A Four State Online Poker Compact Would Be Nothing Short Of Transformative For Players

After years of struggle, online poker advocates celebrated two major victories in almost as many weeks.

The first saw New Jersey enter into a compact with Nevada and Delaware to share liquidity across all three states. Then came the legalization of online poker in Pennsylvania, a state that is home to as many residents as the three states where online poker is currently supported combined.

Should Pennsylvania enter the Multi-State Internet Gaming Association — and there’s little reason to think it wouldn’t — the legal US online poker landscape will undergo a tremendous upheaval, no longer struggling to remain relevant in the face of severely capped market sizes.

And while operators will revel in the increased population cap, it’s the players who will truly benefit.

Bigger population, but not necessarily more networks

One of the primary problems of the NJ online poker market is that it is supersaturated. Currently, there are seven sites spread out across four networks. For a population of just under 9 million, that is far too many, and the results haven’t exactly been impressive.

Case in point: When PokerStars jumped into the industry in 2016, there were musings that online poker would grow by upwards of 20%. Instead, the operator derived nearly all of its traffic by cannibalizing it from existing networks, with both WSOP NJ/888 Poker and Borgata taking severe hits. As a result, those sites now offer fewer cash game options, and smaller tournament guarantees.

But at least they survived. Lesser known poker brands in New Jersey, like Betfair and Ultimate Poker, went belly up. And Pala Poker, which launched a beta site in June 2017, has yet to find its footing, with cash game liquidity hovering near zero. In Nevada, the state hasn’t been able to sustain more than one brand.

Here’s the good news: Should PA join forces with NJ, DE, and NV, it’s unlikely that we’ll witness a major uptick in the number of operators. Instead, the three major forces already prevalent in the Garden State (GVC, PokerStars, and 888) will almost undoubtedly set up shop in PA, and will perhaps be joined Rush Street, Pala, and maybe one wild card — but probably not all three.

Thus, the new four state network will likely consist of 3 – 5 operators servicing a population of 22 – 25 million (not all operators will be present in all states), which is much more reasonable than four servicing less than 9 million. The result will be a competitive market, where all operators should have enough liquidity to least sustain, and possibly thrive.

Thriving poker sites result in bigger and better opportunities for the player base.

More cash games, more cash game formats

On a purely multiplicative basis, the addition of Pennsylvania will result in average industry cash game traffic of approximately 750 concurrent players. But the actual number stands to be much higher, especially if Pennsylvania joins the interstate network in the early going:

• Hype will result in an influx of signups and inflated liquidity in the early days of Pennsylvania’s industry, just like it did in New Jersey. Only Pennsylvania residents will presumably have access to far better payment processing, mobile, and software options, resulting in higher retention.
• Former players from New Jersey, Delaware, and Nevada are more likely to return to poker after the compact goes live.
• Prime time hours will be extended because the multi-state agreement will cover states from both Eastern and Pacific time zones.
• In poker, liquidity begets liquidity.

In total, I suspect these four factors will result in a 40 – 50% increase over the multiplicative number, resulting in average liquidity hovering around 1,100 players, and peaks of over 2,500, trending down modestly over time.

How this traffic will be distributed is an open question, but we can speculate that at least one network will average over 450 players, and perhaps many more. 888 Poker will be the most likely entity to achieve our baseline figure, as it will operate in all four states.

What will that mean for players?

• There will be a vast increase in the number of available No Limit Hold’em tables and stakes, still concentrated at the lower stakes, but with more micro- and high-stakes options. Games of stakes $5/$10+ should be relatively commonplace.
• Some alternative game formats will run with frequency, maybe even around the clock. They include Pot Limit Omaha, Omaha Hi/Lo, Stud variants, and perhaps mixed games. The network still probably wouldn’t be big enough to sustain say, Badugi.
• While I don’t think volume will be high enough to sustain the popular fast-fold format 24/7, the larger sites should find some success supporting it across lower-to-mid stakes. Currently, fast-fold games rarely get off, and aren’t even offered on 888 Poker affiliated sites.

Aspiring toward the Sunday Million

Assuming an unsaturated market of less than a handful of major players, we presume that nightly and weekend tournament major guarantees will be on average, three to four times higher, than they are presently on NJ online poker sites.

That means that the largest nightly major would guarantee a prize pool of roughly $35,000 for a $100 buy-in, with other guarantees hovering in the $1,500 – $10,000 range. On Sunday, the stakes would be elevated dramatically, with regular majors offering prize pools of up to $50,000, and the largest major offering a pot of $150,000, with $200,000 guarantees not out of the question during peak liquidity seasons.

Then there will be the one-off tournament series’, which currently guarantee up to $1.2 million in New Jersey, and nearly as much in Nevada, thanks to an influx of poker tourism during the live World Series of Poker. The Main Event for these series’ can clock in as high as $200,000, and while they tend to offer overlays, they’re not significant overlays.

Given this, it’s not totally out of the question for the bigger tournaments of the year in a four state network to pay out a guaranteed $500,000 – $750,000 in prize money.  And maybe, just maybe, we could see a handful of $1 million tournaments in the legal US online poker market before 2018 comes to a close.

Given that WSOP NV alone broke the $1 million mark two times for its online bracelet events during the 2017 World Series of Poker, it wouldn’t shock.

What about the house take?

One aspect of the industry that probably won’t change is the amount of rake operators charge. While hardly cause for celebration amongst players, New Jersey and Nevada offer a competitive rake for small regulated markets, in large part due to the low tax rates imposed. It’s difficult to envision a scenario where the rake is increased just because more states are joining in — if anything, it could facilitate a slight reduction.

Pennsylvania too, will offer a fairly welcoming environment for online poker operators, only requiring that they fork over 14% of their gross gaming revenue. That’s a lower rate than what’s offered in NJ (17.5%).

There is one slight concern, however. Because Pennsylvania online casino operators are going to be hit with an oppressive 54% tax rate on slots, there’s a chance that casino license that also offers poker will hike up the rake to offset some of the high costs of doing business on the casino side. In this scenario, it’s plausible that liquidity would come in well below bear case expectations, as players would either be conscious of the rake and choose not to play in regulated markets, or unconscious of it, and get eaten alive at the tables.

Suffice it to say, we advise operators against this line of thinking.