The Pennsylvania Gaming Control Board (PGCB) has finally received its first sports betting license application, roughly two-and-a-half months after inviting local casinos to apply.
There are still some questions regarding the actual start date. Philly.com reported yesterday that the PGCB will not consider the sports betting application until its October 3rd meeting.
If that holds true, Hollywood Casino will be a little late for the NFL season but still active during the majority of the busy season for sports betting.
Yesterday’s news officially ends the debate as to whether or not Pennsylvania’s onerous $10 million licensing fee and 36% effective tax rate would dissuade casinos from even offering sports betting.
Industry stakeholders such as William Hill US have complained that the high-tax environment will make it prohibitively expensive to offer sports betting in Pennsylvania.
State lawmakers heard those complaints, but held firm in their belief that competition would push casinos to offer sports betting even in a high-tax environment. Once one casino decides to offer sports betting, the logic goes, others will follow suit to avoid being left behind.
So far, it seems that logic is holding true. Parx Casino confirmed late last month that it intends to offer in-person and online sports betting in partnership with gaming software provider GAN plc. Mount Airy Casino and The Stars Group also announced last week that they’re planning to work together to offer online gambling and sports betting in Pennsylvania.
Churchill Downs Inc. may also be positioning itself to offer sports betting in Pennsylvania after announcing plans last week to take control of the Lady Luck Casino Nemacolin in Farmington and Presque Isle in Erie.
The issue with the high tax rates is sports betting tends to be a low margin business for casinos even before we take taxes into account. On average and over the long term, a typical sportsbook returns somewhere in the range of 95% of total betting handle back to players in the form of winnings.
This means that for every $100 in wagers taken by a sportsbook, about $95 is paid back as winnings. This leaves $5 for the sportsbook to cover operational costs, salaries, general upkeep and taxes. Tacking on a 36% tax on top of all that leaves very little for the sportsbooks.
However, even in states without high tax rates, casinos tend to consider sports betting as more of an amenity rather than a major profit driver. In a recent sports betting webinar, Jeff Morris of Penn National Gaming said sports betting is seen as more of an amenity designed to drive traffic through the front door of the casino.
Thus, it may be the case that Pennsylvania casinos have decided to offer sports betting even in such a high-tax environment so they can get people in the front door, sell them on other products and avoid losing customers to other casinos that do offer sports betting.
Hollywood Casino and William Hill Partnering for Sports Betting
William Hill US has been tapped by Penn National to run the Hollywood Casino sportsbook. William Hill US is a subsidiary of William Hill plc, which is one of the world’s largest sports betting operators. The company operates extensively throughout the UK and employs more than 16,000 people around the world.
William Hill US also has experience in the US market with 107 race and sportsbooks in Nevada alone. Bringing William Hill US on board gives Penn National and Hollywood Casino a powerful partner with a lot of experience in sports betting.
Interestingly, William Hill was at one point one of the biggest critics of Pennsylvania’s sports betting tax rates. It was just a month ago that William Hill US spokesman said the company was not interested in going after the Pennsylvania market.
“With a 36 percent tax and a $10 million license fee, there are other states that are more interesting to us,” said Dan Shapiro of William Hill US last month. “It’s just not something we’re looking at seriously right now.”
That has obviously changed now that William Hill and Hollywood Casino have submitted the state’s first sports betting license application. Other casinos are likely to follow suit in the near future.