Warsh, Clarity Act, tax deductions

Several pieces of finance news impacted the gaming industry this week, including a new Fed chair and movement from a crypto bill.

There were multiple pieces of finance news this week of interest to the gaming industry, starting with the Senate confirmation of Kevin Warsh on Wednesday as the new chairman of the US Federal Reserve. Warsh, who previously served as a Fed governor during the Great Recession, replaces Jerome Powell after the latter spent nine years in the role of America’s top central banker.

The Fed has been reluctant to lower interest rates since the economic shock from Covid sent them above 5%. Inflation remains above the Fed’s 2% target and energy prices have spiked due to the US-Iran conflict, which has wiped away the rate cuts businesses had hoped for this year. For companies, this has kept borrowing costs high and valuations lower than normal.

Warsh is seen as an economic conservative, in that he opposes the Fed’s long-running policy of “quantitative easing”, or expanding its balance sheet with asset purchases. Upon his nomination in 2006, Warsh supported quantitative easing as a radical means to attack the impending crisis. But he resigned in 2011, amid concerns on excessive spending. In mid-2008, the Fed’s balance sheet was below $1 trillion; it is now above $6 trillion. The balance sheet hit a peak of $8.7 trillion in 2024.

While Warsh has maintained that Fed independence is vital in light of legal attacks against Powell, the market is expecting rate cuts. In that case, many gaming companies will be rejoicing, as several top industry stocks are well below previous highs.

“Stocks move for two reasons, simplistically: estimate revisions, so numbers getting better, the consumer getting better, GDP growing, that’s one part. Then the second part is the valuation multiple, and as rates come down, that should result in higher multiples,” Macquarie head gaming analyst Chad Beynon told iGB in February.

Finance, gaming worlds watching Clarity Act

On Thursday, the Senate Banking Committee passed the Clarity Act, a much-hyped bill that establishes a governance framework for cryptocurrency and digital assets. The legislation will now move to the full Senate, where it is expected to meet a fresh round of debate. Time is of the essence – Republicans are hoping to pass the bill before November’s midterm elections, which could undo their current majority.

The Clarity Act does not directly pertain to gambling but its passage would have implications for the sector. For starters, the bill would give a number of new oversight duties to the Commodity Futures Trading Commission. The CFTC is the regulator of prediction markets, the arch-nemesis of the gambling industry, and concerns about oversight would be heightened if the commission takes on even more duties.

CFTC Chairman Michael Selig faces real staffing concerns, having been grilled on the topic in mid-April at a House Agricultural Committee hearing. Despite lawmakers’ apprehensions, Selig is confident the commission can police its beats, saying he is “utilising new tools from AI to automation and other surveillance systems”.

On a positive note for gamers, the passage of the Clarity Act might clear the way to integrate crypto into regulated gambling. Companies have said their customers like it as a finance method, but they are barred from allowing it, unlike offshore sportsbooks and prediction markets such as Polymarket. FanDuel co-founder Nigel Eccles has pivoted to the crypto gambling space, and has advocated for its advancement.

“We’ve got a very clear signal from the federal government that [crypto] is a technology we should embrace,” Eccles told iGB last October. “We’ve got really clear operator interest. And so I do feel at a state level, a state regulator level, it is only a matter of time” before the benefits outweigh the risks.

Will UFC pressure help change deduction cap?

Finally, UFC President Dana White has urged US President Donald Trump to undo the controversial change to the gambling loss deduction on federal taxes. White is an avid gambler himself, and reportedly has an infamous reputation among Las Vegas casinos.

Previously, 100% of gambling losses could be deducted, but Trump’s omnibus “One Big, Beautiful Bill” from last July featured a provision that lowered the cap to 90%. As a result, many gamblers could owe taxes despite breaking even or even losing. For instance, a customer could record winning hands of $100 each, offset by losses of $100 per hand. If the customer records a net loss of $10 it would still be taxed as income under the 90% cap.

In a letter to Trump dated 11 May, White said the new law “makes it irrational to bet in the United States because you could end up owing taxes even when you lose or having a tax bill that exceeds your winnings for the year”. He also noted the UFC’s support of legalised gambling, with the change potentially incentivising offshore play. The prizefighting league is set to host the UFC Freedom 250 fight card on the White House lawn 16 June.

There have been several bills filed in the last year to undo the change, but little progress has been made. Nevada Representative Dina Titus has been its most vocal opponent, filing the FAIR BET Act immediately after the OBBB was passed. The bill has gone nowhere, though perhaps White’s plea can help get momentum started.

“We should be encouraging players to properly report their winnings and wager using legal operators,” Titus said in a statement last year. The Senate change will only push people to not report their winnings and to use unregulated platforms.”