The American Gaming Association has come out against a recent proposal by Pennsylvania Governor Tom Wolf that seeks to impose a tax on promotional credits handed out by the state’s casinos. The AGA’s position on the tax In a letter sent to Governor Wolf and key legislators, AGA Senior Vice President of Public Affairs Sara Rayme wrote: “… the American Gaming Association (AGA) has serious concerns with your proposal to tax promotional credits, a crucial marketing tool for casinos that generates millions of dollars in tax revenues for the Commonwealth of Pennsylvania each year.” The AGA letter goes on to say that the new tax would likely have the opposite effect the Governor intends; a concern I broached when the governor’s plan was first introduced a week ago. As Rayme notes, “While we appreciate the difficult budget deficit facing Pennsylvania, taxing promotional credits would likely lead to a decrease in tax revenue from casinos – the exact opposite of the intended result.” If Wolf’s plan were adopted it’s likely the value of promotional credits would reach a tipping point, and many casinos would drastically cut down on the amount of promotional credits they give away. As the AGA notes, this could lead to less visitation and traffic in the state’s casinos and therefore less revenue for the state. The letter also makes note of the already high tax burden Pennsylvania casinos pay, as 55% of slot machine revenue and 14% of all table game revenue goes directly to the state. According to the Morning Call, the casinos that would be hardest hit by Wolf’s proposed tax would be AGA members, Las Vegas Sands (Sands Bethlehem), Greenwood Racing (Parx Casino), Rush Street Gaming (Rivers Casino and Sugarhouse Casinos), Penn National (Hollywood Casino), Caesars Entertainment (Harrah’s), and the Mohegan Tribal Gaming Authority (Mohegan Sun at Pocono Downs). Two of those entities, Las Vegas Sands and Caesars are among the heavy hitters of the casino industry and the AGA. Wolf’s proposal Under Wolf’s promotional tax plan, casinos would have to pay an 8% tax on free slot play and match play coupons and vouchers for table games, essentially charging them to run what have historically been considered marketing campaigns to attract customers. These giveaways are seen as the fuel that brings day trippers to the casinos by bus from as far off as New York City. The AGA likened these promotional credits to grocery store coupons, or a BoGo offer sent to specific customers by a shoe store, although I would have compared them to free appetizers at a bar or some other loss-leader. In the letter Rayme made the following case for promotional credits: “Promotional credit marketing programs in casinos are no different than grocery store coupons, which are widely used to attract more customers to purchase and consume more goods. Direct marketing, which involves sending promotional free play to patrons, is much like a shoe store sending a customer a buy one, get one free coupon. Promotional credits are a critical part of casino marketing because they:
Incentivize customers to increase their real-money wagering and spur increased visitation;
Empower casino operators to respond to market conditions, customers’ preferences and the broader economic environment; and
More than triple the return on investment of issuing promotional credits.” The bigger picture It should also be noted that this fight is taking place amid a backdrop of a budget stalemate between the governor and the Republican-controlled House of Representatives that has gone on for over six months. Wolf’s proposal could very well be the governor throwing every idea against the wall to see if anything sticks, since the longer the stalemate goes, the worse it will be for all Pennsylvanians. The legislature is also considering a massive gaming expansion package that would legalize online gaming in the state; add slot machines to select airports and off-track-betting parlors; make structural changes to casino licenses; and perhaps legalize daily fantasy sports in the Keystone State.