Pennsylvania's $6.4 Billion Gaming Record Faces Grey Market Crisis and NY Competition in 2026

Pennsylvania’s regulated casino market managed to post its fifth year of record revenues in the state where legal land-based and online casinos face their biggest grey market challenge, but cracks are beginning to show. While iGaming continued its surge up 27% for the year for more than $2.7 billion, slot revenue at those retail brick and mortar casinos actually declined 0.6% for the whole of 2025 and more than 7.5% in December alone. 

One can't help but wonder if the revenue for these 24,000 licensed machines isn’t being squeezed by the kudzu-like runaway growth of so-called “skill slots”, which are unlicensed and now total nearly 100,000 in gas stations, restaurants, and legion halls all across the state. 

Current estimates have additional untaxed revenue from those games at north of one billion dollars. This matters because Pennsylvania has one of the highest slot tax rates in the country both for its online slots at 54% and land based base slots which can be 55% after various local share assessments and development fees are added. So not only do these skill games take business from both online and brick and mortar casinos, they deprive the state of an additional $500 million or so in revenue. 

Several bills were filed last year and looked close to being passed to address the issue, but ultimately, Governor Shapiro and legislators seem to have decided to see what the Pennsylvania Supreme Court would decide after hearing oral arguments on the legality of these machines in November 2025. A decision is expected later this Spring.

Tax Law Changes Mean Trouble

Layoffs are likely looming at many retail casinos already, as the long-awaited move of the IRS reporting requirements on jackpots moves from $1200 to $2000. Something like two-thirds of jackpots will no longer need to be hand paid, meaning that fewer slot attendants and cage personnel will be needed. Unite Here, and the Teamsters are unlikely to let an opportunity to blame skill market games for job losses slip past, regardless of the exact cause however. 

The showdown between labor unions adamantly opposed to these games at all, and small mom and pop businesses and their large politically powerful route operators and game manufacturers who have grown increasingly dependent on them, will likely draw at least some of the attention away from the fact that iGaming continues to grow unabated. 

But in Pennsylvania, iGaming slots weren't where the fastest growth was. Table Games grew at 31.7% YOY, slots “just” 25.8%. This can almost certainly be traced back to the huge disparity in tax rates. Online slots at 54%, tables at just a 16% base rate. If you were going to allocate money for promo spend and marketing budget as an online operator, which group would you target? Retail-based table games slipped 1.2 % last year in the face of that competition. 

Live Dealer continues to dominate in the table games sector, not just because of the increased social aspect but due to Evolution and other studios' continued innovation and overhaul of the “old” table games product. Coupled of course with operators having the ability to comp and award free play that the margins just don’t allow in online slots. 

New York State of Mind

But changes just a hundred miles north threaten to overturn the apple cart in 2026. The Biggest Apple, New York City, has finally approved three downstate casino licenses. And while the Bally’s project in the Bronx and Hard Rock’s casino in Queens are conservatively perhaps five years out, the Resorts World racino in Jamaica Queens will be rolling out thousands of class three slots to replace its VLTs in the coming months, but even more importantly, installing hundreds of table games for the first time. 

Expected to be online in March, these tables will represent a serious threat to both Philly properties, and the largest table games operator in Pennsylvania, Wind Creek Bethlehem. Wind Creek, a short 90-minute bus ride for New York players, reported table games revenue of over $21 million in just December. Analysts believe the property might see a 15% to 25% loss in business from the new competition this year, and the Philly markets perhaps an additional 10% loss. 

This is a mid-term election year, and job losses even in the casino industry cannot be just overlooked. Many legislators have already been floating an increase in the table games tax rate to 32%, based on just the slightly declining land based table numbers. Armed with double-digit declines in their two most significant casino markets and almost certain lower casino employment figures, it remains very likely that they will be emboldened to try and raise rates again this year, both at the behest of the Unions and to fill budget gaps. 

2026 Head Winds

Pennsylvania looks to have its hands full in the coming year with a still unresolved grey market slot problem, New York's downstate casino expansion, and likely online table game tax increases. It’s a near-perfect storm that would seem to make that sixth consecutive year of record revenue unlikely.

The problem isn’t just those 100,000 grey market machines, they may yet be taxed and added to the revenue base, but that will only further stress land based operators who will also be facing down a casino floor filled with thousands of new machines and hundreds of table games just an hour and half north in the very heart of their largest out of state market. 

Legislators may feel forced to act as double-digit losses at those casinos cause job losses in the brick and mortar casinos around Philly and further north, and hike online table taxes in a bid to level the playing field, as those online operators have much larger margins traditionally.  But that has a domino effect of fewer deposit bonuses, stingier cashback, and less overall innovation for the rapidly growing iGaming consumer. 

Election year politics, an uncertain hit to the tax base, and politicians anxious to be seen doing something, anything, about job losses for the well-connected unions may mean 2026 is the year that winning streak finally breaks.