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Online Poker Viability Requires Population of 40 Million

This week’s big news in New Jersey was the directive legalizing sports betting that came out of Governor Chris Christie’s office. The new directive still has some hurdles to clear, but the idea of legal sports betting in the Garden State sent the gaming community into a tizzy, and rightly so.

Due to legalized sports betting dominating the headlines, another major revelation that came to light on Monday (courtesy of Howard Stutz’s Twitter account) went relatively unnoticed, as Stutz, reporting from the Atlantic City Gaming Summit noted:

<blockquote lang=”en”><p>When asked about a NJ-Nev Internet gaming pact, <a href=”https://twitter.com/GovChristie”>@GovChristie</a> says he&#39;s &quot;spoken &quot; to <a href=”https://twitter.com/GovSandoval”>@GovSandoval</a> about the idea <a href=”https://twitter.com/hashtag/lvrj?src=hash”>#lvrj</a> <a href=”http://t.co/MLNylJbCn7″>pic.twitter.com/MLNylJbCn7</a></p>&mdash; Howard Stutz (@howardstutz) <a href=”https://twitter.com/howardstutz/status/509118927847571456″>September 8, 2014</a></blockquote>
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New Jersey joining forces with Nevada (and by extension Delaware) would be a very big deal, but it’s far from a game changer.

Failed to live up to expectations

A combination of small player pools and intrusive regulations has left players frustrated and annoyed with the online poker markets in Nevada, New Jersey, and Delaware. But as annoying as it has been, the lack of liquidity in Nevada, Delaware, and New Jersey highlights the need for greater liquidity.

U.S. online poker needs action at the federal level, or, more states to legalize online poker and form interstate or possibly international compacts.

Since federal legislation seems unlikely anytime soon, and international compacts are still in the theoretical stage, all eyes are on interstate compacts; something that is already available and set to happen between Delaware and Nevada, and now might extend to all three states.

Unfortunately, the jump from intrastate to interstate online poker has been just as slow as online expansion itself.

The good news is legislators and regulators are starting to understand the value and importance of shared liquidity and the necessity for interstate compacts.

Liquidity is, of course, the key to a thriving online poker industry, and even in New Jersey (with a healthy population 8.9 million) the reality is starting to sink in that the state simply cannot sustain a thriving online poker industry on its own.

What’s the threshold?

40,000,000. That’s the number of residents needed to have a viable online poker industry.

This number wasn’t pulled out of a hat; this is based on the historical data that we have (courtesy of sites like Pokerscout.com and regulatory bodies like France’s ARJEL) which show the participation rates to be between 50 players and 100 players per million, depending on the region.

Using these numbers, a player pool of 40,000,000 residents would see average traffic between 2,000 and 4,000 players. We can safely use the high-end for U.S. online poker, which would mean the #1 poker site in the market would likely have about 2,000-2,500 players, as overall traffic would be divided amongst several sites.

This would create a top room with average traffic somewhere along the lines of the global iPoker Network, but far from PokerStars and its average cash game traffic of over 20,000 players according to Pokerscout.com’s data.

Basically, other than California, no state can expect to create a strong online poker market on its own, and even California (38.8 million residents) isn’t going to be a world beater. It’s top room’s traffic ceiling is somewhere around the iPoker Network.

These numbers shouldn’t scare away other smaller states from exploring online poker, they simply have to be aware that at some point they need to form interstate compacts in order to reach the 40,000,000 mark –and hopefully get well beyond that at some point.

New Jersey, Nevada, and Delaware still not enough

Even if New Jersey joins Nevada and Delaware, this still leaves them well short of the 40,000,000 mark; the three states combined have around 12.5 million residents.

It would nearly double New Jersey’s liquidity, and completely reshape Nevada’s and Delaware’s online poker markets in the eyes of players, but the size of the top rooms in the market would only be comparable to poker sites like Unibet and the Merge Gaming Network (not exactly considered thriving rooms).

It would also make joining forces with the trio far more appealing to other states that legalize online poker in the future. Add in a New York (19.6 million), Pennsylvania (12.7 million), or perhaps a couple of states like Maryland (5.9 million) and Massachusetts (6.7 million) and now you have something.

The first step in the process is almost upon us

So why haven’t the current crop of states with legalized online poker joined forces already?

A lot of states are taking a “wait and see” approach to online gambling, and New Jersey may be doing the same before joining Nevada/Delaware.

Delaware and Nevada have certainly made it easy enough for New Jersey and others to join them, as they created the Multi State Internet Gaming Association (MSIGA) when they announced their interstate agreement back in February.

MSIGA is heralded as a flexible agreement for member states, and most importantly it allows each state to retain their full share of revenue generated. In MSIGA there are no winners or losers, every state will get precisely what they deserve.

New Jersey may need to join MSIGA before PokerStars is licensed

Wait and see is fine, but New Jersey may need to join MSIGA sooner rather than later, otherwise they could be setting themselves up for some serious infighting, as certain companies would be pro MSIGA while others would be against it.

If New Jersey does eventually team up with Nevada and Delaware it could allow Caesars and 888 to compete with PokerStars, as PokerStars would not be able to draw from Nevada (which has barred PokerStars for five years) or Delaware (where 888 has a virtual monopoly through the state) giving WSOP.com and 888.com a huge advantage in the New Jersey market as almost all of the added liquidity would benefit them exclusively.

If Boyd Gaming and MGM launch an online product in Nevada, they could then team up with the Borgata in New Jersey as well.

The current lack of interstate prospects for PokerStars could severely limit them in New Jersey.

 

 

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Steve Ruddock

Steve is veteran of the the poker industry, first as a player and now as a writer focusing mainly on the regulated U.S. markets and the politics of poker. Follow Steve on Twitter @SteveRuddock and at Google+.

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