Do you like sports? Want to bet on it? You can. Pennsylvania has entered the hazardous and easy world of tax revenue collection by approving sports betting at casinos, and many casinos have joined in. For a mere $10 million per casino application fee to offer sports wagering, and a state Gaming Control Board tax of 36 percent on revenues, Pennsylvania stands ready for a windfall.
But this opportunity comes with great risk. All too often, tax revenue spikes with the introduction of newly legalized forms of gambling, only to fall and level out in future months and years. With Gov. Wolf seeking to spend this tax revenue on new programs, Pennsylvania will find itself with unfunded mandates and in debt when the sugar high of sports betting tax revenue wears off.
Sports betting expansion is obviously here to stay — not only in Pennsylvania but throughout the country. State officials look at sports betting and only see the potential tax revenue without considering what’s really best for long-term economic growth.
Taxes and licensing fees from gambling can be a quick fix for the state’s coffers. In March alone, we saw over $1.8 million collected in taxes from nearly $50 million wagered on sports betting so far in Pennsylvania. Wagering has already been in place since last November. With six casinos licensed and four awaiting approval, the tentacles of sports betting will eventually reach internet or mobile-based systems through partnerships with Pennsylvania casinos. As casino gaming revenue hit an all-time high in 2018 and growth continued in the first few months of 2019, the Commonwealth has put sports betting on a fast track. It’s not hard to see why legislators would welcome such immediate revenue without fretting over the long-term economic effects of gambling.
But with significant competition from New Jersey, New York, and Delaware bookmakers, Pennsylvania casinos will most likely encounter a saturated sports betting market. Of the eight states to legalize sports betting so far, only New Jersey and Delaware have met tax revenue goals. West Virginia’s sportsbooks, meanwhile, have only generated a quarter of projected tax revenue in that same time frame. Mississippi and Pennsylvania have collected half of the projected revenue. What would Gov. Wolf’s plan be if Pennsylvania’s sports betting tax haul missed the mark to the same degree, year after year?
It’s almost impossible to say whether Pennsylvania sports betting will look like it does across the Delaware. New Jersey currently has a regional monopoly in online sports betting. .
Considering that a significant portion of New Jersey online gambling revenue is from out-of-state visitors crossing to place a bet and return home, it doesn’t seem likely that Pennsylvania could replicate New Jersey’s success. Even without competition from other states online, New Jersey tax collectors are warning that gambling revenues have begun to taper off.
The initial gambling sugar high won’t last, especially as other states enter an increasingly crowded market. The promised tax revenue won’t last either, if it ever appears at all. But the consequences of Pennsylvania’s rush to legalize sports betting will last long afterwards — especially if we race to spend projected tax revenues before they’re even in state coffers.
Gov. Wolf would be wise to remember that spending money that the Commonwealth doesn’t have will not be the sweetener he thinks it is. If the governor’s proposed budget continues to rely on sports betting revenue the same way, the real rush will be from Pennsylvania’s creditors to downgrade the state’s credit rating.
David Fiorenza is professor of economics at Villanova University.