Legal sports gambling in PA: ‘Bookies are laughing’ at the state’s high tax rate

After the Supreme Court ended a federal ban, you might be able to place a bet on the Eagles next season.

Sportsbook in Las Vegas

Sportsbook in Las Vegas

Wikimedia Commons / Baishampayan Ghose
mikegreger

The triumphant sound you heard Monday morning — the one that echoed outward from D.C. when news broke of the Supreme Court’s decision that ended a federal prohibition on sports betting — may need to be slightly tempered when it comes to Pennsylvania.

Pa. is ahead of several other states when it comes to possible implementation, since laws allow sports betting when federal prohibition ended are already on the books, enacted in October 2017 as part of a package of broader legislation permitting online poker.

However, those laws call for a tax rate of a whopping 36 percent.

The tariff is way more than any other state currently levies. It’s high enough that some industry insiders are skeptical about how widely or quickly it will be implemented.

“It’s absolutely ludicrous. Bookies in Philly are probably laughing,” said Brett Smiley, a Penn grad who’s cofounder of SportsHandle, a news site covering the business of sports betting. “I would be shocked if there aren’t conversations happening right now between casino operators and the state to lower that tax.”

With an estimated $150 to $400 billion booked annually offshore, it’s understandable lawmakers are eager to tap into it as a potential revenue source. Roughly 20 other states have some kind of legislation pending to legalize sports betting, and at least six others are in the same position as Pennsylvania. But none have a tax rate anywhere close to Pa.’s 36 percent.

“The tax is prohibitive to the casino, and those costs are going to get carried over to the consumer,” said Smiley.

Gambling pioneer Nevada taxes at just 6.5 percent, while neighbors New Jersey and West Virginia set it at 8 percent and 10 percent, respectively. In addition to the hefty fee, casino operators in Pennsylvania will be required to pay a $10 million licensing fee to get into sports gambling.

Smiley, a former commercial litigator, thinks the “outrageous” tax burden here may allow illegal gambling to thrive, with established bookies becoming competitors to casinos – at least until law enforcement decides to “put the hammer down.”

Casinos don’t appear to be worried.

“In addition to providing sports enthusiasts with a better, safer environment, today’s Supreme Court decision will redirect revenue previously lost to the black market and instead generate much needed tax revenue at state and local levels,” said Greg Carlin, CEO of Rush Street Gaming, which operates SugarHouse Casino in Fishtown. “We look forward to adding sports betting across all our gaming platforms as soon as possible.”

In general, sports wagering is a low-margin vertical. Think about it this way: on average, bettors are risking $7 to win $1. And with the state poised to take almost half the earnings, illegal bookies in Pa. aren’t cashing in their chips just yet.

“Thirty-six percent?!?! No way,” offered Jerry in Delco, a local bookmaker with a sparse-yet-dedicated client base.

“Everybody thinks these guys who bet are just addicts and they’re hopeless. Most of them are smart and they want to win. You can’t win if you’re giving away 36 percent of your money.”

Jerry didn’t seem overly concerned with losing customers. The majority of his clients are diehards who bet all the time and enjoy doing it from the comfort of their couches, he said.

“It’s going to be more a thing with the kids who bet $20 a game, that stuff,” Jerry said.

The Pennsylvania Gaming Control Board is offering no timeline on when sports betting will become the new norm.

“The next step for Pennsylvania would be for our staff to draft appropriate regulations and seek approval of those regulations by the Board,” it said in a statement. “At this time, we cannot provide a timetable on the completion and approval of these regulations or the launch of Sports Wagering in Pennsylvania.”

New Jersey could see its first sportsbook open in Monmouth Park, located just 80 miles north of Atlantic City, in two weeks. Smiley predicts Atlantic City casinos will follow suit in 45-60 days. Last November, The Borgata announced plans to build a $7 million sportsbook.

In Pennsylvania, Smiley sees a slightly longer timeline, maybe 60-90 days.

If he is right, that would put Philly sportsbooks open for business right before the NFL season, perfect timing for Eagles fans to bet on the reigning Super Bowl champions.

“Good thing it wasn’t up and running for the Super Bowl last year,” said Smiley, a self-admitted Giants fan. “They would have made a killing!”