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Online Gambling: Internet Gambling Initiative Good Only In Theory

EOG.com:

Washington Senator Jim McDermott's Safe and Sound Internet Gambling Initiative is all the talk of the online gambling industry. McDermott's idea of taxing deposits for online gambling to generate billions for government coffers is sure to gain attention on Capitol Hill. If passed it would be an incredible victory for the online industry and its customers, but should we be planning a celebration yet?

Are the numbers in the McDermott plan realistic? Let's do some simple math. McDermott's projection is for anywhere from $6 to $25 billion in revenue over five years. With the two percent tax rate this equates to a minimum of $60 billion deposited each year, a number which won't be reached anytime soon. This is purely a tax on deposits, not on amounts wagered nor amounts won by either players or bookmakers.

Before the UIGEA took affect it was estimated U.S. bettors generated about $6 billion in net revenue, close to half the world's total. If the numbers were correct, it amounted to about 10 percent of the nearly $60 billion spent by Americans on all forms of legalized gambling. On the surface this seems a reasonable and acceptable estimate.

Supposedly the majority of casino games bettors blow through amounts they deposit and then split for the next casino. In other words if they deposit $1,000 chances are good the casino operator will eventually win exactly $1,000 from the customer and never gain another deposit. Casino games remain the most popular form of online gambling so the habits of casino players is important to the overall industry numbers. Therefore it isn't a stretch to say $6 billion in revenues can come from only $10-15 billion in deposits if the industry is regulated and there is a tax on deposited funds.

The only hope for the government treasury would be if many players kept up a habit of constant deposits and withdrawals every few days such as we see with some sports bettors. With this tax bookmakers would have incentive to penalize players who did this. Players might also see less need for it in a regulated business with more perceived safety and easier transfers.

McDermott's plan would require at least $300 billion in deposits over five years, $60 billion a year. Let's assume table game math for a trial equation. Casino managers assume 30 percent of what a player buys in at a table will eventually be left behind in losses. If this held true for online gambling this equates to a whopping win of $18 billion a year, triple what the most recent estimates suggested. At the high-end of the equation, casinos would win over $70 billion a year.

This calculated using math which probably doesn't apply to online gambling accounts. If the proper equation is 50 percent of all money deposited is lost and somehow U.S. gamblers reached McDermott's high-end projection, online casinos would win $125 billion a year, or double what is currently spent on legal gambling. Americans may like to gamble, but that is a completely unrealistic scenario.

Let's be generous and say the institution of the McDermott solution yields deposits of $30 billion a year generating $600 million in tax revenue or half the low-end of McDermott's projections. Not bad when revenue stands at zero, but still it will lead to disappointment. Politicians will be looking to be made whole on the promise of big revenues.

So while I commend McDermott for a creative idea which I support on its merits, I hold little hope it will be the solution we have been waiting for. It is good to see we have more allies, but we need allies using good realistic numbers or else we are just setting ourselves up for more trouble in the future.

-- Wild Bill (EOG.com)

admin – Wed, 2007 – 06 – 13 12:21