Eventually there will be a tipping point in the US online poker industry. And it’ll occur when enough states have merged their legal online poker operations that offshore sites start abandoning ship.
Two major events have occurred this year to facilitate that process: the legalization of online poker in Pennsylvania and the interstate liquidity compact between New Jersey, Nevada, and Delaware. Coupled with the prospect of Pennsylvania joining the compact, legal online poker stands to soon be in a much healthier place than it is now.
And while that presently means little to the residents of the 46 states where online poker is not legal, offshore players hailing from Pennsylvania will find the adaptive process from illegal to legal sites less traumatic than those from New Jersey.
Offshore still wins, but cash game traffic gap narrows
In a previous article, we predicted that a merged four-state network would boast average cash game traffic of 1,150 players. Presuming five online poker operators are present in Pennsylvania, and that GVC opens business in Nevada — both reasonable assumptions — the breakdown of traffic may look something like the following:
|Operator||Avg. Cash Game Traffic||# of States Active|
Unfoprtunately, these inflated numbers still pale in comparison to those observed at offshore sites. According to current PokerScout data, the top sites accepting US customers are Bovada, which averages 1,100 cash game players, and the Winning Poker Network, which averages 1,000.
That offshore will still win out comes as little surprise, given the population reach of both of these networks.
Bovada currently services 88% of the United States, having only pulled out of states where online poker is regulated, as well as New York and Maryland. Assuming it drops out of PA when legal online poker goes live, that prevalence will drop to 84.1%. So traffic may take a minor ding of maybe 50 players, but nothing substantial.
Same with Winning, which on record accepts players from 43 US states, and should see a marginal dip in traffic if it pulls out of the Keystone State.
Notice that even if all four states where online poker is legal merge their player pools, the biggest network (888/WSOP) will have less than half the cash game liquidity of the top two US-facing operators. PokerStars, which will only operate in two states thanks to bad actor provisions in Nevada, will have less than one-third.
However, that’s a mammoth improvement over the current situation, where the most trafficked legal site (WSOP NV) has just 12.7% the traffic of Bovada. In NJ, market leader PokerStars NJ can’t even hold a candle to Bovada or Winning, boasting just 9-10% of their traffic.
Given this, not to mention the even greater disparity between current legal US and pre-Black Friday traffic, it’s pretty easy to see why legal markets have had trouble attracting new signups. The situation should improve dramatically if PA links its player pool with NJ/NV/DE
Legal sites will only artificially measure up on tournament front
One area where the legal US industry can hope to draw close to offshore sites is tournament guarantees, but tournament quality is judged by more than just its minimum prize pool.
Presently, the largest weekly majors in New Jersey offer $45k guaranteed prize pools. Nightly majors top out at $10k.
Using the same predictive model we harnessed for cash game traffic and applying it to tournaments, we estimate that in a merged four-state network, 888/WSOP will be capable of supporting $30k – $40k nightly guarantees and a $150k event every Sunday. PokerStars may cap out a little lower — $25k – $30k nightly and $125k weekly — but that still represents a significant leap over the present situation.
These guarantees stack up exceedingly well against those on Bovada, which offers a $100k weekly and a $25k nightly. However, Bovada offers these events at lowish price points, or at least lower than what we expect buy-ins to top flight MTTs on legal sites will be.
Winning is becoming far more aggressive than Bovada on the tournament front. Beginning January 7, the network will offer a $1,000,001 guaranteed tournament every week for 12 consecutive weeks, and at just a $250 + $15 price point. This pricing is nearly as aggressive as the PokerStars Sunday Million, which guarantees $1 million for a $200 + $15 buy-in. That’s saying a lot, considering Winning services a much smaller player base.
Winning’s nightly tournaments aren’t exactly pushovers either. $25k, $30k, and even $50k guarantees are the norm, with lower price points than what NJ players are accustomed to for $10k guarantees.
Still, it’s plausible that legal sites will be able to host some hefty guarantees of their own. Already, online bracelet events on WSOP NV have generated $1 million+ prize pools, and that’s just one state. Soon, legal US sites in all states will benefit from the influx of poker tourism resulting from the live World Series of Poker, possibly making for some very meaty prize pools, for online bracelet events and otherwise.
The legal US market won’t offer $1 million guarantees every week, but a four-state network opens the door for the Main Events of major series’ to eclipse the seven-figure barrier.
All this said, it looks like the ratio of tournament guarantees to entry fees will continue to favor offshore sites, who will still service a much larger population base and can afford to lower the price of entry to major events.
But again, the gap will shrink.
What about the rake?
One of the drawbacks of regulated (i.e. taxed) markets is that operators tend to hike up the rake. Despite a low tax rate of 17.5%, the New Jersey market has proven no exception to this rule, with sites raking between 5%- 5.56% and placing rather lofty caps on 6-handed No Limit Hold’em games ($3 on $0.50/$1 and $1/$2 games, as an example).
Given the near equivalent tax rate on online poker of 16%, Pennsylvania stands to offer rake rates that are either on par with New Jersey’s, or slightly worse. We say worse because operators may up the rake in order to alleviate some of the pain from the state’s oppressive 54% tax rate on online slots.
Despite this, the rake on legal US sites, including Pennsylvania, should hold up well against offshore sites. Both Bovada and Winning offer 5% rake on their NLHE games, but Bovada caps all 6-handed or more games at an exorbitant $4 at stakes $0.10/$0.25 and above.
Winning is more reasonable in some ways, also raking 5% but capping out at $3 for all mid-to-high stakes. But the same $3 cap holds for lower stakes games, whereas in New Jersey, the caps for low stakes are marginally lower.
Thus, we conclude that regulated online poker sites hold a razor thin edge in the area of cash game rake.
Legal online poker sites offer a bevy of built-in advantages over their offshore counterparts, including identity and fund protection, the guarantee of game fairness, and more and better payment processing options.
But current traffic on regulated sites is a pittance compared to offshore, which is likely why so many players preference the latter. We will begin to see a major shift if and when Pennsylvania joins New Jersey, Delaware, and Nevada in the Multi-State Internet Gaming Agreement, but offshore sites will still hold more appeal in the areas of cash game traffic and tournament value.
However, throw in a couple more big states — namely New York and Illinois, both of which are prime candidates for legalization in 2018 — and liquidity figures on legal sites should pull even or ahead of offshore sites, greatly broadening their appeal.
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