Thursday, July 9, 2009

Online poker and the government - quid pro quo

Over the last few post I have discussed online poker and the UIGEA. I need to give props to KenP for stirring these posts up. Even though I have had several conversations about all of this with some of you via manlove chat, I never really anticipated putting up an in-depth piece. But as the change looms, or at least the logistics and politics of change nears, I think it will be good for everyone to understand why it may be shaped the way it will be.

*Even though I am predicting and almost guaranteeing that this will be overturned, I will still use the caveat that maybe, there will be a slight pubic hair of a chance that it won't. 'Cause I like to hedge my bets. Maybe I should have been a politician?

I wrote in yesterdays post that I would break this down on two levels. That is, how online poker will change by regulation, and how it will change in the market place. The government is going to shape who is allowed, and how they are allowed to offer the products and service. Once that happens, the market will be shaped a whole lot differently as well.

For this post I will be writing about how the governement's regulations will effect how online poker will look, and possibly change. Again, a lot of this is based on my suppositions, and some of it is fact. But most of it will be my opinion based on those facts and suppositions alike.

Back before the UIGEA was actually passed, I know that a lot of the sites where trying to come together and form their own regulatory board. That is, a representative of each site would become a member of this organization and they would pass policy and rules on what sites could and couldn't do. They were to hire an outside organization for technical and financial audits, and also form an advisory committee to see how best to attack the US Governement and have the best shot at becoming legal. I think it was more of a last ditch effort to thwart something like the UIGEA. I know they even discussed forming a fund to act as payment to the US to act as almost a voluntary tax. They were desparate and had the cash. I don't know if it ever actually happened or never even got off the ground. For now, it's inconsequential.

The feds are going to to do that anyway. Only this time, it will be in the form of taxes and it will be the government that controls the board or regulations.

Before the UIGEA, US casinos were against online gaming. Obviously this made sense because they were competitors. And competition that the US gamers couldn't fight because they weren't allowed in that arena legally. When the UIGEA passed, there was a turnaround. US companies all of a sudden got on board with monies for lobbyists against the UIGEA foreseeing that this time around, they actually could get into the market.

So lets assume this happens today. What will be the parameters? Who will be able to compete, and at what costs to the business and the consumers?

It's been pretty well known in certain circles that Harrahs had built their own online site a few years ago in anticipation of the governemtn changing its mind and US companies having the ability to enter the category. So let's go there first.

Who will actually be able to compete in this US market? Bill Rini posted about this yesterday and it's quite eye opening. I know that most players were waiting for Party to come back because it was the easiest site to play on. The biggest fish were mired in that pond. But if the government stipulates that companies who have been charged or penalized already for operating illegaly will not be able to gain a license to do business this time around, Party will not be coming back. Either will several others.

Harrahs has spent a ton of money on this and they will do everything they can to gain the lionshare of the market this time around. So far it seems that the government is going to help them.

And it's just not Harrahs. Other US casinos will fall in place, and so will some of the more larger media types. How about Facebook? Google? Myspace?

Imagine playing online poker at Facebook after cajoling your friends and cousins to deposit $25. Might be fun, eh?

I am getting off track. You think that this is good. You think and suspect that the government is doing this because someone finally sees the injustice to our rights. You are excited because getting money on and off sites will be easy, and more and more players will be entering the arena allowing you the opporunity to earn and win more. You want more sites to play on, and you wish to choose where to play.

Well, be careful what you wish for. You will get all that. But there will be a cost. Not just in financial costs, but other things as well. You're deposits aren't going to go as far as they do today. You will be taxed. Youe rake will increase a bit. Rakeback may go away all together. Time will tell how the new companies in the industry price out there services, but with what will be a very high tax on internet gaming, and they will recover that from somewhere. Usually, it's the consumer. Either through higher costs or less services.

Now, just like before, internet gaming doesn't happen unless you have processors to move all that money. This time around the big guns will be able to play. The trans unions, the Chase Manhattens. These guys don't fool around either with costs. They know how to suck every single penny out of a transaction.

Until I actually see the proposed legislation and how they will tax the industry, I will resever my opinion. But I can see it going something like this. Consumers will be taxed either on deposits or withdrawls. Sites will be taxed on revenues, and processors will be taxed on revenues. Both processors and sites will pay numerous amounts of licensing and regulatory fees as well as yearly payments for renewals. They will also be asked to kick in to help fund an advisory board. Yes, the Government will be sucking from the teet of the online whore.

Processing will be a little different this time around. Some sites won't need processors. Why? Because Harrahs will be able to handle all transactions themselves with a simple click of a credit card. But other sites, and more importantly, most sites, will. Visa and Mastercard will take umbrage with what will almost assuredly be a huge jump in charge backs, and this will cause a nice increase in fees as well.

Once all of this does pan out however, and the market is opened to licensed companies, and the tax base is figured and everything else to finally unlease the damn, how do you think it will effect the market? What tpye of competition will rise to the top? Will we see the WSOP be overtaken by an online event? How soon before we see our first $100 Million Guarantee tournament on Stars?

All that in the next post

No comments: