Legalized online poker is off to a slow start in the United States and everyone from the CEO’s of the companies involved in the industry to my grandmother seem to have an opinion on what the major problem is – Nana thinks it’s a lack of a federal bill, by the way.
The fact of the matter is the problems that have stunted the growth of legalized online poker in the U.S. are plentiful, and in this column I’ve identified what I consider the several key problems that are responsible for holding the industry back – sorry Nana, federal legislation didn’t make the list.
Low consumer awareness
Since the passage of UIGEA in 2006 (and even before this) the legality of online poker in the U.S. has been a bit of an open question.
With online poker advocates shouting that it’s legal to play, and at the same time the FBI and other authorities have been telling the public that it’s illegal, it should come as no surprise that after seven-plus years of allusions to gray markets and the need for .net advertising, players have been confused about the legal standing of online poker in the U.S.
Chances are most casual players threw their hands in the air in disgust by 2008, and the few that still remained followed suit on April 15, 2011. For all intents and purposes, the majority of casual online poker players in the U.S. assumed online poker was illegal once the indictments and domain seizures started occurring, even though people were telling them it was perfectly legal to play – you just can’t OPERATE a site.
Which is precisely where we find ourselves in 2014, only this time it really is 100% legal – in New Jersey, Delaware and Nevada anyway.
Unfortunately, the licensed sites in New Jersey decided not to tackle this issue early on, and the low level of consumer awareness has continued – perhaps these European operators were not prepared for how blissfully unaware Americans can remain on current events?
Now a year later, and after spending millions marketing to these players, they are beginning to realize they need to clean up the consumer awareness mess; something they should have focused on from the start.
Luckily, this is a solvable problem. Marketing that moves away from your latest tournament and deposit bonus and focuses on the legal standing of the industry would be a great first step. And Step 2 should be drawing a clear distinction between licensed and unlicensed sites.
Less than impressive software
If you own a restaurant it doesn’t matter if you have the best waiters and staff, the nicest décor, or the most extensive wine list, if your food sucks than your food sucks. And when it comes to the products that have been rolled out in legalized markets, the food is at best mediocre.
A combination of things seem to have caused this, from stringent regulations and the regulators being unfamiliar with online poker software, to a rushed timeline for launch (9 months), to the sites’ lack of innovation over the years.
The good news is this is already starting to improve.
Black market sites
Even though it’s cited all the time as being a major hindrance, I consider this the least impactful item on this list, but it’s still worth noting.
Black market poker sites offer better liquidity, less stringent verification checks, and in many cases, better rewards and promotions.
Still, their appeal is often overstated.
As is the case with legal online poker sites, players have a difficult time moving money on and off these sites (and are often hit with hefty fees), the software is far from impressive, the liquidity is only slightly better in most cases, and there is the overhanging fear of the site running off with your money or the DOJ shutting them down.
Even if we take the unlikely approach that 100% of the US-facing black market sites’ traffic comes from the U.S. that’s about 3,500 cash game players. New Jersey accounts for 3% of the U.S. population which means perhaps 100 Black Market players are from New Jersey – and this is probably way overstated, with the real number probably less than 50.
If legal online poker sites could improve in the other areas listed in this column, online poker players would find the black market sites even less appealing. It’s not as if they are dealing with PokerStars or some company with a strong brand; the black market sites have names like Chico Poker Network, Carbon Poker, and Juicy Stakes, and shouldn’t be able to compete, even if they do have certain advantages over licensed sites – like not paying taxes or dealing with regulators.
Like Black Market sites, payment processing is another issue that is brought up whenever industry types are asked about the underwhelming iGaming revenue numbers.
Unlike Black Market sites, there is very little the licensed online poker operators can do to fix this problem other than help educate the banks on the new laws in place. Payment processing needs to be worked out by the banks and the regulators.
Word around the campfire is there will be new Credit Card codes in place in 2015, but what effect this will have is still unclear.
There are also rumblings that PayPal may be pondering entering the iGaming payment processing market; a move that would be a game changer.
Bad first impression
Using another restaurant analogy: If you have a terrible experience at a new restaurant, how likely are you to go back, or recommend it to your friends and family?
Looking back at the early days of online gambling in New Jersey there were major disconnect and geolocation issues; terrible credit card success rates and few alternative options to choose from (Optimal, prepaid cards, Skrill, and PayNearMe were all added later); and of course buggy software.
For a lot of people, online poker in New Jersey has already been written off, and all the outreach in the world isn’t going to bring them back.
Even though many of the early regulatory issues have been resolved or improved (geolocation and payment processing come to mind), there is still the not so small requirement of disclosing your Social Security Number in order for the site to run a player verification check – and for a lot of people this is a no-go.
How much of a problem is this? Consider for a moment that the only site that requires players to disclose just the final four digits of their SS# is the one site that seems to be performing above expectations: Tropicana.
Lack of Liquidity/Games
Liquidity. This is without doubt the #1 thing holding back the iGaming markets in the U.S. The state-by-state approach may have sped us down the path to legal online poker, but it also created small markets and small pools of players – I guess Nana was right after all.
The only solution is for interstate agreements to be enacted, something that will hopefully occur in 2015.