The Las Vegas Advisor has a Question of the Day. These are questions sent in by readers where a bite-sized answer is sufficient. Sometimes when it’s about video poker, the LVA passes it on to me. They recently sent me a question which is printed below. While the answer isn’t difficult, there are a lot of things to discuss — depending on how advanced the reader is. Since it was more blog-length rather than QOD-length, I decided to answer the question here.
It begins with the question:
I go to my local riverboat casino and play bonus poker video poker. I do not play professional so I would have to pay any W2G that I would get. My question is if I include a 30% tax on the royal flush payout at the dollar machine ($4,000 royal), am I better off playing a 99.17% pay dollar machine or a 96.87% quarter machine where the royals will not be taxed. I would think you need to take the percent of the 99.17% that is the royal payout and multiply that by .7 and add it back in to see if it is better than the 96.87%. Is that correct and what is the percent of the 99.17% that is the royal payout?
For those of you who aren’t familiar with Bonus Poker payouts, the 99.17% version pays 40 for the full house and the 96.87% version pays 30 for the full house. The games are otherwise identical and the correct strategies for both games are essentially identical.
Most video poker software products will tell you that you’ll get a royal flush on Bonus Poker every 40,233 hands. To make this simpler to work with, I’m going to assume this number is exactly 40,000. It will not affect the conclusion.
Playing for dollars, every 40,000 hands (which means $200,000 coin-in) you have to pay $1,200 in taxes (which is 30% of $4,000) which I can treat differently because I file as a professional. If you divide $1,200 by $200,000, you come up with 0.6%. This makes the post-tax 8/5 Bonus Poker worth 98.57%, which is quite a bit higher than 96.87%.
So, obviously, since 98.57% is better than 96.87%, that proves playing for dollars and paying the taxes is the better play. Except there are more things to consider.
First of all, are you playing the same number of hands or the same amount in dollars? It takes the same amount of time to play $50,000 at quarters as it does to play $200,000 at dollars. Your expected loss at dollars is 0.0143 * $200,000 (which equals $2,860) while playing $50,000 at quarters will cost you 0.0313 * $50,000 (which equals $1,565).
Looked at this way, playing quarters is the “better” (meaning “less bad”) play.
(Is it impossibly rude to suggest that staying out of that casino is better than either of these plays?)
We haven’t discussed the slot club. Do you get money in the mail? Do you earn free play from your points? It’s possible that dollars could still be the cheaper play. Without discussing the slot club benefits, it’s impossible to make a final determination.
Another possibility is to play quarter single coins! Playing one quarter at a time is only worth 95.6329%, but in same time it takes you to play $200,000 at dollars or $50,000 at max-coin quarters, you’re only risking $10,000 at single-line quarters. That will make your expected loss $437, which is considerably “less bad” than either of the previous two expected losses.
Playing single coin, however, on those rare occasions you hit the royal flush, you’ll collect a lousy $62.50 instead of the $1,000 you’d get from a max-coin quarter royal, or $250 instead of the $2,800 you’d get from the after-tax max-coin dollar royal. If somebody sees what you did, they’ll tell you what an idiot you are for not betting max-coin and collecting the full royal. Never mind that your move makes financial sense. For some people, they’ll feel so bad at missing out on the max-coin royal that they are in misery, even though they just hit a royal flush.
I tell you, playing single coin isn’t for the weak at heart!
So, looking at these options, how would I boil it down to one choice? That is, what would I do were I to face these exact circumstances?
My answer is simple. I wouldn’t play at all. If the slot club doesn’t pay enough to make up for the shortfalls we’ve listed here, I’m not even frequenting this casino. Going into a casino knowing I can’t be a long-term winner is against my religion.
Author’s note: The basic premise of this QOD and the answer is seriously flawed, but I chose to answer it as given anyway. All gambling revenue is legally taxable — whether you get a W2G or not. The idea that you don’t owe taxes unless individual jackpots are $1,200 or higher is completely incorrect. If any of this is foreign to you, listen to the August 29 Gambling with an Edge podcast where Richard Munchkin and I interview tax expert Russell Fox.
