Showing some heart: Is online poker’s luck turning in the States?

“There is no question there is pent-up demand for this activity… I think the estimates are that there are 50 million poker players in this country.” Those were the words of an ebullient Tom Breitling during an interview with CNBC’s Squawk Box shortly after his inhouse built Ultimate Poker launched in Nevada in 2013.

At the time, the Fertitta-owned product was the very first legal online gaming site in the US. Despite the “Stone Age” software — as it was disparagingly described by the Las Vegas Sun — including a glitch once where two nine of spades were dealt in a hand of Hold’em, the arrival of Ultimate Poker was nevertheless perceived as a watershed moment for regulated online poker.

Unfortunately, things didn’t quite pan out as was first hoped. Besides the fact Ultimate Poker closed its virtual doors in Nevada just 18 months later — shortly after the operator’s exit from New Jersey in 2014 — online poker’s roll-out never gained the traction Breitling and over-optimistic sections of the industry predicted.

For years, it’s just been New Jersey and the sparsely populated states of Delaware and Nevada with regulated poker, although the latter attracts over 40 million tourists a year. That means the combined number of permanent residents in this trio of jurisdictions is around 14 million, equating to less than 4% of the US population.

Though the domino effect of state-by- state legislation never materialized, there is cautious optimism the digital version of America’s favorite card game could slowly be making a return after years in the doldrums.

To describe it as the cusp of some sort of renaissance akin to the unregulated boom years would be over-egging the situation somewhat, yet there has been a slew of encouraging developments of late. The most obvious one is the fact online poker went live a few months ago in Pennsylvania — the largest state so far in terms of population (12.8 million) — albeit with one site.

PokerStars recorded over $4.4m in poker revenues in November and December 2019

An ace on fourth street

On Nov. 4, two years after Pennsylvania passed a gambling expansion package that included egaming, PokerStars launched its poker client in the Keystone State through The Stars Group’s partnership with Mount Airy Casino.

It’s no exaggeration to say traffic exceeded all expectations in the fourth legal ipoker state. A peak of 750 concurrent cash game players were battling it out on the felt during a soft launch, which later settled down to a seven-day average of 400, according to traffic tracking site PokerScout.

To put it into perspective, this was more than were playing legal online cash games across all brands in the other three states combined. At the time of writing, PokerScout has PokerStars PA in 18th position on its global rankings page with a seven-day average of 375 players at the cash tables.

That sandwiches the operator between partypoker.eu (pooled players in France and Spain) and Microgaming’s soon-to-be-shuttered poker network MPN with 400 and 350 players respectively. While PokerStars’ traffic may have inevitably dipped from the initial peaks recorded in November, business at the cash tables is still brisk.

A robust tournament schedule also helped drive interest. “I’m beyond impressed with how the state’s players have taken to the launch of PokerStars,” says Matt Primeaux, president of Fox Bet. Indeed, PokerStars twice increased the total guarantees during its 50-event online tournament series, PACOOP, to $1,225,000. Total guarantees had originally been pegged at $1m, yet this was revised upwards once players began flocking to the tables in the Keystone State over the course of the two-week series.

The highlight — the $300 buy-in Main Event — had a $125,000 guaranteed prize pool, with a first-place prize of over $31,000 going to screenname ‘Gyea08’. While 10 tournaments did end up with overlays, the total prize pools surpassed $1.5m. So, did PokerStars perhaps underestimate the appetite for PACOOP?

“We certainly thought leading into the event that PACOOP would be a big success,” says Primeaux. “This marked the first time for a ‘COOP’ in Pennsylvania and we wanted to analyse its performance in comparison to New Jersey, so we made purposefully modest projections for the event.

“We didn’t want to overestimate the level of popularity for this inaugural event, but we were certainly pleased with the poker community buzz and general positive discussion of the series.”

He continues: “Our primary goal with PACOOP was to provide more fuel to an already great poker launch, and with 12,600 entries and a featured prize pool of over $1.5m, I think we succeeded.”

PokerStars, which generated almost $2.5m in GGR in December, has the market all to itself — for now. Seven casino properties have forked out for ipoker licenses and we may not have to wait too long for major B2B and B2C poker companies like 888 (partnered with Harrah’s Casino) and GVC’s partypoker (partnered with Valley Forge Casino) to enter the fray.

Michigan making moves Five days before Christmas, Michigan Governor Gretchen Witmer put pen to paper and signed online sports betting, casino and poker into law, almost one year after lame-duck Governor Rick Snyder vetoed an online gambling bill.

The rubber-stamped legislation allows for online casino and poker licenses for the state’s three commercial casinos and 23 tribal properties. As with online casino, each establishment is permitted just one poker brand, or skin. For both casino and poker, application and license fees total $150,000 and the tax rate on GGR ranges from 20% to 28%.

But despite this positive development in a state that is home to almost 10 million people, it could be a while before the first hands of online poker are dealt. The Michigan Gaming Control Board told Online Poker Report in January that online poker, casino or sports betting probably won’t launch until 2021.

A year or more doesn’t sound all that unreasonable, though, especially when it took Pennsylvania two years to get egaming up and running. New Jersey was relatively rapid at nine months. Even so, The Stars Group barely waited for the Michigan governor’s signature to dry before striking a deal with the Little Traverse Bay Bands of Odawa Indians Gaming Authority for first skin access.

Michigan was the sixth state to greenlight online poker after West Virginia did the same last March, along with sports wagering and online casino. West Virginia currently has three sportsbook apps, though there is no concrete timeline as to when online gaming will begin.

Also, from an operator’s viewpoint, not only does the Mountain State boast a modest population, but it’s also one of the country’s poorest states with a median household income of around $44,000.

This is considerably less than neighboring Virginia at $72,500 and the $62,000 median average for the US as a whole. Elsewhere on the poker front, there are high hopes for Kentucky after poker-only bill HB 137 comfortably passed the Licensing, Occupations and Administrative Regulations Committee, while a new ‘games of skill’ bill in Nebraska would legalize poker.

However, Bill Rini — head of online poker at WSOP.com between 2013 and 2019 — tempers any overexcitement at recent developments by stressing the need to judge each state on its merits.

“West Virginia’s population is under two million, so without an interstate compact it might not even make financial sense for some operators to even go there,” he tells EGR North America from his home in Thailand. “Michigan is obviously much larger, but it’s definitely going to be very difficult for operators to justify spending millions of dollars in licensing, datacenters, and other costs if they can’t recoup those costs within a reasonable timeframe.”

Pooling power

Rini referred to the issue of interstate compacting, and whether or not this happens in a meaningful way is going to ultimately decide regulated online poker’s fate. Practically everything rests on a positive outcome following the DOJ’s decision to appeal against the New Hampshire court ruling over DOJ’s re-interpretation of the Wire Act.

This precarious situation has impeded liquidity pooling. “Nobody wants to put themselves in the crosshairs of the DOJ,” Rini insists. “The market simply isn’t bigenough for anybody to take that risk.”

Pennsylvania has been fairly non-committal about joining the existing Multi-State Internet Gaming Agreement comprising of New Jersey, Delaware and Nevada (WSOP/888 operates shared liquidity), but the consensus seems to be Pennsylvania probably will if the DOJ is defeated.

If you had New Jersey, Pennsylvania and perhaps Michigan pooling players it creates an addressable market of 32 million people, though you have to exclude those under 21. Then things possibly begin to snowball.

Add Illinois (12.7 million), Indiana (6.7 million), Kentucky (4.5 million), and maybe even New York (19.5 million), and that’s enough to make dollar signs flash up in operators’ eyes. “I’m cautiously optimistic, but it might be when I’m old and gray and out of the industry that any of this actually happens,” concedes Adam Small, co-founder of online poker ranking site PocketFives and now director for Better Collective Tennessee.

“Politically, the obstacles are clearing but the big thing is whether more states join. Do we get a six-state network?” The long-overdue need for New Jersey to compact with a state like neighboring Pennsylvania is plain to see in the Division of Gaming Enforcement’s numbers.

In November 2019, the vertical hit its nadir as combined GGR across the half-dozen brands sunk to under $1.5m — the lowest monthly total since the market launched in late 2013. Back then, when there was inevitable excitement about this shiny-new and legal product, operators racked up $3.4m in a single month. This was never topped again.

“The [players’] enthusiasm wore off as they saw it wasn’t growing and there weren’t a lot of new players coming in,” Small remarks. Total ipoker revenue for 2019 in the Garden State was $20.9m, or an average of $1.7m a month, and you have to go back to August 2017 to find the last time the market eclipsed $2m in a month.

Rini blames a few factors: over-saturation of brands, which led to a “lot of confusion” among consumers and inflated UA costs, as well as marketing inefficiencies as, he says, most media buys don’t ring-fence their audiences like regulated ipoker.

“You can’t just buy Hoboken or North Jersey — you’re paying for NYC too. That means a lot of advertising simply couldn’t generate a positive ROI.” Thirdly, casino and sports betting stole poker’s limelight.

Compacting with Pennsylvania would be the shot in the arm online poker in New Jersey so badly needs, yet Primeaux remains bullish either way. “Both our New Jersey and Pennsylvania launches clearly showed that appetite still exists,” he says.

Meanwhile, Small is “very optimistic long term” about the game’s future, particularly with the live scene still in rude health. He adds: “It wasn’t that long ago that PokerStars sold [to Amaya] for $5bn. And that was because poker makes money, not because poker was good at cross-selling into other products.”

His positive outlook for online poker does come with an inevitable caveat, though: “There’s a lot of potential for this game to be big in the US when there is enough liquidity,” Small concludes.