Feature: Strength in numbers
As regulated online poker continues to decline in the US the need for states to compact is becoming critical. Martyn Hannah reports
Regulated online poker is in major decline in the US and there appears to be little operators can do to arrest it. The numbers speak for themselves; New Jersey poker revenues were down 20% YoY to $19.8m during the first 10 months of the year, while the Delaware State Lottery collected just $24,030 in rake in October, a record low. There are several reasons behind pokerâs current ill health â operatorâs slashing marketing spend, banks still refusing to process credit and debit card transactions, and unlicensed sites poaching players â but the real issue at hand is liquidity. Specifically a lack of it. [private]
In short, player pools are barren. Take the WSOP.com for example. In New Jersey, where it shares players with platform partner 888 through the All American Poker Network, PokerScout estimates the WSOP has a seven day average of just 200 players. In Nevada, that number is 170. Partypoker, one of the largest poker operators in North America pre UIGEA, had a seven day average of just 140, and that includes players on BorgataPoker.com. The impact of efforts to drive growth have so far been negligible.
Itâs no secret the only way to breathe life back into the market is for more states to enter compacts. Earlier this year Nevada and Delaware launched the âground breakingâ Multistate Internet Gaming Agreement (MIGA), combing player pools for the first time. The network, powered by 888, has been designed so that other regulated states can join in the hope of creating the next best thing to a nationwide poker market. Since launch, however, MIGA has failed to deliver much in the way of new signups and healthier revenues.
But thatâs not to say it hasnât been a success from a regulatory point of view.
âThe integration of the two statesâ regulated interactive poker has been smooth,â says head of the Nevada regulator A.G Burnett. âI view it as an example of what states can do when they pursue the same regulatory and economic goals. The development of integrated software common to both statesâ regulatory and technical standards required much diligence and work by the operators. Determining the regulatory needs of each state seemed easy because the two states worked together so well, and respected the othersâ needs,â he adds.
Thinking outside the box
New Jersey is held as the benchmark for regulated online gaming in the US, but to date has not entered a compact. If it were to join forces with Nevada and Delaware it would be transformational for both markets, and would provide a welcome, if small, addition to its own player pools. The reason why the state has yet to enter an agreement is buried deep in its gaming regulations, specifically the clause that declares wagers must be placed via servers located in Atlantic City. It makes compacting near-impossible.
But the director of the New Jersey Division of Gaming Enforcement David Rebuck is unperturbed and at the start of the year confirmed he had been in talks with the Nevada regulator about ways to overcome the issue. More interestingly, Rebuck let slip heâd also spoken with his counterpart in the UK about the possibility of pooling players overseas. In a recent interview with eGR North America, Rebuck said those talks were ongoing, but admitted there is still a long way to go before an agreement is reached given his stateâs technical requirements.
âEveryone understands those issues, so it is a matter of whether the regulators in the three states can iron them out. I think we have some ideas to work around the problems and I give a lot of credit to Delaware and Nevada who have been open-minded with this and are working with us,â he said.
When push comes to shove it really boils down to Rebuck convincing regulators in other states to agree to locate their servers in Atlantic City. Outside of that it would require a major statutory change to the New Jersey constitution to allow online wagers to be placed outside of Atlantic City and indeed the state, which is unlikely.
Go it alone
While New Jersey is actively seeking ways to join compacts, other states are less keen to share. In California, the majority of bills introduced this year would block the regulator from joining forces with other jurisdictions. With its population of 39 million, the state is one of only a few markets capable of sustaining more than a handful of profitable poker networks, with European operators and those in other regulated jurisdictions hungry for a slice of the pie. The California operators, understandably, want to keep the lionâs share of the market for themselves.
Some operators in Pennsylvania have taken a similar stance. Chris Sheffield, MD of Penn National Interactive, says the casino giant wants to limit the market to bricks-and-mortar operators over fears other brands will come in through the back door and take share away from them. He also believes liquidity issues could be overcome by using a single poker platform from which operators can launch their own branded skins, the same model being used in Delaware.
âA key part of the issue is that different platforms cannot easily share liquidity if at all and the individual states are too small to support a number of ecosystems competing with each other,â he says. âI think a shared platform for Pennsylvania which is managed by all of the parties via a constituted board could work well, and is not really a new concept as it is very similar to how pari-mutuel works,â he adds.
If California and Pennsylvania do move forwards with this approach it will cause concern in some of the smaller states considering whether to enter the fray. For the likes of Mississippi, Washington and even New York, the option to join forces with other markets will be a key factor in their decision to regulate online poker or not. As standalone markets liquidity would be a major issue. Indeed, with federal poker legislation off the cards for the foreseeable future, a patchwork of compacted states would be the next best thing to a national market and, if achieved, would encourage additional operators to launch.
In New Jersey the likes of Gamesys, Golden Nugget, Tropicana and Pala Interactive have all put their poker offerings on ice while the market matures. If Rebuck is able to skirt the regulations and finally pool liquidity with other states, expect them to change tack rather quickly. If he is not, then pokerâs continued ill health will rapidly become terminal.