Everyone is Golden

On April 15th, the U.S. Department of Justice indicted the heads of various major online poker sites under charges of bank fraud, illegal gambling, and money laundering.  I'm not going to go into too much of the details, but to make a long story short, online poker has essentially disappeared in the United States for the foreseeable future.  Ultimately, the DOJ determined that online poker sites are in violation of the Unlawful Internet Gambling Enforcement Act (UIGEA), which basically rules online "gambling" to be illegal.  It is silent with regards to "poker" specifically (I can get into the merits of arguing why poker is not necessarily considered "gambling," but perhaps I will save that for a different day.

To read more about the whole situation, check out this article.

It goes without saying that I completely disagree with the DOJ's (and US Government in general) decision to ban online poker.  Not only did I use to play extensively as a source of a second income (I basically made a living playing online poker while I was in college, didn't have to work a 'real' job for spending money, and was able to pay for my security deposit + first month's rent when I moved out to San Francisco), but I enjoyed the competition and the intellectual challenge to constantly adapt to the way different players were playing, thinking, etc.

I understand that what the heads of these poker sites did was wrong.  They used illegal means to transfer funds between bank accounts, to and from payment processors, and to / from players' accounts.  However, I can't help but think that our government is missing out on an incredible opportunity.

According to Forbes, PokerStars - the largest online poker site that served the US - has approximately $1.4 billion (yup, BILLION) in annual revenues, with approximately $500 million in profits.  This figure will no doubt decline now that a chunk of the player pool is no longer able to play on the site.  However, imagine if the US government regulated online poker and taxed the shit out of it!

For example, to become legitimate, all online poker sites would have to register with the US government and follow certain guidelines in order to stay "in compliance" with regulatory rules.  Such guidelines may include, but not be limited to, transparency of the use of players' funds, limits on daily/weekly/monthly deposits to help prevent players from overextending themselves (this is near impossible to completely achieve, but I believe these limits could go along way), and maintaining certain debt and/or liquidity ratios.  As long as sites stayed 'in compliance' with set guidelines, they would be eligible to operate within the US.  The kicker is that the government would be able to tax their revenues at a significant rate.  Consider even a 20% tax rate (it would likely be higher), which would yield $100 million in additional tax revenues, which could be used to improve government programs like health care, medicare, and most notably, education.

And that's just PokerStars.  Full Tilt Poker and Party Poker, the next two largest online poker sites, generated revenues of approximately $500 million each during 2010, with approximately $100 million in profits.  Applying our assumed 20% tax rate above, that's an additional $40 million in tax revenues for the United States government.  Obviously, I am make general assumptions, but you get the general idea.  However, since there is no depreciation for online poker rooms (like there is in brick-and-mortar casinos) a large percentage of profits will flow to the bottom line and ultimately be taxed.

Due to the UIGEA (mentioned above), it had become much more difficult to get money online (certain banks would not process transactions to online gaming sites).  If online poker were made legal and regulated, the doors would be opened to everyone and anyone (over the age of 21) who was interested in playing, which would substantially increase the overall player pool, and in turn, annual revenues, profits, and tax dollars.

Finally, another aspect of legalizing online poker that should be of interest to the US Government is that of job creation.  Currently, all major online poker sites operate overseas or in Canada (as a result of the aforementioned UIGEA).  With legalization in the US would come opportunity to set up offices closer to some of the actual customers, which would then create jobs in finance, customer service, administration, etc.  Obviously, I'm not talking hundreds of thousands of jobs, but maybe hundreds, or thousands, which are both bigger than 0, and that's the point.

The morality of gambling should not be the question here.  It is not up to you or I to decide whether or not poker is (a) considered gambling; (b) if so, if it is in the same boat as blackjack and/or other casino games; and (c) whether gambling itself is somehow 'wrong' or 'immoral' or against some kind of inherent moral code ingrained in all of us as American citizens (hint: it's not).  The fact of the matter is this:  if people want to play poker for a living, and they can't play online, they'll go to casinos, or move to Canada, or find some alternative means of playing.  However, any of these alternative means result in no additional tax dollars to the US government.

It's along the same lines as the legalization of marijuana.  You may or may not think that smoking marijuana is 'right' or 'okay'.  The truth is that many people smoke it on a daily basis, and are going to continue doing so, whether it is deemed illegal or not.  The only difference is that if it were made legal and, most importantly, regulated, the US Government could place a high tax on sales an generated much needed revenues.



The first easy step in achieving improvements in the above areas is the legalization of online poker.

(On a somewhat related note, Phil Ivey has filed a lawsuit against Full Tilt Poker and is boycotting the 2011 World Series of Poker.  Read more here.)