New Narrative: iGaming Is A Job Creator
New analysis from Ontario indicates online gambling supports 15,000 jobs in the province. But will the report penetrate the cannibalization bubble?
The Bulletin Board
NEWS: Ontario analysis pokes holes in cannibalization and job loss arguments.
LEGISLATIVE UPDATES: Alberta update; Canadian law enforcement investigating Jontay Porter; NY Assemblyman pushes for Seneca Compact.
VIEWS: Former PA Gov. Ed Rendell: No special tax treatment for skill games as lawmakers work on the budget.
BEYOND the HEADLINE: Pennsylvania Supreme Court grants Attorney General’s skill game appeal.
AROUND the WATERCOOLER: Deal Talk: MGM and Tipico.
STRAY THOUGHTS: Quote of the Week: Respect the players.
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New Report Indicates Online Gambling Is a Job Creator
Following the province’s decision to regulate online gambling, iGaming Ontario commissioned an annual report from Deloitte to “examine the potential economic contribution of the online gambling industry as conducted and managed by iGaming Ontario.”
The report for Year 2 of the Ontario online gambling industry, titled Economic Contribution of Ontario’s Regulated iGaming Market, paints an interesting picture of online gambling regulation in Ontario that should help counteract the cannibalization and job loss concerns that have increased in recent years.
According to the report, regulated online gambling in Ontario (a province with a population of 14.5 million) supports 15,000 jobs, including 2,675 direct jobs and 9,295 indirect jobs. For comparison, Pennsylvania has a population of around 13 million.
According to the report, direct jobs are those contributed by regulated online gambling operators, and indirect jobs are jobs in Ontario contributed by suppliers. “The remainder, “induced,” are jobs supported by the spending of wages and salaries earned by employees of igaming operators and the employees of their suppliers.”
The report also states that regulated online gambling “contributed $2.7 billion to Ontario’s GDP in its second year of operation, up from $1.58 billion in its first year.”
But more importantly, “For every dollar spent by igaming operations, an estimated $1.40 of GDP was supported in the Ontario economy, up from $1.14 in Year 1.”
That pokes a second hole in the oft-cited argument that gambling revenue is net negative due to the social harms caused.
The report also indicates that Ontario is way ahead of schedule:
“Ontario’s igaming market hit or has nearly reached many of Deloitte’s year-five projections in just its second year, with government revenues (94%), direct jobs sustained (120%), total full-time jobs sustained (92%), and GDP contributions (93%) outpacing initial expectations.”
The question is, will the report help change hearts and minds, particularly those of organized labor in the US, or is it a tree falling in the forest when no one is around?
Legislative Updates: Alberta Online Gambling; Canada Investigating Jontay Porter; NY-Seneca Compact
Online gambling is coming to Alberta: At the recently concluded 2024 Canadian Gaming Summit, Alberta’s Minister of Service and Red Tape Reduction, Dale Nally, said the province plans on copying the Ontario model (an open market with multiple operators) as it moves toward regulation. “It’s going to be very similar to Ontario,” Nally told attendees. “As far as I’m concerned, they build the roadmap. We’ll massage it a little bit, but it’s been inspired by the experience in Ontario. It’s going to be an open and free market.”
Canadian authorities open an investigation into Jontay Porter: Sticking north of the border, Craig Abrams, spokesperson for the Ontario Provincial Police (OPP), told ESPN that after an initial assessment into the betting irregularities around former Toronto Raptors player Jontay Porter, the Investigation and Enforcement Bureau has “determined a criminal investigation is warranted.”
New York Assemblyman pushes for a new compact deal: New York Assemblyman Joseph Giglio is frustrated Gov. Kathy Hochul and Assembly and Senate leaders could not finalize a new gaming compact with the Seneca Nation of Indians during the 2024 legislative session. Time is not of the essence, as the tribe and the state agreed to extend the original compact every quarter until a new agreement is reached. Still, Giglio believes the state isn’t negotiating in good faith: “It’s time for the executive branch negotiating team to come back to the table and negotiate a deal in good faith with the Seneca Nation for the benefit of everyone in Western New York, native and non-native.”
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Former PA Gov. Calls for a Uniform Slot Tax Rate
In a pointed op-ed aimed at Pennsylvania lawmakers, former Pennsylvania Gov. Ed Rendell denounced the idea of special tax treatment for skill games. Of interest, Rendell is not against regulating skill games; he simply wants them taxed at the same 52% rate that all other slot machines in the state are taxed at.
“All currently authorized forms of slot machine-style devices in the commonwealth are taxed at the same 52% rate, be they slot machines at brick and mortar casinos, virtual slot machines online, or video gaming terminals (“VGTs”) in truck stops,” Rendell wrote, noting that Pennsylvania’s Constitution requires that taxes be imposed in a “uniform” manner.
Per Rendell:
“Given all this, I am alarmed to hear that several current members of the General Assembly are proposing a disastrous tax giveaway… for another type of slot machine-style device that is self-servingly called a "skill game" even though the Commonwealth Court found that skill games fit within the definition of a slot machine under the Gaming Act.”
Rendell goes on to call out legislators who “want to kill our golden goose and cut these out-of-state interests a sweetheart deal that would tax their machines somewhere between a laughable 16%, or a clearly non-uniform 34%.”
Pennsylvania, along with Virginia, has been ground zero for the skill game battle, with each state’s courts ruling differently (at least thus far) on the legality of the machines.
The legislature is considering regulating skill games as part of its annual budget, due on June 30 — Pennsylvania rarely meets its budget deadline, with last year’s budget passed more than a month after the deadline.
Beyond the Headline: PA Supreme Court Will Hear Skill Game Appeal
Meanwhile, the Pennsylvania Supreme Court said, “It will consider an appeal by the attorney general’s office of a lower-court decision that found that what are often called skill games are based on a player’s ability — and not solely on chance, like slot machines and other traditional gambling games.”
In a 7-0 ruling in December 2023, the Commonwealth Court affirmed a Dauphin County Court of Common Pleas ruling that skill games are not gambling.
The rationale behind the rulings stems from a “skill” round based on hand-eye coordination rather than chance.
The Attorney’s General Office argues the “Follow Me” skill round “requires quite the eagle eye even to detect this feature, let alone to understand it, let alone to win anything by playing it.”
The skill game industry wants to be regulated. However, as noted above, it is looking for a sweetheart deal compared to other gambling machines in Pennsylvania, lobbying for a much lower tax rate than casinos, the VGT industry, or online slot machines.
“We’re in a unique position where we have a legal product — the court has said so — and we’re saying, ‘Please come tax us. Please come regulate us.’ It’s not something you hear very often in Harrisburg, but we’re hoping to get some action,” said Mike Barley, chief of public relations for skill game manufacturer Pace-O-Matic.
The court’s willingness to hear the appeal could slow down the legislative talks and the ruling could have far-reaching ramifications as the same argument over skill game machines is playing out in multiple states.
The casino industry brands the machines illegal and wants them stamped out. It is also vehemently opposed to them and against any lesser taxation scheme. Of the options on the table, losing in court would be worse than competing with them on an unequal (tax) footing, which would be worse than dealing with them on an equal (tax) footing.
Penn Entertainment’s Chief Compliance Officer Chris Soriano published an op-ed in TribLive in August 2023, calling for the state to take action against the machines. Soriano argued that the so-called skill games have high hold rates, don’t contribute to state or local taxes, and are magnets for crime.
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Around the Watercooler
Social media conversations, rumors, and gossip.
Today’s Watercooler conversation looks at analyst takes on the MGM-Tipico news reported yesterday, leaning heavily on JMP Securities, Eilers & Krejcik Gaming (a newsletter sponsor), and Deutsche Bank.
According to the JMP Securities team, the Tipico acquisition creates “a path for the company to create a full-service, online gaming platform outside the US. JMP calls the strategy “deliberate,” noting its targeted approach to specific rather than a larger scale purchase that would include “undesirable markets.”
“MGM plans to utilize Tipico for its technology platform and product for LeoVegas, the brand MGM leverages outside the U.S., as the vehicle for its international online gaming expansion.”
JMP Securities also pointed to MGM’s recent track record as a sign of its international strategy:
“Following the ~$600M acquisition of iGaming-focused LeoVegas in 2022, Push Gaming in 2023 to develop in-house iGaming content, and now Tipico for its sportsbook capabilities.”
Deutsche Bank analyst Carlo Santarelli concurred, calling the deal “more symbolic than needle moving.”
“It shows a continued commitment to MGM’s international digital strategy,” Santarelli said. “Broadly, we do not view the transaction as being material near-term.”
And what about the US implications? “Management has remained steadfast in its commitment to the JV between MGM and Entain,” JMP’s Jordan Bender writes, adding, “We believe at some point in time, the two companies will go separate ways, leaving MGM with the BetMGM brand in the US.”
In a Flash Note, Eilers & Krejcik Gaming agreed with that assessment, calling it “business as usual for the 50-50 MGM-Entain BetMGM JV. But as EKG has been saying for a couple of months,” A Tipico acquisition provides MGM “with a decent back-up plan if that JV ever splinters, while also sending something of a statement of independence to Entain.”
In a nutshell, MGM is building a strong end-to-end product for international markets that it can later deploy in the US.
As Eilers & Krejcik Gaming notes, the Tipico US platform, which EKG calls “solid if unspectacular,” was built independently of Tipico’s core platform. The US online casino platform ranks better than the sportsbook (6th vs 11th) in EKG’s proprietary OSB rankings.
EKG suspects the still unnamed price for Tipico’s US assets to be in the mid-eight-figure range.
Stray Thoughts
Quote of the Week: “You need to respect the players as something more than where you draw your money from.” Joe Brennan Jr. on the Prime Suspects Podcast.