Thoughts on the Future of Online Poker in the U.S.

Short intro, but

Got assigned a paper for my "State and Local Politics" class on " Internet Gaming and how it will affect Government". I thought "what a perfect topic!" and proceeded to get to work, in which I mean wait until 5 hrs before the deadline (lol).

I took out all of the government parts of the paper, didn't want to bore everyone on here with that I included all the poker parts, which is pretty much just a speculation/prediction on the U.S. poker market after legislation. Feel free to agree/disagree, but not really looking for your suggestions, as there is already a thread for that here somewhere.

Enjoy everyone,

deuces


Edit: Was going to use a PDF file, but couldn't get the convertor to work I apologize for the wall of text, but had to C & P from word to CC.




Internet Gaming, specifically Internet Poker, has the potential to make millions, if not billions over the next 10 years. This could potentially be in the range of 30-40 billion dollars of revenue for the country. Before I make an estimation on the actual potential revenue, lets first assume a few things about Internet Gaming.

For the sake of discussion, let’s assume a bill gets passed within the next year, 2012 and so, we will be examining the year 2013 as a model. Another assumption to make is that poker is federally regulated, meaning the sites would be interstate, not intra-state. This is a major point of discussion currently, but the obvious consensus is that an “interstate” bill is more beneficial to players than a “intra-state” bill, with the reasoning being Interstate sites would have a much larger player pool than an Intrastate pool would. Personally, I believe this will happen, as Congress can interpret “internet gaming” very broadly under the Commerce Clause, hence giving Congress the ability to regulate the industry. This isn’t a “free or regulated market debate”, but given the unique situation under which poker has existed, regulation is a 100% must. Finally, let’s assume that only withdraws, or whenever a player takes money off a site, will be taxed. The exact amount is obviously unknown at the moment, but my speculation is it will be somewhere between 5-10% per withdraw. Again, that’s pure speculation and there are others who know far more than me about the tax situation regarding poker who could clarify that number.

Okay, now that we have the ground rules set up, let’s take a look at other forms of gambling for comparison. For discussion, I will use the state of Pennsylvania. Pennsylvania is a middle to large state, with a wide variety of ethnicities, races and professions. It has five large cities and the area surrounding these cities is mostly suburban and rural, making it an ideal area for model. First, let’s take a look at the Pennsylvania State Lottery, a major form of gambling. Also, revenue and profit are not the same thing, so in layman terms, revenue is gross amount taken in and profit is after expenses. It’s more complex than this, but for our purposes, this definition should suffice. Last year, the lottery showed a revenue totaling 3.072 billion dollars. The total 3.072 billion actually shows a decrease in revenue of .53% from last year, so for our purposes, let’s round that number to an even 3 billion dollars in lottery revenue last year within the state of Pennsylvania. Now, the speculation begins. If/when poker becomes legislated, it would assumedly become a staple of mainstream television. Imagine, where the nightly news is brought to you by “IPoker INC” or your local bus station has, “Wynn’s Internet Gaming INC” painted on the bench your sitting on. This is just scratching the surface of what poker could become if properly enhanced through advertisement.

So, let’s say that the routine lottery players within the state decide they want to try out this new, exciting version of gambling on the internet. This percentage of lottery players who deposit into new poker sites could be anywhere from 1% of total lottery players to 100%, but in my opinion, this number will be around 10%. (Not getting into the why/how, but there is some thought behind this number.) 10% of 3 billion is 300 million dollars. Putting 300 million dollars into the player pool would have astronomical positive outcomes for the industry of poker. For comparison, Full Tilt Poker, considered to be the second largest previously operating site in the U.S. who is currently facing legal action after their indictment by the Department of Justice, has approximately 300 million dollars in limbo currently, money which sums up all player deposits. 300 million is equal to 10% of the state of Pennsylvania’s lottery revenue last year. So, summing it up, if 10% of lottery players in the state of Pennsylvania decided to deposit their money onto a poker site instead of into the state system, the amount of $ in play could equal that of Full Tilt Poker. This is only for the State of Pennsylvania though, imagine if all 50 states opted in to internet gaming, the ceiling is unbelievably high.

Secondly, there are 10 operating casino’s in the state of Pennsylvania. While casino executives use to fear internet gambling, as they believed it would ditract players, they now are realizing that it would only broaden the poker industry, benefiting both internet and land based gambling. The exact amount of revenue or players who would begin playing online poker who currently play live only is impossible to calculate. As many players play both “live” and online, it would be impossible to segregate the groups as to get an accurate assessment, but in the overall picture of internet gambling, live players would make up a considerable amount of the player pool.
Thirdly, the amount of recreational players would be the main base of the online player pool. Again, this number would be very hard to pinpoint, as it really is not known whether the average non-poker playing American would take a liking to the game. With a highly paid research team, I would assume a rough estimate could be obtained, but without this, the number is unknown. As speculation though, I think this number could be large, in the millions of players. The United States currently has a population around 300 million, with 10-20 million citizens previously playing online poker in some form or another. Imagine if even 10% of those non-players decided to try their luck with internet gaming, that would more than double the market.

In summary, this model is only of the state of Pennsylvania, meaning the other 49 states would all contribute greatly to the player pool. If my bare estimates are correct, a U.S. regulated site would far exceed any site we have ever seen within internet gaming. Again, this is hinging on a few facts, those being:
1. A bill goes through congress legislating poker.
2. The site is federally regulated, all 50 states opt-in and the sites are “interstate”, meaning the states share player pools.
3. The sites themselves, which would again be run by licensed operators, advertise and market themselves correctly.

Some other factors are:

1. Would these sites be open to international players?
a. This question is not easily answered, as this will be solved within Congress
2. How would the taxes on this money work?
a. Either deposits or withdraws would most likely be taxed, again another problem yet to be solved
3. The sites would be open to all players, over the age of 18 or 21.
a. The argument can be made for 18 years of age to play, but it would most likely be 21, per reasons previously discussed. The only players who would possibly not be allowed to play would be those who live in states that do not opt in, those found to be cheating or tampering with the system, those with a “felony” on their record or members of the penitentiary system.

1st

learned a lot from this actually thanks

very well done deuce!

darn I hope you get a A+, the problem I do see is there is too much greed, hell the Indians wanted no one else to have online poker in the US, I dont see it in the near future cause no on can agree on anything at anytime.

thanks for the responses


would like to see some more known cc members weigh in too

Spelling error?

Secondly, there are 10 operating casino’s in the state of Pennsylvania. While casino executives use to fear internet gambling, as they believed it would ditract players,

You mention lotto players, and 10% also playing online poker. But failed to mention non-lotto players like me. I have not bought a lotto ticket in years. I believe most online players are not also lotto players in general.

You mention possible online deposit taxes...that scares me. Withdrawal taxes should probably be expected. The whole deposit/withdrawal process should be similar to online stock trading, however that is handled.

I liked it, might even sell to a local rag.

-Aw, good catch haha, didn't really go through my grammar before I posted it on CC

-You would fall under the players who "play live" or have already played online in the past.

- Ya, since the issue hasn't been decided, I felt like explaining both sides of the issue, but I can't see a tax on deposits being a reality

-Thanks!

got it in PDF form

would a mod so kindly put the PDF in the OP?


(that means you WVH, )

Attached Images

pokerpaper.pdf (8.3 KB, 11 views)

awesome, great job

thanks

good to see you back on cc

Big problem is that I can see it being brought up with some very favorable arguments. Most of those arguments will fall into this singular category:

-As a player (pro or recreational) you are buying a service (entertainment or something akin to a catering at a party), and thus a tax is appropriate upon purchase.

Counter arguments if such a nasty thing were implemented might go along the lines of; Ok, if you tax both ways (deposit and withdrawal), the exit (withdrawal) tax should be less than if we are taxed only if we make a profit.

Thing is that we want those players who approach the game recreationally, like when you go to the movies you are taxed going in, not on whether or not you liked the movie.

First I had heard of the deposit tax notion, so I am largely discussing this with myself, and you all will suffer my internal discussion.

Not trying to hijack this thread, but your OP was written well enuf to be the seed for something more than just your written piece.

I hope it doesn't get a 'vote' factor like "I hate that idea", or "I love this idea", but instead gets some fresh discussion on what we need in any legislation, what we fear others will feel the need to put into that legislation, and (not wanting to show my cards here) what we might accept in any impending legislation.

The possibility that politicians destroy this legislation because the greedy bastards just see 'income' is very real. As online poker advocates, we must be involved with our ideas, and our voices. Else the rake/fee based taxes will climb to a point that online poker is for entertainment purposes only.

So for instance, I am unhappy that the whole legislation seems to be grouped into online gaming, rather than online poker. Such a huge difference between hosting a poker game between (anonymous) friends, and staging a house game like blackjack, or craps.

Incidentally, the online, for profit bridge (card game bridge) world was equally upended by the UIGEA. And bridge, like poker, is a game of individual skills, tempered by a luck factor. The bridge world has largely flown under the radar since UIGEA, but the effects there were about the same as we poker players dealing with the departure of Party, then Stars and FT, and how several sites have essentially been 'under the radar' since Black Friday.

Sports bettors also would claim skills over luck. And I can almost see it. I do not indulge in sports betting, irregardless of how hard the mixed online sites try to get me involved. It seems to me that each bet is similar in that I am betting against another bettor, and the odds factor is a house function (with a fee), to even out the number of bettors on each side. Again, I do not know much about sports betting. The skills come into it via each bettors knowledge of the sides involved, the health of each side, and the health of the other bettor, like is he betting his alma mater because he is drunk?

And a last weird thought. If the legislation stays similar to what exists now, and that the luck thing is what most legislators think about when they nix any impending legislation to change things, then we could also include elections as having too large a luck factor to continue being allowed.

Legislators by lottery, or draft ??????

I like your thoughts DJ, I can't respond right now, as I'm on my phone

I will deffo respond when I get back to a computer later today,

-Thanks everyone for the responses, excited to see people interested

Yes, the whole process should be handled like stock trading. That would mean that it would not be based on the amount of the deposit or the withdrawal. It would only be based on the gain or loss. There should only be tax due when it is calculated on the tax return form at year end just like for stocks.

I don't believe the tax should have anything to do with depositing or withdrawing. It should ONLY have to do with profit. If you have a "hobby" business and you never make anything then you actually do have a tax deduction for the loss.

so teach, why didn't you catch the ' error in casinos if these things are so agreejuss ;>}

Plural vs possessive, and don't forget the odd case of a plural possessive.

Example; There are many casinos, and in the casino's best interest, underage gambling is controlled.

And truthfully, I generally don't give a shit about apostrophe's, but do get distracted.......{oh I crack myself up sometimes} by spelling errors.

Online poker will eventually be approved in the US under some form of business/government umbrella. The demand is there and no business oppurtunity seems to be ignored in the US. I would imagine that there would be a signficant "rake" paid to the US Treasury.

I hope that it gets passed sometime in the near future. You know if the casino execs are " scared " then why not lead the way. They could be raking in millions already.

There is no such thing as a "hobby" business. It's either a business or a hobby. When the IRS drew up the regulations, there was no online poker. This article is a little old, but I don't believe the regs have changed. http://www.onlinepokerfaq.com/guide/us-taxes.html

For recreational players, the current tax law is a mess which is why I hope they tax withdrawals (minus deposits of course) which is essentially your profit.

Since you aren't suppose to be tax on money you haven't constructively received that would make the most sense. If Black Friday taught us anything, the money in our poker accounts can become inaccessible at any time.

DJ - I don't understand your statement that the tax could be on "purchases"? Are you referring to state sales taxes? If so, not all states have sales taxes.

Regarding the OP, I don't believe all 50 states will opt-in. You have Hawaii and Utah which don't even have lotteries. Then there is Washington State where online poker is a felony in order to protect their 27 Indian casinos (ugh). I'm not sure my state will opt in given the current climate in the statehouse which seems to be against any expansion of "gambling" although our education funding is primarily from lotteries.

Im reading about Nevada trying to get intrastate online poker going as well as california. SO if all these states just start intrastating themselves before it can get passed federally. Are these states going to open up to the whole US market, Im just saying CA and NV will probably have different software and will both be intra state, IF this thing passes, I hope we dont have 30 intrastate software companies and then if they open to the whole US, it will be like 30 small poker sites all going for customers. I had an grand thought but I dont think Im making sense. Basically if it goes wide open for the USA, one or 2 big pokerstars sites instead of 30 lil GO HARD Poker type sites

I'm hearing people saying to tax just the profits, not the deposits at all. I've never done stock and I hear that comparison so that might be my misunderstanding but how can they just tax profits? If someone comes in and dep 100 loses it and deposits another 100 ( down 200) and loses that are these tallied up? Then they deposit another 100 (down 300) and win some 50 dollar thing and cash out 150 and say screw poker. so they'd still be down 150 but they just withdrew 150. that's untaxed since they put more into it? not until they withdraw more than a total of 300 would it be taxed?

or if you are a pretty good player put in the 100 get your roll up, and take the 100 out, tax free. play with what you won and withdraw 300. hit a cold streak and decide to add 100 to your roll, so you'd really be up 200 but you deposited 100 of your profit. get your roll back to comfortable and take that 100 out again? would that 100 be taxed since you deposited it? or since it was technically profit that you wouldn't have had had you not played any poker?

Obviously no one wants to be taxed on money that is really theirs already but it seems easier and more trustworthy (if you haven't paid attention to the stuff going on and see a poker site and do like above and aren't taxed on your first 150 withdraw but then get better and withdraw idk 500, so 350 would be taxed but they weren't taxed before) could kill the system because people are uneducated and angry. not to mention more money for the gov if they just put a rate on the whole amount.

Sorry for the long comment and, like i said i don't do stocks so these may already be laid out. It just can get really confusing really quickly, like 90% of tax things.

Any taxes should be based on profit only. Doubt it will ever happen in the US though sorry to say. Internet poker has been around plenty long enough for the US to have designed legislation and passed it. If they haven't cared about the tax revenue in the past except truthful reporting then why would they care enough to "legalize" it for everyone? Besides the US will always have other dogs in the fight that would like the rake just as much as the Indians or even the other Casino owners. Poker is probably being looked at as competition for state run lotteries. They want people playing "bingo". lol

have you even been following the fight for legislation? clearly not, bc a bill could potentially even be passed by the end of the year...

I think we all would want an INTERstate situation. IN fact I think we all want global gaming. But initially I think we will want to be able to simply deposit and withdraw cleanly, and the INTRAstate method will probably be a first step.

If it looks like INTRAstate passes, we want to make every effort to say, OK - but we want/need the very occasional huge game, weekly would be OK with me, but a compromise to a monthly INTERSTATE, with maybe a seasonal GLOBAL and thus huge game will not be a killer for me

But keep this in mind before you go ripping me a new one, I favor aiming at how it was before BF, with the whole world at our fingertips. For that to happen tho, I think GOD himself would have to book a TV/Internet advertising campaign touting that Poker is GOD'S preferred game.

Got odds on that happening??????

Im 100% with ya, I wish it would go back pre BF (except with the FT stuff as who knows how long that situation would of gotten people even worse) being newer to the game, I very wish I could at least be able to try these big PS MTT's if I wanted to take a $100 chance. Last year when I started I would of said no way and today, Id say lets give it a shot

Yea I guess youre right if we get INTRA-state first maybe then after it gets rolling maybe they could do a huge like POWERBALL multi state deal, except it would be the BIG ONLINE GAME.

Well if NV can get rolling sometime next year maybe many more state would follow suit, hard to believe we are talking such large time frames,

This is being discussed in two different committee's, one in the house and one in the senate, on Wednesday and Friday of this week. The Native American's and Manufacturing, Commerce and Trade commission are both hosting discussion's on poker.

We should get a more accurate picture of the internet gaming climate after these two meetings

^ i am hoping there will be a bit of tv coverage of these discussions. cspan and such. This is hopefully going to help continue w/ steam build up, maybe I'm just being overly optomistic but it does seem as though some even greater leaps forward are close at hand. so wednesday and friday i will looking for news about the comittee meetings.

I prefer how it was before Frist, Kyl and the UIGEA but the odds are slim to none.

F that I am a Lotto player and play online aswell.... I'm itiching to win the lottery, LOL! but nice article man it taught me alot. If the US came together all 50 states how long do you think it would take to develop the software, liscense it, and make it funtionable for all 50 states? Why the goverment doesn't do this i'll never know. So much revenue can be made by this, plus they get to keep a closer eye on even more americans lives LOL!

Software is already being created, if not finished today. Some networks, such as ipoker, might even just make the switch to a U.S. site, since they have agreements w/U.S. land-based casino's already. Once a bill is passed, less than 6 months until the first real money hand is dealt imo