Washington State Financial Analysis Of Online Poker Regulation

Washington State Analysis: Online Poker Regulation Pays For Itself

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Washington State’s Office of Financial Management has released its fiscal notes for HB 1114, Washington’s internet poker bill.

For bills that raise taxes or fees, WA State law requires that office to prepare and report on the projected cost to tax or fee payers.

While this bill contains no taxes, it does raise fees intended to and which, according to this report, cover the costs of regulation and enforcement as required by the bill.

Annual revenue projected at $15mm

It must be pointed out that the actual amount of the fees is yet to be determined, and that process would occur, over a period of time, with additional input from industry and individuals, should the bill be enacted.

But the estimates are a reasonable point from which to start.

The report estimates implementation will take from 18 to 24 months after the effective date of the bill (July 25th, 2015) to implement, and giving August 1st, 2017 as the ‘go live’ date.

The time frame will allow for adopting rules, testing equipment, and giving all operators the opportunity to launch on the same day, as is required in the bill.

The report projects annual revenue from internet poker at $15 million. It came to that figure by making population and revenue comparisons with Nevada, and appears to be a conservative estimate.

Fee levels suggested, but remain open for debate

The ‘significant fee’ called for in the bill, to operate an internet poker network, is projected to be $450,000.

This assumes three networks dividing 9% of the estimated gross ($15m) internet poker revenues. This follows precisely the intent of the bill.

The report also assumes three card rooms, one per network, mirroring what we see in Nevada. However, the aim of the bill is to encourage multiple card rooms on each network, creating opportunity for wider participation.

The card room fees as suggested in the fiscal report, $125K initially and $25K annually, could stand as an impediment to participation. They would also seemingly only apply to non-tribal card rooms, putting them at a big disadvantage to their tribal counterparts.

You can expect much discussion in this area to occur, should the bill be enacted.

The estimated cost of online poker regulation for Washington

It is anticipated $10,000 would be spent on testing equipment the first year, and $2,000 a year thereafter, beginning in year three.

As well, ten new positions at the Gambling Commission are anticipated to conduct the regulatory program and to take enforcement action as required by Sec. 2 (3)(g), and the state will contract out to a non-profit its program to combat problem gambling.

Five percent of fees are reserved for this function.

Even with conservative assumptions, regulation works for Washington

I believe the market in Washington State will be about half again what is projected in this document.

When I projected the potential market size of Washington State, I used much the same method as was done here. However, I also factored in New Jersey’s population and internet poker revenue, which gives a higher per-person figure, and averaged the two examples and extrapolated to Washington population.

This put the market size, in my estimation, at around $22 million. Accordingly, I anticipated higher fees.

But even if this is a conservative estimate, fees will easily cover the cost of regulation, with no negative impact on the taxpayers.

To put it simply: Internet poker regulation easily pays for itself.

It will also provide the Commission with much needed resources, and will allow them to increase enforcement actions against sites operating in the state illegally.

Review the full fiscal notes for HB 1114.

- Curtis is a recreational poker player from Seattle, WA who advocates for state ipoker legislation. He is the founder of the Washington Internet Poker Initiative and sponsor of Initiatives 582 and 583. Catch him on Twitter at @curtinsea and @ipokerwa (WIPI).
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