The online poker information site United States of Poker.net has published a well-reasoned op-ed on why US legalised internet poker in states like Delaware, New Jersey and Nevada has underperformed relative to the expectations of politicians and analysts.
The reason is not the competition that illegal operators constitute, a widely held belief voiced by many in the US business, says the author, identified only as Bob.
Bob is a Las Vegas-based writer and editor-at-large who has observed and reported on the online poker industry for the past decade, and writes under the pen names “Oreo Bob” and “SoyFlush.”
He suggests that predictions on revenues should be based on a strong understanding of the market fundamentals, and that this has apparently been lacking.
Quoting specialists like Dr. Ann-Christin Wilcke and Dr. Fiedler, the article stresses the importance of player pool liquidity, a critical market-driving element which ring-fenced markets adversely impacts as Wilcke and Fiedler illustrate in their scientific paper “The Market for Online Poker”, published in the Gaming Research and Review Journal of the University of Nevada, Las Vegas.
Research has shown that the market concentration in online poker is mainly driven by positive network effects, which means that larger player pools attract more players and grow over time while small player pools decline or must continue to offer a product at a lower price.
A high volume of poker players is thus essential to survive in the market.
Stakeholders need to keep this in mind when considering the future regulation and characteristics of the market. If the market is “ring-fenced” by not allowing people from abroad to join the player pool, the resulting player pools of the legal operators with only native players will be comparatively smaller than an open market.
Bob writes that this fundamental, linked to the ring-fenced intrastate player pools in the legalised states, is exacerbated by the fierce competition within those states between rival operators.
“The failure to understand the fundamentals of how the online poker business actually works and the impact of a limited player pool is a more plausible explanation as to why initial projections were way off the mark,” Bob concludes.
“Other states considering online poker legalization should take note of what’s happened so far and learn from their peer’s mistakes. The reality is that the stakeholders in online poker should be focusing more on addressing the fundamental misunderstanding of the economics of the online poker business rather than looking for scapegoats or excuses.”
The piece is long but well-written with statistics and fact to back up the author’s claims; it can be accessed here: