws benefitted, such as state and local tourism initiatives, elderly care services and horse breeding programs.

Despite all of this seeming good new, the report laments “[o]ppressive tax rates and arcane restrictions that prevent the deployment of new technologies leave casinos more vulnerable whenever a newer competitor opens or consumer preferences shift.” The AGA calls on officials to “adapt a progressive mindset when it comes to regulation and encourage operators to continually reinvest in their offerings.” 

Pennsylvania’s new law

As the above-provided data reveal, Pennsylvania is the nation’s second largest commercial casino jurisdiction, after Nevada, in revenue terms. Its revenue was $3.213 billion in 2016, up 1.3 percent over 2015. Even more surprising is that it is the country’s largest commercial casino jurisdiction by gaming tax revenue, which, in 2016, was $1.388 billion, up .6 percent over 2015.   

The tax rates are as follows:

  • Slot Machines: 55 percent tax.
    • 34 percent goes to the state gaming fund;
    • 12 percent to the horse racing industry;
    • 5 percent to economic development; and
    • 4 percent to local and county governments.
  • Table games: 16 percent tax, as a temporary increase from 14 percent, as of August 2016
    • 14 percent goes to the general fund; and
    • 2 percent to local county municipalities.

The Keystone State’s slot machine tax rate is the highest in the nation, and generates more tax revenues than any other state, including Nevada.

iLottery

Perhaps it is this success that has lead to lawmakers’ approval of a “huge gambling expansion” according to the Las Vegas Review-Journal, by way of HB 271, which Gov. Tom Wolf signed on Oct. 30, 2017. The measure revises a number of provisions for horse racing, and the lottery, among other things. It also authorizes the Department of Revenue to operate internet games, referred to as “iLottery” and “Internet instant games.” The fiscal note defines these as “lottery games of chance in which, by the use of a computer, tablet computer, other mobile device or other web or mobile applications a player purchases a lottery play that reveals numbers, letters or symbols indicating whether a lottery prize has been won. 

The Review-Journal notes that Pennsylvania is only the fourth state to legalize on-line gambling; Nevada, New Jersey and Delaware are the other three that have done so. In addition, “Pennsylvania [is] the first state to allow online play for both commercial casinos and its state lottery, as both go in search of newer and younger players.”

The fiscal note uses an Oct. 1, 2017 launch date, and projects iLottery sales revenue of about $86.3 million, $19 million of which is profit. For fiscal year 2017-18, that figure is $10 million, and thereafter, about $25 million annually.

Daily Fantasy  Sports

HB 271 also legalizes daily fantasy sports, pursuant to which “[n]o winning or outcome shall be based on the score, point spread or performance of a single actual team or combination of teams or solely on a single performance of an individual athlete or player in a single actual event.” 

The licensing fee, and its renewal, needed every five years, are $50,000 and $10,000 respectively. The licensee will be subject to a 15 percent tax of the adjusted revenue for the previous month, to be deposited into the General Fund. Annually, “the amount of 0.002 multiplied by the total fantasy contest adjusted revenue shall be transferred to the Department of Drug and Alcohol Programs for treatment for drug and alcohol addiction and compulsive and problem gambling.”

The fiscal analysis assumes that five entities will operate fantasy contests in Pennsylvania. Thus, for 2017-18, it calculates that $250,000 in license fees, and $525,000 in tax revenues, will be deposited in the General Fund, on the presumption that licensees begin operating by March 1, 2018, resulting in 3 months of tax revenue collections. For 2018-19, the fiscal analysis projects that $2.1 million in tax revenues will be collected, and $28,000 will be transferred to Drug and Alcohol Programs.

In the budget bill, also signed by the governor on Oct. 30, 2017, lawmakers included a provision that calls for the Department to determine whether a lottery winner that wins more than $2,500 in a single prize owes state taxes. If so, the Department will deduct the amount of tax owed, along with any child support delinquencies, from the lottery winnings. 

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