Q & A: Economic Benefits of Nevada Online Poker BillCard Player Discusses the Numbers with Vegas Economist Jeremy Aguero |
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While Nevada’s online poker bill is still in the process of being questioned and debated in the state legislature, one thing is for certain: Assembly Bill 258 would offer a myriad of benefits for the Silver State.
Last week, Nevada’s Assembly Judiciary Committee held a hearing on the bill, which featured testimony from economist and principal analyst in respected Las Vegas research firm Applied Analysis, Jeremy Aguero. Aguero outlined some of the major financial implications of the proposed legislation, touching on complicated estimates of tax revenue, job creation, and capital investments.
Aguero said that Nevada could collect between $2 million and $3.4 million in taxes annually with online poker legalized within its borders. However, that figure could skyrocket up to $65 million if Nevada captured 25 percent of the international market, according to Aguero’s economic analysis. (AB258 would impose a four percent tax rate on an online operator’s rake from customers around the globe.)
Card Player spoke with Aguero to dig deeper into some of the economic and fiscal rewards Nevada’s young internet poker bill could provide.
Brian Pempus: Can you explain the process of coming up with some of the estimates that you provided at last week’s hearing on the Nevada internet poker bill?
Jeremy Aguero: We did a number of things. We evaluated three alternative scenarios. We obtained information from operators relative to play volume and sales activity, and we used that to convert the information into employment requirements as well as fiscal estimates. In doing that, we also looked at what other markets were generating, largely in terms of employment volume and sales activity. That is sort of a complicated way of saying we took a top-down analysis, essentially looking at the size of the online poker market, its total aggregate employment, and how that employment is distributed within the companies. We wanted to know how much goes to marketing, how much goes to wages and salary, how much goes to general overhead, etc., and then we used that information to convert it into jobs and tax revenue estimates, while controlling so that the sum of the parts wasn’t greater than the whole.
BP: Were you using the current state of internet poker in the United States as a model, or were you looking overseas at already regulated markets?
JA: Our analysis undertook a number of scenarios. The first scenario was specific to just interstate play within Nevada. So, we had sales volumes essentially occurring today, as well as survey related information in terms of marginal propensity to participate in online gaming activity, and what the effects would be, if any, associated with Nevada authorizing that type of play. That sort of gave us a baseline. The second scenario looked at play within the state of Nevada and in the rest of the world where it is legal. So the United States was held out of the equation, and we reduced aggregate play volume based on that which is occurring in states other than Nevada.
BP: You estimated that 1,200 direct jobs would be created if the bill passed. Would that put any noticeable dent into Nevada’s high unemployment rate? Could you anticipate relief from the creation of indirect jobs?
JA: An impact on Nevada’s unemployment is not likely. We have 180,000 people who are currently actively looking for work, so while it may provide opportunity for some of them, it is a pretty small share of the aggregate unemployed. In regard to your second question, we do think there would be some substantial spin-off effects of Nevada authorization and regulation of online gaming. This includes the technology itself, as well as banking related activity. One out of every $10 that is collected by a online poker operator is used for payment processing and financial transactions, and that is a substantial holding. We would expect substantial spin-off effects in that industry as well. Then you have all the ancillary technology such as age verification, security, all of those types of things, which Nevada could benefit from as well.
BP: Do you predict any increase in the number of people coming to study at Nevada universities in order to live closer to these new technology jobs in the online poker industry? Do you think Nevada’s current output of individuals with these types of degrees could support the demand for jobs related to regulated internet poker?
JA: It is going to be a mixture. Do I think the universities are prepared today to provide the level of expertise that would be necessary? No I do not. Many of those jobs would have to come from outside, certainly with some idea that the universities would get geared up to provide some of that ancillary support as we go forward. Nevada is somewhat far behind in terms of training knowledge based workers, and the university system in Nevada would have to improve if it was going to grow those types of workers at home.
BP: Moving over to the idea of a minimum capital investment for online gaming operators: Do you have any estimates on an appropriate dollar amount for this?
JA: We estimated between $500 million and $2.5 billion, and there are different ways for that to occur. You could for example require someone to operate a brick-and-mortar facility, or you could require them to make an investment through a merger and acquisition –- the capital investment can happen in any number of different ways. We looked at a pretty broad range of what that would look like. The idea would be that, at least according to my discussions with some operators, a substantial amount of revenue would be run through Nevada, or there would be a requirement written into the legislation that an operator would establish its headquarters here. The range was pretty wide in that particular analysis because there is going to be a huge incentive, if you create that requirement, for mergers and acquisitions. We looked at the midpoint of all the potential alternatives, and you’re looking at about 5,000 potential one-time jobs that would come through the capital investment in the region.
BP: Do you think the minimum capital investment would prevent smaller online poker sites from coming to Nevada?
JA: Yes I do. I think it would be a formidable barrier for smaller operators to come in and compete. Certainly that would dissuade all but the largest online operators today, as well as existing brick-and-mortar casinos. You are also going to have licensing requirements and those types of things, which are costly and would be barriers as well. Having on top of that a substantial capital investment would greatly narrow the number of potential competitors.
BP: Is this small playing field a good thing for Nevada’s economy?
JA: Generally speaking, you want to enhance competition. There are benefits to that from a purely economic stand point. With that said, Nevada has long created investment requirements within its gaming industry. Remember that in order to have a gaming license and operation you need to have a certain number of hotel rooms and a restaurant, all those types of things, so you can’t just come in and build a casino. This has worked well for the industry overall in terms of raising the bar for the services provided. Certainly it distinguished southern Nevada from other gaming locations. However, this is a double-edged sword. We don’t know the answer to this question. Overall, limiting competition is going to limit, to some degree, innovation, and that is something we have to be concerned about.
BP: A major concern raised at the hearing was in regard to Nevada casinos losing revenue from a decrease in tourism. Do you think this is a legitimate financial concern?
JA: I don’t. Certainly you have to be concerned about some of it occurring on the edges. But look, the reality of what we are dealing with — the opportunity to participate in online poker — is already occurring today. There is indication that poker activity is adding to visitation, with more people coming to things like the World Series of Poker. Not only do people travel to those events to play, but they are also interested in seeing them. Most of the indication is that there will be an increased demand for services, not a decrease. In addition to that, the vast majority of poker play online is in micro-stakes games, which has always had an issue of liquidity surrounding it. Those micro-stakes games don’t compete with live game activities. I am certainly not saying that these consumers are mutually exclusive. They are not. But, what I am here to suggest, is that the ability to leverage the Las Vegas brand — the brand of brick-and-mortar hotels and casinos — will have a substantial benefit for online poker in Nevada.
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