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Top-10 things to watch for in the online poker industry

18 April 2011

By Aaron Todd, Vin Narayanan, and Dan Igo

When the U.S. Attorney for the Southern District of New York unsealed an indictment accusing the owners of PokerStars, Full Tilt Poker and Absolute Poker of bank fraud, money laundering and illegal gambling on Friday, it sent shockwaves through the online poker world.

After digesting the news over the weekend, the editorial staff at Casino City has determined the top-10 things to watch for in the coming weeks and months in the online poker industry.

10. Will Party Poker be number one again?
Party Poker owned a 41 percent share of worldwide online poker revenue at the end of 2005. It was the biggest online poker room in the world. That all changed after it left the U.S. market following the passage of the UIGEA in October 2006. Share prices of the company fell almost 75 percent in the days after its withdrawal. PokerStars and Full Tilt Poker, which still accepted U.S. players, swooped in and took control of the poker market. Now that those sites aren’t taking U.S. players, will Party Poker have the last laugh? Stockholders seem to think so, as share prices in Bwin.PartyGaming Digital Entertainments jumped 40 percent in trading on Monday. - DI

9. Fewer poker shows on TV
Other than the World Series of Poker, many of the more popular shows were made-for-TV events (e.g., Full Tilt's Poker After Dark, The PokerStars.net Big Game) that were created to promote the brands sponsoring them. It won't make sense to spend money marketing to the U.S., so these American-centric games will likely disappear as well. In fact, this is already happening. ESPN has announced that it is pulling the North American Poker Tour broadcast originally scheduled for Monday night from its lineup while it reevaluates the online poker landscape to decide whether they want to take advertising dollars from PokerStars. - AT

8. Shifting alliances
One of the most intriguing developments in the online gambling industry this past month was the alliances struck by PokerStars and Wynn Resorts and Full Tilt Poker and Fertitta Interactive. Both partnerships have been dissolved as a result of the DOJ indictments of PokerStars and Full Tilt, but that doesn't change the fact that existing land-based gaming companies need an online dance partner. These companies don't have the expertise needed to operate big online poker rooms. And it's too expensive and time consuming to develop that expertise on their own, so they'll be turning to online gaming firms that have their hands "clean" (read don't take bets from Americans). Companies like Party Gaming (home of Party Poker), PKR and Everest Poker are next up on the dance cards for American casinos. So don't be surprised if you see a new round of alliances announced soon. - VN

7. What will successful online poker pros do?
Tens of thousands of Americans earn a living playing online poker, and not just the guys who play at the nosebleeds like Phil Ivey and Tom Dwan. There are thousands of mid-stakes grinders who post on poker forums and play in the Sunday Million and the WCOOP and the FTOPS. Will these players, as one of my Facebook friends so eloquently put it, “have to be (real people now)?” Will they roll the dice at a poker site that still accepts U.S. players? Or will they pack up and move to a place like Canada, Mexico or the Bahamas? Not a lot of these players entertained these thoughts four days ago, but Friday’s news changed everything. - DI

6. Less sponsorship money to go around
Of course the mid-stakes pros aren't the ones who make the headlines — the celebrity players do. With less money to go around — and no reason to market to American players — PokerStars and Full Tilt Poker will likely make dramatic reductions in the sponsorships that they offer professional players.

The "Team PokerStars Pro: USA" roster includes 11 players, and that will likely change very soon. Players like Tom McEvoy and David Williams may soon see their relationship with the company end. Meanwhile, Americans that were members of "Team PokerStars: Online" will likely see their sponsorships end almost immediately, as they will no longer be able to play online.

Full Tilt Poker, which built its reputation as the site where you can "play and learn with the pros" can no longer make that claim. The vast majority of the site's pros are American, and those who weren't in on the ground floor will likely see their affiliation with the site end. - AT

5. WSOP Main Event attendance
In order to understand how the absence of Full Tilt and PokerStars from the U.S. market will effect on World Series of Poker Main Event attendance, we need to take a look at how Main Event participation has changed over the last 10 years.

2010 - 7,391
2009 - 6,494
2008 - 6,844
2007 - 6,358
2006 - 8,773
2005 - 5,619
2004 - 2,576
2003 - 839
2002 - 631
2001 - 613

As you can see, WSOP Main Event participation exploded in 2004 on the heels of Chris Moneymaker's 2003 Main Event victory. The "Moneymaker effect" was fueled in equal parts by a generation of poker players inspired to play poker online by Moneymaker and the ability of those online players to either satellite into the Main Event or earn enough money online to buy into the $10,000 event. The Main Event field size hit its high-water mark of 8,773 in 2006, just months before the Unlawful Internet Gambling Enforcement act passed. In 2007, Main Event entries dropped about 28 percent to 6,358, primarily because the WSOP changed its third-party registration rules as a result of the UIGEA. Third parties could no longer directly register people into tournaments, and that had a direct impact on online satellites. But the UIGEA didn't stop the growth of online poker, so the WSOP continued to grow right along with it, reaching 7,391 entries last year.

From a percentage standpoint, the impact of closing down Full Tilt and PokerStars to U.S. customers will be more devastating than the UIGEA. Players that typically earned enough money online to enter the Main Event won't be able to do so anymore. Players who had a good chunk of their bankroll on these sites might not be able access their funds before the Main Event begins. And there won't be anymore WSOP Main Event prize packages for U.S. residents. Since the UIGEA created a 28 percent drop in entries, I think it's fair to project at least a 35 percent drop in entries for this year's Main Event. That sets the over/under on field size at 4,804. - VN

4. The cannibalization myth will be busted
For almost a decade, brick and mortar gaming companies have claimed that online gambling would cannibalize their business by turning customers who would normally walk through their doors into stay-at-home gamblers. For years, they pursued legislation that would make Internet gambling explicitly illegal. Some have changed their tune (most notably Caesar's Interactive Entertainment, MGM Grand Resorts, and recently, Steve Wynn), but many others still insist that Internet gambling is hurting their bottom line. Now that the two largest online poker rooms have shut down their U.S. business and others are choosing to voluntarily leave the market, we'll get to see if there's a positive or negative impact on the overall gaming take at brick and mortar casinos. My guess is that either no effect or is a net negative. - AT

3. Durrrr challenge?
The “Durrrr Challenge” took the poker world by storm when it was announced in January 2009. Then people kind of forgot about it. Interest would be revived again every few months when Tom Dwan played hands against Patrik Antonius or Daniel “jungleman12” Cates. The last session of the “Durrrr Challenge” took place in late March when Cates took $39,000 off Dwan. Just because Full Tilt Poker doesn’t accept real-money play doesn’t mean this challenge is dead in the water. FullTiltPoker.net is still operational, and if a gentleman’s agreement on payouts can be reached among the participants, there’s still a chance the challenge can continue on the play money tables. - DI

2. State legislation
Nature abhors a vacuum. Google can't seem to agree on who said this (or more importantly, it shows that everybody thinks someone different said it), but that doesn't stop it from being true. And with the exit of Pokerstars and Full Tilt Poker from the U.S. marketplace, millions of Americans will be looking for a new place to play online poker. And one way to satisfy this pent up demand will be for states to start licensing and regulating online gaming.

Don't believe me? Then read what Florida State Rep. Joe Abruzzo just told the Orlando Sentinel.

“With what just occurred, it’s like finding a sunken treasure ship off the coast of Florida,” Abruzzo said. “There’s about 1 million players here with nowhere to go."

Aburzzo says he is going to try to revive an online poker bill that died in committee last week.

This is actually an easier sell now than it was last week. Now, online poker rooms licensed by individual states don't have to worry about whether players will leave Full Tilt of PokerStars. They're already gone. And they're just waiting for a new place to play on.

The UIGEA explicitly allows states to conduct intrastate online gambling. And since Department of Justice used the UIGEA in its pursuit of Full Tilt, PokerStars and Absolute Poker, states will feel comfortable invoking the UIGEA to offer online gaming.

The promise of revenue feels real after seeing the Feds freeze billions of dollars in assets, and states definitely want a piece of that pie.

And even though online gaming legislation in Florida (pending Aburzzo's revival efforts), Hawaii, Iowa, New Jersey and Nevada had essentially died this year, the prospects for a state-level solution seem much better than a federal solution because there are clear paths to success.

While a federal solution hinges Sen. Harry Reid attaching online poker legislation to a must-pass bill, state solutions require that the people with a vested interest in online gambling be on the same page. And with the sounds of profits wafting through the right now, it doesn't' take a Ferengi to see how profitable regulating online poker can be right now. They just need to remember Ferengi Rule of Acquisition No. 76 -- Every once in a while, declare peace. It confuses the hell out of your enemies. - VN

1. Federal legislation gets on a fast(er) track
Internet poker players had a wide variety of agendas when Senate Majority Leader Harry Reid (D-Nev.) attempted to pass legislation regulation the industry at the end of last year. Many hated Reid's bill because it required a blackout period for the entire industry, plus required additional time out of the market (a penalty box, if you will) for sites like Stars and Tilt that allowed U.S. play after the UIGEA. Some, however, were willing to make these concessions in order to create the certainty that a regulated market would bring. Well, now that the blackout period is here, and Stars and Tilt aren't likely to be granted licenses assuming the U.S. does move to regulate the industry down the road. As a result, online poker players in the U.S. can speak with a much more unified voice. And many of them are so passionate they'll vote for or against a candidate based solely on the politician's position on online poker. Politicians will take notice of this passion and rethink their own positions.

It's also a perfect scenario for giant gaming corporations like Caesar's and MGM. The provisions they were seeking (a blackout period and a head start on the industry players who were allowing U.S. play) are already in place before a bill is even written. Land-based gaming corporations can expect to enter an almost completely voided market when the federal government opts to license and regulate the industry.

Added pressure both from voters and lobbyists on the Republican leadership in the House of Representatives could move a bill along, while Reid should have the opportunity to persuade a few lawmakers on both sides of the aisle in the Senate. - AT
Top-10 things to watch for in the online poker industry is republished from Online.CasinoCity.com.
Aaron Todd

Home-game hotshot Aaron Todd has covered the gambling industry since 2006. While he is happy to play Texas Hold'em, he'd rather mix it up and play Omaha Hi/Lo, Razz, Deuce-to-Seven Triple Draw, and (his personal favorite) Badeuci.

Since graduating from St. Lawrence University, Aaron has worked as a journalist covering the gambling industry and as a communications specialist in college athletic departments.

A native of a small town in New York just south of Ottawa, Aaron lives in Needham, Mass., with his wife and three children. Write to Aaron at aarontodd@casinocity.com, and follow him on Twitter @CasinoCity_AT.