Should You Play VP Bigger?

[FloridaPhil]

Professional players tell us they never play VP unless there is a potential for profit. This post is not about ignoring those opportunities, minimizing their potential or the benefits of searching for them. It's about playing video poker games when the casino has the advantage.

Why do players play a game if the math says they will lose?

Reason #1 - They believe they can beat the math.

Reason #2 - They accept the cost as a fee for playing the game.

If you are in the Reason #1 camp, you are fooling yourself. I agree it's fun to work up your own strategies and I understand the excitement when they work. Battling with the casino becomes a game in itself. Any strategy can work for a short period of time. Unfortunately, the more hands you play the more the negative math begins to affect your results. Unless you hit a big jackpot and never play VP for money again, you will give back your profit. This is the reasoning behind "bounce back" free play. The casino wants you back because they know the longer you play the more they profit. Greed is a powerful human emotion that the casino skillfully uses against us.

If you are in the Reason #2 camp, the amount you run through the machines is determined by the size of your bank account and the amount you are willing to pay to experience jackpots. Some players are thrilled when they hit a $1,000 max coin quarter royal. Others want the see $4,000 royals so they play at the dollar level. Others play even bigger. As long as the combination of odds and comps holds the game negative, the cost rises with the denomination.

Some may say "The bigger denomination player will be able to play better games and earn more comps." The problem is errors and the cost of money. A 1% error when playing a dollar is one cent. A 1% error when playing a $100 dollars is a dollar. How many dollars will you lose if you make more or worse errors? Most video poker players play at least 500 hands an hour. In four hours, they hit the deal button 2,000 times. That's 2,000 hands without an error. If you play one day a week like I do, that is a minimum of 100,000 hands. Sounds easy. In real life it isn't to play like a computer.

The second factor is cost of money. Let's say you decide you are going to play $5 games. Professionals tell us you should have a bankroll of 4-6 times a royal. To play $5 games you should have at least $100,000 available to play. You probably won't need all of it, but you might. A $100,000 dedicated VP bankroll is totally out of reach for most players. If it's not, most well off players have better things to do with their money. I can think of at least 10 ways to gain 5% a year investing that money. Unless you play VP out of your mutual funds, it will cost you 5% for not using it productively.

Then there is the tax thing. If you hit a $1,000 royal flush, there is no W2G. This doesn't mean you don't owe tax on your winnings, it means the Government is not being told about it. If you play at the $5 level, you are going to get a lot of W2Gs. On your tax returns there will be an entry that says "Gambling winnings". To offset your winnings, you must keep detailed records and file an itemized return. Most higher income individuals use a CPA to file itemized returns, do you? No one that I know is happy when they see a "gambling" entry on a tax form going to the IRS.

Some States also tax gambling winnings and many do not allow offsetting losses. This means you worked to find a positive VP game, played without an error and put up the money only to find the State is your new business partner. In Mississippi for example, that tax is 3%. If you found a video poker game in Mississippi with a 3% player advantage would you play it?

Why is this important? In order to make intelligent decisions about the games you play and how you play them, you must know your potential for profit and/or loss. If you assume the games are positive the way you play them, you may assume you "can't lose" and lose more money than you are comfortable with. There is a cost to most entertainment. Just because someone else makes money playing VP, doesn't mean you can. You should know the games, know the odds, know the comps, know the cost in term of dollars, know the taxes and more importantly know your limitations.

For us, playing VP is a balance between cost and reward. When we go to the casino, we want a good time. The games we play are negative. To offset this we play just big enough to earn the comps we care about. We know they will give us more if we play bigger. So far, nothing they are offering us is worth the extra cost. We enjoy playing the casino's games and they make money on us. It's a business where both sides benefit. As long as both sides are happy, it works as designed.

[advantage playe]

your best post fp.

[FloridaPhil]

your best post fp.

Thanks. No one wants to read about losing less. For the majority of us, it's part of the game.

[Chicagoan]

Phil, even if you offset your winnings with carefully detailed records, a higher denom player is still going to have a larger gross income than he would have had otherwise. Any denom above a quarter is going to cost you some taxes regardless of your losses.

[billryan]

I rarely hear big time gamblers worry about taxes, yet small time players, who are almost invariably losing players seem to obsess over them
Taxes are an inevitable consequence of being a successful AP.
Nothing more, nothing less.
If someone thinks that playing quarters and avoiding W2s is the way to go, so be it.
I'd rather give the gubermint 15% of my $25,000 Royal than keep all of my $1,000 Royal.

[FloridaPhil]

Taxes are an inevitable consequence of being a successful AP.

For sure. No successful businessman would curtail a profitable venture because it would incur taxes. However, why lose money playing VP then pay taxes on top of your losses?

If you know the games, know the odds, know the comps, know the cost in term of dollars, know the taxes and know your limitations, you won't be fooling into thinking you have an advantage when you don't.

[paco13]

As someone else mentioned, the real killer is the gross income boost. Depending on your current income level, despite the gambling loss deduction your gross income is still increased which could bump you into the next tax bracket. You then wind up paying higher taxes on your normal income.

[paco13]

Also, I believe gambling winnings are taxed @ 25% plus whatever your state tax is.

[FloridaPhil]

Also, I believe gambling winnings are taxed @ 25% plus whatever your state tax is.

Gambling winnings are added to your return just like any other income. Your Federal tax rate depends upon your tax bracket. W2Gs could push you into a higher bracket affecting your overall tax rate. You can offset W2Gs with losses up the the amount of your winnings. You must itemize your federal return to offset these losses. In case of an audit, you must be able to produce documented proof to back up your losses. If you Google this subject you can see what the IRS accepts as proof.

Many State gambling taxes are not recoverable. In Mississippi they take their 3% State Tax out of your hand pay before they pay you. Both residents and non residents are taxed.

[FAA]

Crooked letter state. How apt for a crooked tax policy.