iGaming Daily

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They may have been calling it a big beautiful bill, but for gamblers it was not so pretty. A major change to how gambling taxes are reported and deducted took the industry by storm or did it? We're gonna talk about that on today's episode of iGaming Daily. iGaming Daily is brought to you by OptiMove, the number one CRM marketing solution for the iGaming market. I am Jessica Wellman, managing editor of SBC media. And if I sound a little funky, it is because I am in Louisville.

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at the Nickelgees conference, the, I'm gonna get it wrong, National Council of Lawmakers from Gaming States? Lawmakers, not legislators. Anyways, I am joined by Captain Jack Andrews, who you had a busy, slightly depressing week on social media, it seems. That's an understatement, yes. Yeah, the hits just kept on coming last week for me, personally and professionally. Yeah, so I think...

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You can check out Jack's Twitter for all of kind of the details of this. But I think what we want to focus on today is kind of why at Nickelgeese people aren't talking about this more and they should be. So for that reason, that's what the topic is going to kind of focus on. Jack, for those who don't know, can you just kind of give the grand scheme of what changed in terms of how people who declare gambling winnings on their tax forms report things? Sure. Well, when the Senate

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passed their version of the One Big Beautiful Bill Act, they included a line that said that gambling losses are now capped at 90 % for itemization deduction on your tax filing. Previously, you could deduct gambling losses up to the point of wins. So in other words, if I won $100,000 gross winning at gambling,

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and I had losses totaling $100,000, I could itemize that $100,000 loss on my taxes and basically owe zero net tax. Of course, that raises my adjusted gross income, but that's beside the point. And this change makes it so that only 90 % can be itemized and deducted, which to most people, they say, hey, very few people win at gambling. This is

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this isn't a material change. However, there's a lot of people that would be affected by this, which would actually have to pay tax on gambling losses. So let me give that scenario again of $100,000 win, and I have losses totaling $105,000. Well, I can only deduct

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90 % of that 105,000, so about 95,500. And now I have to pay tax as if I had earned income of $5,000 or so that I didn't actually earn. And that right there is kind of the first layer of being unfair in this change. Yeah, for the international audience too, I think it's important, you know, they don't fully understand how some of this works. In the United States,

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Various thresholds, state by state. In Ohio, I know for like a poker tournament, five grand in profit triggers a tax form. On a promotion, $600 triggers a tax form. So when we're talking about like wins and losses, it's like, well, it doesn't sound like you won anything if you netted $5,000 losses. Sessions and incidents that trigger tax forms are going to be counted as winnings. Is that a decent enough explanation or do I need to add more?

03:47
Well, actually, all gambling income is income. All wins are income. And the way the IRS has told Americans on how to file is you declare your gross wins and then you subtract out your losses. So in my case, I could bet on a baseball game. And if I win it, that goes into the winning column. And if I lose it, that goes into the losses column and they don't cancel out.

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until you itemize on your taxes. Right there, that already sounds unfair to most people. They're like, that's ridiculous. How could you account that? And you can't carry forward losses like a company can. Correct, correct. The IRS is a silent partner. They will only share in your wins. They don't really want any bit of your net losses. So right there, we have the first situation that seems like, well, man, that's untenable.

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Well, the truth of the matter is that the IRS also recognizes that most people lose at gambling. And so if they were to do the gross minus itemized, it's still going to come out to be a negative number, a zero number, and they can't obviously carry over those losses or even declare losses due to gambling. It's only losses up to the point of wins. And so the IRS looks at that, Jess, and they say, OK,

05:13
That's de minimis is what they call that, where it is a immaterial difference, whether they were to do it the right way that they want it done, or whether they were to do it in this convoluted way. so since it's an immaterial difference, they say, OK, well, we're not going to pursue this. But with this tax change, we're now changing that dynamic. So people that lose money at gambling could actually still owe money

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And the IRS, this is no longer de minimis to them. They could pursue this. Now, the current administration has obviously defunded the IRS in many ways. However, this is like low hanging fruit when it comes to finding tax revenue. They could pursue. A billion dollars over eight years. Well, not only that. So that that is assuming that things are things are reported the way they should. But if they go after the people that aren't reporting the way they should, it could be a much larger number.

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And my reasoning for that, Jess, is casinos gambling, it operates on the 90-10 rule, right? 90 % of the revenue comes from 10 % of the clients, the customers. And for casinos, those are your VIPs. Those are your high rollers. Those are the people that are doing high volume of betting over the year, and the house edge is grinding them down. And trust me, those people, they don't lose at over a 10 % ROI.

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because the law of large numbers dictates that they will lose close to the house edge of that game and very few casino games and sports betting have a house edge over 10%. So these are VIP players who technically could be pursued by the IRS because they don't file their taxes correctly. These are also typically high net worth individuals who would just go to their account and say, settle this, settle this.

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This does become low hanging fruit for the IRS, potentially. I'm not saying it will, but that alone could scare casinos, should scare sportsbooks into thinking, wait a minute, if they come after the VIPs, we're in trouble. And furthermore, if they come after the VIPs and the VIPs go to their accountant and their accountant gives them the advice of, no, you can't play on DraftKings. You can't play on FanDuel anymore. You can't afford to take that tax hit. That's when that

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that activity moves into the black market. Now, not that the black market, the offshore, whatever, is immune from paying gambling income taxes, because you're not. Gambling income is gambling income no matter how you make it, where you make it. But people will think that it's immune, and they're just going to go there as a natural knee-jerk reaction. That, too, should scare the regulated gaming industry.

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For those keeping track at home and if you need a drinking game for this podcast, the Jess count from Jack is at two. We have a bit of a running joke that on panels and conversations we've had, the angrier Jack gets, the more he ends sentences by saying your name to you. we'll see how many, we'll set the line at like seven, because we got another 15 minutes or so. Yeah, on this, this is where like the poker player in me.

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thinks about this in the poker ecosystem is someone who plays in a live room. And for those who don't know, like I paid taxes on gambling last year. I am not a pro, but I had tournament winnings and I itemized my losses because I definitely did not win the same amount that that tax form said. So it does affect more people than you think. Like how many people do we think, I think that's been the argument is like, oh, this doesn't affect anybody, but you're pointing out it will affect the IPs.

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It will affect just people who casually gamble somewhat regularly. Do you think we're underplaying how many people actually are going to be involved in this? Yeah. So part of the argument early on was, hey, this only affects the winners. We know that only one percent of sports betters win. Therefore, it's only affecting one percent. Why are so many people up in arms? They're not part of the chosen few. That's that's shortchanging it because this affects the break even player.

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And whether that break even player is filing their taxes correctly or not, that's on them. I've already pointed out that this incentivizes the IRS more in the future to find people that aren't filing correctly. But I think more importantly, it affects anyone who aspires to win at gambling. And people don't gamble because they want to lose. People gamble because they want to win. Do they win? No, but they think they can.

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And if you suddenly put up a barrier that says, even if you win, you lose, people won't want to gamble. And I know that seems so foreign to the audience that listens to this podcast that of course people want to gamble. That's how we've built this entire industry. No, if you have a glass ceiling and you suddenly shine a light on that glass ceiling and show them that they can't achieve what they think they should be able to achieve, they're not going to want to do it. And I think that's a key point that

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people have to realize it's not so much who it affects, but who it gets in the mind of so that they don't want to do as much gambling as they did before when they thought they could win. Yeah, I will say too, like if as someone if you gamble and trigger a tax form and you see how much taxes you pay on it, it suddenly changes how you feel about numbers, right? Like, again, if you don't know, and you haven't, the average rate it certainly varies is about 24%.

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I think is the rate on gambling or anything. So for jackpot minded people, a million dollars is just off the top 750,000. That's a significantly different payday than what you're getting. So it's also just like, it's just you're winning less money. Even when you are winning. If you talk to the average slot player in a casino and what they do, they say, oh, I hit a taxable.

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When they get it, when they had a hand-paid jackpot that they bring the W2G form, I got a taxable. Well, all gambling income, all gambling winnings are taxable. But in their mind, that is the one they have to pay the tax on. And that's kind of true because that's usually what actually causes people to have to, you know, put it on their taxes and itemize their losses. If they itemize, most people are still going to take the standard deduction because that's actually going to be still better for them.

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but in their mind, hitting a jackpot is a taxable. Now that's already with the current tax system. Imagine if it was over the top where they know they can only deduct 90%. Taxables become like, there's no way I wanna ever get one of those. And the way you avoid it is to not play as big. Hand to God have chopped a poker tournament specifically so that none of us triggered attacks. We were like, listen, there are four of us left.

12:27
Two of us will have to pay taxes if we play this out. Why don't we just all negotiate slightly under $5,000 so that we can just call it a day? Absolutely. This is how the IRS comes after me, I suppose. But let's talk about the AGA and then we'll get into kind of why we're concerned that operators maybe haven't taken up the cause as much. The AGA immediately after the bill was passed issued a statement

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doing what I think a lot of companies do these days, which is be very laudatory of President Trump in order to not fall out of the good graces of the executive office. I know you were very upset by this, and a lot of others were. They had to turn comments off on this post. Since then, they have come out in support of the bill that's trying to remove the language for this. mean, do you think the trade organizations have gotten it together on this, or are they still not as involved as you'd hoped they'd be?

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Well, look, the AGA works for the operators and I'm a better. So I don't expect the AGA to have my back. However, the AGA has one job and well, they have a bunch of jobs, but their main job is to protect the organization that pays them to lobby on their behalf. And these laws, this wording went into the bill back on June 16th from the Senate Finance Committee.

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and nobody saw anything about it until July 1st. And that right there is a problem. Now, was the AGA aware and they're working behind the scenes? I don't know. I do agree with you, Jess, that their probably best step forward after this happened was to say something nice and then work behind the scenes to see if they can get this changed.

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But you the AGA is not the only one. There's the SBA, the Sports Betting Alliance, that is a group of sports books. And they have said, they still have said nothing. There's, you know, from my side of the counter, there's the American Better's Voice, which is actually at Nickel-G's this week. And they haven't said anything substantial. They gave us a one sentence quote. I did get a one sentence response from Richard on this, but that was it.

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Yeah. And look, they're not in favor of it. Absolutely not. Right. But it's still it's the the watchdogs haven't really done a good job here so far. And the exception I take to the AGA is by coming out and, you know, congratulating the the bill and then also coming out later and saying we support Dina Titus and her efforts to the Fair Bet Act. Well, they've set themselves up so that no matter which way this goes,

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they can take credit. And when you're a mercenary for hire, that's very important. You always want to kind of tout your wins. It's interesting, too, like you make the point, and I think this is something we're hearing throughout the industry about more than just this, but other things is, are we in the, you know, to quote Hamilton, do we have a representative in the room where it's happening if this stuff keeps happening and we seem to not be in on it? And it just raises kind of larger questions about

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the gaming lobby in general and how effective things are going. Absolutely. And there's also a lot of confusion as to how this got in there. There's a lot of conspiracy theories. Yeah, I'm like, who's the guy who's like, let's do this. Well, right. So this points back to Mike Crapo, a Republican in Idaho, who's on the head of the Senate Finance Committee. Every journalist I know, and I've talked to a lot of journalists this week,

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Every journalist has put a call into Mike Crapo's office and has not received any comment back. And we're talking the Wall Street Journal. We're talking the Washington Post. Yeah. It's not like, you know, me calling their office. No comments. We don't know. Now, the Huffington Post was able to get in touch with other senators on the Senate Finance Committee and they had no idea. They didn't even know it was in there. They were.

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pretty much incredulous that like, why would you even ask me? How would I know? So we don't know how it got in there. I've heard people say that it's the sports books are doing this to root out the sharp bettors. I've heard people saying it's cal she to do this to destroy state based gaming. I've heard it was the Senate parliamentarian who had to invoke the bird rule like we're getting deep into the weeds here. I don't know. We don't know.

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The point is we can't really focus on finger pointing. We have to focus on resolution at this point. Well, and it does seem, you know, by the time this pod is posted, we potentially have a vote today on the Senate floor from Catherine Cortez Masto to just pull this out. It has bipartisan support, but it is a situation if even one senator says no, it doesn't go. So not a certainty, but has to be hopeful. It's hope on a rough

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weak for you otherwise. Man, hope is all I got right now. Trying to be optimistic, trying to come at this with, we can do this rather than woe is me and woe is us. Yeah, and to return to the supplier part, we talked about, you know, the AGA and why suppliers will care. This is where I will kind of offer my two cents on this, that as someone who plays regularly in a poker room, gambling

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is not an ins... It feels insular to people who do it, but what some don't realize, it's an ecosystem. You have to have a lot of different players and in something that's peer to peer like poker, it's the most glaringly obvious example of this. Every day you have kind of the grinders that come into your poker room and make sure that games run. And then the table is filled out with the people that are gonna lose, you know? So if you make... Let an action like this take place.

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and you're the operator, for poke room operators, I would think the response had to have been concerning because if you disrupt that ecosystem and cut into your base pool of players that come in and out and keep the room open every day, that's really bad for you. For sports betting, is there like an ecosystem situation that, it won't be apples to apples obviously, but how does it affect the ecosystem if sharps and people who

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do this as their means of income are diminished by this holding up. Right. Sports betting absolutely has an ecosystem. And I have heard people say, hey, if you take the sharps out of sports betting, that's great for the retail operators, the recreational sports books. Their profits will zoom. Not necessarily because sharp bettors are what moves the market. There's not some genius at

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these sports books that says, okay, now I'm going to make the number minus seven and a half. no, it's all based on liquidity. It's all based on market movement worldwide, not just in the regulated space in the US, but worldwide. And you take some of the liquidity out of the US and you move it offshore. Well, if I was a trader at DraftKings and Fandool and BetMGM and Caesars,

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That would scare me because I know that I'm going to have to look offshore. I'm to have to get this information from offshore in order to move the market in the proper direction. And the market becomes less efficient. And when the market becomes less efficient, profiting for the sports book goes down. They're less close to the most correct number. They can hang out there at plus seven and a half when they should have moved down to plus seven. And that doesn't mean that they will make

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higher profits actually increases variance on their part as the market becomes more inefficient. And that's actually bad for their shareholders. So there's some ripple effects here that I think people either haven't all the way thought through, or they just don't understand. Now, I will grant you this, poker is the most impacted. In fact, poker is destroyed by this if this goes into play. Sports betting is one of the

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lesser impacted because of the lack of tax forms that that get put out there. And a lot of people are just going to fudge their taxes. In my case, the downside risk of fudging my taxes is far too great. you know, I had tens of millions of dollars of gross and tens of millions of dollars of losses. I can't afford to possibly subject myself to millions of dollars of fines for

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hundreds of thousands of dollars of income. It's not worth it to me. And other sharp betters I know that are generationally the best that is out there in sports betting are willing to walk away. And that should scare the industry that there are people that are willing to give up on sports betting because they know they can't win in the long term. And it may only start with some sharps, but it's gonna spread and especially

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As I mentioned before, those VIPs that are high volume players for casinos. actually don't know the answer to this. Maybe you do for prediction markets. If you were to switch and say, OK, well, I'm going to bet I'm going. I said, but going to invest with with Cal she now, I would assume the tax situation on that is certainly going to be more favorable. Absolutely it is. And that's why I don't think Cal she is behind this, because they already have a built in edge that trading swaps, which is what

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how she does is a capital gain. And so it falls under capital gains rules. Now, will it always be that way? I don't know. But we know that for the time being, the status quo is going to continue with what's going on at the CFTC. And so, yes, it'll be treated as capital gains. They already have a huge edge in this whole fight. But keep in mind, there's still only one prediction market that is

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regulated by the CFTC. I think there's plenty of others that would like to get in on this, but until they're regulated by the CFTC, I don't think you could declare it capital gains. Interesting. All right. Lots to mull over here. Just as a parting thought for listeners, if you want to do something, what can they do? I think the most important thing, if this resonated with people, is tell somebody else, because gamblers get no sympathy.

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Right? Correct. I mean, I say it all the time. You hate when I say it. Nobody owes you the right to make a living off gambling. Correct. That doesn't mean that they deserve to be treated punitively. And this tax act treats them punitively. I think one of the best examples you can give rather than term it all in gambling, term it in if you were a stock trader, a day trader or somebody that was active, high volume in the stock market. You buy one

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a stock and you make a hundred dollars on that stock and you buy another stock and it loses and you lose a hundred dollars. Should you have to pay tax as if you made a profit that you didn't make unrealized gains? No, you wouldn't. So the best thing you can do to kind of get the word out is talk to somebody else. Tell them about this, because Americans love to to to see something that's unfair and make it fair.

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And this right now is unfair. And I think a lot of people would want to make it fair. And of course, the second thing people can do, and we don't know how effective this is, contact your congressmen and women. Reach out. There are plenty of websites out there. My site, unabated.com, is going to be one of them, where you just type in your zip code. It'll tell you exactly who to contact. And it'll send the email for you. It'll type the email, send it, everything. You just have to spend 30 seconds.

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If that's the least you can do, Jess, that's the least you can do. And I think people should be willing to at least do that. Now, those of you that are listening to this podcast that are in the industry wake up because this is where there's a lot more muscle and a lot more money that could go into fighting this. And I think I don't think they realize what's coming for them. And hopefully this sounds an alarm. All right.

25:13
Speaking of inefficient lines, I said seven, the just count ended at four. I'm sorry you guys aren't as toasted as you thought you might be listening to this, but Jack, thank you so much for your time. I am actually going to go and get ready for a panel with a former CFTC person on it. So we'll see what that has to result in and I'll write it up for SBC Americas.com. Go to unabated.com if you want the, I did it, the pre-fill out. Go ahead, send the email.

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I do think lawmakers notice volume. So the more we do this, the more likely it's going to work. All right. Be sure to tune in to the next episode of iGaming Daily.