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Two Weeks Into Prohibition

It has now been just over two weeks since President Bush signed the Unlawful Internet Gambling Prohibition Act (UIGEA) into law. The passage of this law has had and will continue to have a tremendous impact on the online poker community. Some of the impacts of the law have already been felt, while certain effects will not be clear for some time. Who's In. Who's Out. online poker 468x60 By now, most online poker rooms have decided whether or not they will continue servicing the United States market. Most of the major poker sites have decided to close their doors to US players. In most cases, the reason has been that public companies own the poker rooms or their software providers. These firms cannot risk committing acts that may be illegal out of a duty to their shareholders. The only company whose future in uncertain is Neteller. This money transfer service has stated that it "will comply with the Act and its related regulations as if it were subject to the Act's jurisdiction." However, it is waiting for the Treasury Department to set issue guidelines for banks and financial institutions. Critical Mass Remains When the poker sites shut out the US market, many were skeptical of how liquid those sites would remain. Some of these poker sites relied on American players for as much as 80% of their total player traffic. Some people predicted these sites would turn into ghost towns. It seems that, so far, most of these sites have retained a sufficient critical mass of players. From a player's perspective, the most important aspect of a site is just for it to have games available at a wide range of limits. Of course, it's nice to have dozens of tables to choose from at any given limit. Nevertheless, as long as a player is easily able to find a game at his desired limit to his liking, it really does not matter a whole lot to him if there are four games at that limit or forty. Rooms that formerly accepted US players tend to be of similar size now, so they are more homogenous than ever. Party Poker is the largest poker room that does not accept US players, though its size differential is not as significant as it has been in the past. Certain Promotions End While most poker rooms remain large enough to host a variety of games at different limits, some are no longer able to sustain promotions they previously offered. Most of these promotions assumed that a certain amount of people would be eligible for the promotion, which is no longer possible due to the loss of American players. Notably, certain tournament prize pool guarantees are no longer offered. For example, Party Poker's big Sunday tournament lowered their guarantee from $1,000,000 down to $200,000. While this tournament is much smaller now, it is actually better for players. The Sunday Million hardly ever overlaid. Last week, Party ended up ponying up about $40,000 in their Sunday $200k tournament. Party Poker also had to cancel its Monster promotion due to the legislation. Players with monster tickets are able to redeem those tickets for cash. Party calculated the EV per type of ticket and awarded players cash based on their calculations. Potential Consolidation Some predict poker rooms will attempt to consolidate to regain the liquidity they lost by no longer accepting US depositors. The theory is that poker rooms would be able to cut costs by merging, as well as form a larger poker room that would be attractive to players. In the past few years, there has been a moderate amount of consolidation in the online gaming industry. Most of the consolidation was cross-industry, such as a sportsbook purchasing a poker room. For example, Sportingbet did not have a major online poker room, so it purchased Paradise Poker. However, I personally doubt there will be much consolidation in the near future. First, there is little cross-industry consolidation to be done. There used to be many poker rooms that were not associated with sportsbook, casinos, etc. Since many poker rooms have already merged with sportsbooks or plan on launching their own sportsbook, this form of consolidation which occurred in the past is likely not to occur often in the future. Second, the synergies created by consolidation are overstated and the antagonisms are often ignored. Most of the poker rooms that do not accept US players are of similar size. Even if two merged, the combined poker room would not be sufficiently bigger than the other poker rooms to really make much of a difference. For example, the IPoker network (Titan Poker's network) and 888 Poker are each about half the size of the Ongame network (PokerRoom's network). Even though these two poker sites are about half the size, the playing experience is still very similar to the Ongame network. So even if these two companies merged, it would not make for a significantly improved playing experience for users. Furthermore, many players have accounts at multiple sites. For example, let's say John Q. has an account at Titan Poker and 888 Poker. If Pacific decides to buy Titan, Pacific would be paying for all of Titan's players, including John Q. However, since John Q. already has an account at Pacific Poker, Pacific essentially paid twice for acquiring John Q. The first time was via advertising for Pacific Poker that drew John Q. to sign up at Pacific, and the second time was by acquiring Titan Poker. Indictments Ahead? Online gambling sites that continue to accept American players face two major risks due to the UIGEA. First, if the Treasury Department issues restrictions that substantially shut off funds to these sites, American gamblers will not be able to deposit money at these sites. Second, operators of these sites may face prosecution if they ever travel to or operate in the United States. Conventional wisdom is that online gambling sites determined to evade the law will find a way for players to fund their accounts. Even if the banks block many methods of transferring money to the online gambling sites, the gambling sites will find some method for players to fund their accounts. It would be a never-ending cat and mouse game that the US-facing online gambling sites would most likely win, as they have a much larger stake in the matter. However, even moderate enforcement methods will likely significantly decrease the amount of Americans that gamble online, since most casual gamblers are lukewarm about funding their gambling accounts anyway. It's not clear if the United Stated Department of Justice (DOJ) plans on making any high-profile arrests of those that evade the law or help those evade the law. Online gambling sites that service Americans operate in a gray area, as it is not 100% clear what is legal and illegal under the UIGEA. The wording of the UIGEA defines unlawful internet gambling as gambling that is "unlawful under any applicable Federal or State law in the State or Tribal lands in which the bet or wager is initiated, received, or otherwise made." This definition leaves open to interpretation what exactly is lawful or unlawful, since it would require a reading of a state's statutes on gambling, as well as any Federal statute on gambling. The DOJ may prosecute a few high-profile cases to make examples of operators of online gambling sites or those that assist online gambling sites. The first prosecution the DOJ chooses will probably be based on which is easiest for it to win. Most likely, the DOJ will want to test the waters with this law only against those whom they have a very good case against. If the DOJ is victorious in a few high-profile cases, it may scare operators of online gambling sites, or those that assist them, into exiting the US market.

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