This week, on Jan 3, the Pennsylvania Gaming Control Board (PGCB) reopened applications for qualified gaming entity (QGE) status. So far, though, it has only one applicant: Bally’s.
Pennsylvania was the first state after New Jersey to launch a competitive regulated market for online casinos in 2019. In doing so, it copied many aspects of the Garden State’s model, including the requirement for online companies to partner with a land-based casino.
The goal of such policies has been to get the retail industry on board with online gambling by allowing brick-and-mortar casinos a cut of revenue. Pennsylvania was persuaded to extend this privilege to out-of-state casinos by creating the QGE option. Retail casino operators in good standing with other state regulators could apply for an iGaming certificate on almost the same terms as those in the state.
Naturally, the state stood to benefit from this as well. Pennsylvania is among the more expensive regulatory jurisdictions to operate in. Those certificates come at the cost of $4 million apiece, and each would-be operator needs a minimum of two: one each for slots and table games. It’s hard to imagine anyone attempting to run an online casino with only one or the other.
And yet, things didn’t go exactly as the Keystone State had hoped. It had only two applicants – MGM Resorts and Golden Nugget – neither of which has completed the process, even three years into the market’s life. There’s a good chance Bally’s will become the first active QGE in the state because of its particular circumstances. However, it may also end up being the only one.
Still No Active QGEs
Atlantic City and Philadelphia are only just over an hour’s drive apart. There’s a lot of crossover in their clientele. New Jersey residents are as familiar with, say, Parx as eastern Pennsylvanians are with the likes of the Borgata.
Those QGE certificates were probably intended primarily for those operators with properties just across the border. Indeed, the first two applicants fell into that category, MGM being the owner of the Borgata, while Golden Nugget is an Atlantic City icon in its own right.
However, MGM dropped out of the application process before receiving approval. It opted instead to launch its BetMGM Casino and Borgata Online Casino brands through two separate partnerships: BetMGM with the Hollywood Casino at Penn National Race Course and Borgata with Rivers Philadelphia.
Golden Nugget, on the other hand, received approval but never launched. Its brand still doesn’t operate in the state, but Golden Nugget Online Gaming has since been acquired by DraftKings. If it were to launch an online casino in Pennsylvania, it might even do so through its new owner’s partnership with the Hollywood Casino rather than use its namesake’s QGE certificate.
Single-Vertical Licensing: the Option No One Wants
The fundamental problem with the QGE idea is the same as with the online-online sports betting licenses in Illinois. That state has also opened up bidding on such licenses for a second time but has yet to find any takers.
For the US market, the renewed legalization of online casinos is inextricably linked to the advent of legal sports betting. All the market leaders offer integrated apps in those states where possible. These offer players the ability to use a single account for the sportsbook and casino verticals and feature lots of cross-marketing. There are only a few examples of standalone products of one type or the other, and they haven’t fared very well.
In Illinois, online casinos aren’t even legal yet, though an effort is underway. Even so, it seems everyone prefers to share sports betting revenue with a land-based partner than go it alone since doing so would incur the risk of being cut out of a hypothetical future Illinois online casino market.
The problem in Pennsylvania is that QGE certificates apply to online casinos and poker only. Anyone operating that way will be doing so without the benefit of an attached sportsbook. Although sports betting produces far less revenue than casino games, it serves as an important customer acquisition tool, much like online poker.
Other states looking to legalize one or both verticals would do well to take heed of this phenomenon. Partnerless online licenses might seem like a way to extract additional money from operators. However, to be appealing, they need to have few downsides. Most importantly, they need to cover all present and future verticals. No one wants to fight in a highly competitive market with one hand tied behind their back.
Why QGE Status Makes Sense for Bally’s
Why is Bally Casino bothering to apply for a QGE certificate if that’s the case? The answer lies with another quirk of Pennsylvania regulation.
Pennsylvania legalized sports betting and online gambling in the same year. However, it did so with two separate bills, with different terms for each.
For iGaming, only primary casino license holders are eligible for interactive gaming certificates, and only one of each type. On the other hand, they can partner with any number of online brands.
Conversely, each gaming property – including the new satellite casinos – can have one retail and one online sportsbook.
Businessman Ira Lubert won the bidding for a satellite casino license in State College. It will be operated by Bally’s, though this is the subject of an ongoing regulatory battle with the losing bidder, Cordish Companies. (Cordish feels that Bally’s involvement makes the bid ineligible. As an out-of-state company, it would not have been able to make such a bid directly.)
Assuming the PGCB allows the project to go ahead, BallyBet will presumably be the sports betting brand for the new property, both online and retail. However, Bally Casino would still need to find a retail partner to operate online. If other competitors feel the same way Cordish does, it might have a hard time striking a favorable deal.
Although there was no way of knowing it at the time, the QGE plan feels like it was made to solve the specific problem Bally’s faces. However, that problem is unique to Bally’s. Other hybrid retail-online companies like WynnBet don’t have a satellite through which to offer sports betting. It would therefore be surprising to see any more applicants emerge for QGE status.
Nonetheless, applications will be open through Mar 3, so there’s plenty of time for such a surprise to occur.
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