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High tax could scuttle online gaming in Pa., CEO says

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John Pappas is executive director of the Poker Players Alliance.
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David Licht, CEO of the All American Poker Network

Pennsylvania could become a leader in online gambling, but a high tax rate could kill the idea before players can place a bet, say two advocates of Internet gambling.

“People won’t invest proper marketing dollars to drive revenue if the tax rate’s too high,” says David Licht, executive chairman and CEO of All American Poker Network, which operates an online network in New Jersey and has an agreement with Mt. Airy Casino, Monroe County, to set up online gaming if Pennsylvania legalizes it.

“If the tax rate is exceedingly high, the operator is going to take that out on the consumer,” says John Pappas, executive director of the Poker Players Alliance, which bills itself as a voice for gamblers.

At least four proposals to legalize online poker or all forms of casino gambling are before the Legislature as lawmakers and the governor struggle with the state budget. Proposed online tax rates are 14 percent, 28 percent and 54 percent.

Licht and Pappas tell Player’s Advantage that Pennsylvania’s population of about 12.8 million and residents’ fondness for betting — only Nevada generates more gambling revenue — make it important to supporters of online gaming.

“That sets up Pennsylvania to be the (online) leader in all the states,” Licht says. “I think it’s an enormous opportunity both for the government to raise money and the operators to operate in a profitable fashion.”

With a tax rate around 15 percent and a $5 million licensing fee, online gaming could bring about $100 million to the state in its first year, Licht estimates.

He says $300 million in gross online gaming revenue is reasonable in Pennsylvania’s first year. For comparison, New Jersey, with a population of about 9 million, had almost $123 million in gross online gaming revenue in 2014.

State Rep. John Payne, majority chairman of the House Gaming Oversight Committee, says online gaming has a “pretty good” chance of approval. Online gaming could bring the state $120 million in its first year, he says, while the full package of proposed casino law changes — 24-hour liquor licenses, secondary slot parlors, airport slot machines and skill-based gambling games — would increase that to $700 million.

“We need to be progressive,” says Payne, R-Dauphin County. Gambling revenue is part of budget negotiations in Harrisburg. An online tax rate of 15 percent apparently is too low, he says, and 54 percent is too high.

Licht says operators have learned from their experiences in Nevada, New Jersey and Delaware, the only states with legal online gaming. Banks and credit-card companies, which sometimes wouldn’t process payments to online casinos, had to adapt.

Licht says a key factor to consider is that online gambling is underway already, with people in all states betting on websites based in other countries.

Regulation by the Pennsylvania Gaming Control Board would protect gamblers against unscrupulous operators, he says, noting that New Jersey has had no instances of minors or of people outside the state being able to gamble online.

“When you legalize, you have better safeguards against minors, you have safeguards against fraud, you have tax revenue that’s being generated,” Licht says.

“It’s a very safe way for the government to try to balance their budget.”

Pappas says he’s encouraged that lawmakers view regulation of online gambling as a way to protect consumers while also being able to generate revenue.

“It can be a very significant domino as other states look to do this,” he says.

Licht says players should be able to register online rather than having to visit a land-based casino to set up an online account.

Licht offers one more reason for Pennsylvanians to look forward to online gaming. “The odds of winning are much greater for the consumer online than they are at a physical casino,” he says. “(It’s) just the nature of the business. The hold percentage is much lower for online than it is for physical casinos.”

Mark Gruetze is administrative editor for Trib Total Media. He can be reached at 412-320-7838 or [email protected].

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