HARRISBURG - Internet gambling is becoming part of this year's state budget debate despite several factors suggesting the odds could turn against legalizing it.
The headwinds are formidable. New Jersey is not getting the revenue from Internet games upon which it had counted, the anticipated revenue yield from tavern small games did not pan out for Pennsylvania coffers and the multi-billionaire owner of one of the state's most successful casinos in Bethlehem is leading a national lobbying campaign against Internet gambling.
Countering that is the need for new state revenue to address a developing $1 billion state budget problem for this fiscal year and the next one.
Internet gambling, or iGaming, is in the spotlight with the release of a legislative study earlier this month that suggests Pennsylvania casinos could see $180 million in new revenue during the first year of Internet gambling with about $68 million of that subject to state taxes.
Annual revenue could climb to $307 million, according to the study done by Econsult Solutions Inc. for the Legislative Budget and Finance Committee.
"I think there is significant revenue to be gleaned from Internet gaming," said Drew Crompton, top aide to Senate President Pro Tempore Joseph Scarnati, R-25, Jefferson County.
Lawmakers view Internet gambling as a painless way to deal with state fiscal problems, said Sharon Ward, executive director of the Pennsylvania Budget and Policy Center, a Harrisburg think tank that advocates a severance tax on natural gas production and closing business tax loopholes to generate new revenue.
It's (Internet gambling is) not really a solution in the short run or the long run," she said. Mohegan Sun at Pocono Downs sees an opportunity with Internet gambling.
Mohegan Sun President Michael Bean said any Internet games should be offered through the licensed casinos.
The Senate Community Economic and Recreational Development Committee plans a hearing next month on the study, which also recommends easing state rules on casino operations in order to help them stay competitive with casinos in surrounding states.
The study arrives at the $307 million revenue figure by estimating that Internet gambling by Pennsylvania residents would account for about 3.6 percent of a potential $8.5 billion online gaming market, including both poker and casino games, in the United States. The study assumes state tax rates at 20 percent for online poker and 60 percent for online slots games.
However, the study cites New Jersey's experience as a cautionary tale. The administration of New Jersey Gov. Chris Christie predicted that Internet gambling would generate $1 billion the first year. With actual revenue reported at $31 million at the start of May, Morgan Stanley, a Wall Street investment firm, has predicted a much lower $200 million revenue yield for the first year.
Seven Atlantic City casinos operate Internet gaming sites. Sites have experienced problems with technology to verify if players are in New Jersey and provide payment processing options for players.
New Jersey last week reported its first monthly decline in Internet gambling revenue since it started last November. It brought in $11.4 million in April compared to $11.9 million in March.
"This ($307 million) is the annual revenue expected if PA has a smoother launch of iGaming than New Jersey had or does not experience similar technical glitches," the study stated. "Given the experience of New Jersey, a more conservative estimate for Pennsylvania's market is that first year revenue will reach 60 percent of the forecasted level."
New Jersey's less-than-stellar results should be enough to keep other states from rushing to legalize Internet gambling, said Joseph Weinert, an executive with Spectrum Gaming Group, a gaming industry research firm in Linwood, N.J.
A warning to Pennsylvania lawmakers not to follow New Jersey's lead came from the Coalition to Stop Internet Gambling, a group supported by Sheldon Adelson, owner of Sands Casino Resort Bethlehem and campaign contributor to GOP presidential candidates.
Adelson is lobbying Congress for a national ban on online gambling. He wants to reverse a recent decision by U.S. Attorney General Eric Holder that a 1961 law used in recent years to curb Internet gambling only barred sports betting.
Pennsylvania lawmakers have already seen their own revenue expectations dashed with tavern small games. Lawmakers voted to legalize these games last November with projections of $100 million in revenue based on 2,000 licenses. But only a handful of small games licenses have been issued to tavern owners.
Crompton suggested the tavern games experience doesn't offer a good comparison with Internet gambling since each attracts different type of players. A complicated licensing process and high license fees could account for the lack of interest in tavern games, he said.
Rep. Eddie Day Pashinski, D-121, Wilkes-Barre, brings another perspective to the debate. "I'm not willing to allow any more advantage to the large casinos until they give our clubs and taverns a fair shake," he said. He has sponsored legislation to legalize video gaming machines for restaurants, bars and clubs with liquor licenses.
There is more interest so far among GOP senators in Internet gambling than their House counterparts.
"Right now it's not even on the radar screen," said Stephen Miskin, spokesman for House Majority Leader Mike Turzai, R-28, Pittsburgh.