New VAT Laws Bad News for Poker Players

The poker landscape has been shifting recently. New Jersey are battling for increased flexibity for legalised gambling, PokerStars and FullTilt have added casino games to their software, and now new VAT laws are set to be introduced. Whilst in theory this should only be bad news for the providers themselves, there is already evidence that it may be the customers who suffer the most.

European Union voting has led to a reform in the way VAT is calculated for online gambling companies. Previously, companies were charged tax based on where the company was based. Offshore offices therefore led to companies being able to skirt around big tax-hitting countries and work in increased profit simply by establishing themselves in another country. Under the new legislation, tax will be calculated based upon the country in which the service is being consumed. For UK players UK tax laws apply, for Germany German laws apply and so on.

Inevitably this will result in a significant dip in profit margins for the majority of leading online gambling providers. PokerStars will be hit hard, with a recent statement by the company suggesting that it could lose upward of half a million dollars in the coming year alone due to its heavy involvement with the French market. Moving from the Isle of Man’s laws to France’s will result in a 20% cut going to the government, so how exactly will they accommodate such a loss?

Simply put, it is highly likely that the players will foot the bill. With online gambling companies needing to invent new ways to increase profits to account for the increased VAT, PokerStars are one such company to announce plans already. Having just introduced a new currency exchange rate the company took to well-known poker forum Two Plus Two to announce an update regarding increased rake that is to be implemented fully by January 2015.

“Hyper-turbo scheduled tournament fees will increase from 2% to approximately half of the fees charged for other scheduled tournaments at same or similar buy-in levels,” said the representative. ”The cap for ring-game rake for hands dealt at [pot-limit Omaha or no-limit hold’em] games to exactly two players will increase to $2 for stakes $25/$50 and higher and $1 for all other stakes. The cap for ring game rake for [pot-limit Omaha or no-limit hold’em] games at $25/$50 and higher stakes with 5+ players dealt in will increase from $3 to $5.”

Increasing the amount of money that players are charged, with nothing offered in return, is always guaranteed to get a sour reaction and this was indeed the case judging by the ensuing comments following the forum post. Some even speculated about a mass movement against PokerStars in an effort to make them reverse their decision, but such an act is unlikely to come to fruition and equally unlikely to reap results.

Unfortunately for the PokerStars community, the sanctions don’t end there. Further announcements have made users aware that they will see a reduction in promotions. In online gambling and particularly poker, rewards play a key role in encouraging users to play regularly. At FullTilt, which along with PokerStars is run by parent company Amaya, users accumulate FullTilt Points or FTP which can result in cold hard cash being injected into users’ accounts should they play frequently enough. These point can also be exchanged for physical goods and tournament tickets, as can FPP (Frequent Player Points) points at PokerStars which follow a very similar format. Elsewhere, users are targeted with email offers often gifting players bonus tickets and credit when depositing a certain amount within a set period of time. All of this can add up and certainly encourages players to take to the green felt more often, so openly reducing such incentives is a risky tactic for a leading poker room.

If the significantly reduced rewards systems weren’t enough of a downside for customers, the reduced player pool certainly will be. Unlike casino-based games where players take on the house as and when they see fit, poker is reliant on a collection of players amalgamating at a certain time in order for tournaments to work effectively. Some poker companies have decided to remove themselves from the UK market entirely following the VAT announcements, reducing the number of platforms available to players and therefore turning some away from the game. The larger the playing pool the larger the variety of games from cash to tournaments, Hold ‘Em to Omaha and $1 to $1,000 stakes. With a more limited number of competitors, it could become harder for customers to find a game suited to their desires.

In the short term this is bound to be bad for the online poker community. With increased rake, smaller prize pools, fewer players and the general uncertainty brought about by change of a trusted format, it is inevitable that some players will refrain from using rooms like PokerStars and this is simply not healthy for business. In the long term it is likely that players will adjust to the changes – perhaps reluctantly – and eventually a balance should return to the tables as players come to see the increased rake as normality.

This does, however, pose the risk of setting a precedent. If poker rooms realise they are able to get away with a rake increase on the back of a VAT alteration, they may see this as an opportunity to make it a more frequent event. People need only to search the history of any leading mobile phone provider to see how the laws allowing for a small increase in the annual price of a contract are regularly exploited. People have come to accept this, and if the same happens at poker rooms it will be a worrying trend that could have long-lasting and very negative repercussions.