U.S. Online Poker Market Could Be $2.2 Billion A Year Under Nationwide Industry

Legalized online poker is slowly, but surely, coming to the United States. Right now, three states — Nevada, New Jersey and Delaware — have online poker up and running in their respective borders. More are expected in the near future (maybe none in 2014, though).

While the poker boom, which started around a decade ago, has ended, the U.S. online poker market could be set for a comeback. Card Player had the chance to speak with Dr. Kahlil Philander of the University of Nevada Las Vegas, who has done research on the size of the U.S. online poker market, to talk about some of the things that could be in store.

Brian Pempus: Can you talk about some of the estimates of the U.S. online gambling market?

Kahlil Philander: Well, my research has only been with online poker. As for online gaming in general, my take is that there are a lot of numbers out there that are probably overly optimistic in general. And that’s probably pretty consistent with what we’ve seen come out of New Jersey, just as far as the end of November and full December numbers, which were the first real test of a population big enough to hold a reasonably-sized poker market and also a market that has online casino games and online slots. So, I mean that’s sort of a general perspective. But in terms of trying to benchmark online poker, in particular, and comparing it to where the market was previously, I certainly think that if there was widespread adoption of legal online poker the market would certainly be larger than the previous peak, which was sort of the post-UIGEA, but pre-Black Friday, era. If you go by PokerScout’s numbers, which are considered the best in the business…you could easily exceed that by quite a bit.

BP: Do you have an estimate on the size of the U.S. market if online poker was legal everywhere?

KP: If there was a national network, my forecast was around $ 2.2 billion during the first year. That’s assuming there would be liquidity between all those players. If somehow Congress passed a bill or every state legalized it simultaneously on their own and had compacts.

BP: There was some indication in the past that California, with the largest population of any U.S. state, might want to isolate itself and have its own online poker industry and not share liquidity with another state. Do you think this could be viable for California?

KP: They are a big enough state to where they could create a viable network on their own, but they would always benefit from allowing people in from other areas and other time zones to also participate. But there’s some protectionistic ideas behind them sort of taking that approach. One of the issues with interstate deals is where do the servers have to be located. There are a certain number of jobs associated with that infrastructure, so there’s an interest in having that within your own borders. So part of this is politicking and trying to reap the economic benefits. If you really look at it in terms of the long term, mostly everybody can benefit from having shared player pools. It’s just the negotiations that have to happen in the interim. I’m fairly confident that in the end that’s the situation that we are going to get to, should these states decide to adopt legal online poker.

BP: What kind of timeline would you give for there to be a true U.S. online poker system?

KP: That’s a tough question. Five years ago a lot people thought a national network was going to pop up in a year. It is really hard to predict these types of things. They do take time. It doesn’t look like California, for example, will have anything passed in 2014, but you never know. When you try to think about gambling adoption, and Internet gambling adoption in particular, there’s a few things that can preempt things being legalized or banned. In terms of general gambling, one of the biggest things is whether there is a public revenue shortage. So as things get further and further and away from the financial crisis — the Great Recession — that makes less of an impact, but it certainly did help provide this wave of adoption in Nevada, New Jersey and Delaware. But you also need things like political motivations, obviously an interest by players and other stakeholders. There needs to be that cultural interest in having gambling adopted. So you wouldn’t see it in Utah or Hawaii. And then the technological infrastructure. So the issue here is that some states might want to sit back and see how things develop in Nevada and New Jersey. See if this geo-location is accurate as they might want it to be, and what hiccups arise. Certainly if New Jersey continues to grow quickly and a lot of revenue is generated, that may accelerate some timelines in other states.

BP: Now, we’ve seen PokerStars exist as an industry leader for quite some time, but they haven’t been able to gain access to the United States again yet. Let’s say the firm never returns to the U.S., do you think it could be dethroned so to speak from its top spot?

KP: It’s hard to say. PokerStars is in a fairly entrenched market position, internationally. There are a lot more markets in Europe…if one or two dominant firms emerged in the U.S., and international compacts were available and they could farm out and create an international network between their U.S. sites and European sites, certainly there is potential for them to acquire some market share from PokerStars. I mean, yeah it’s possible PokerStars could lose some market size, but they do have a lot of good will among the poker community, good software and they already have a large network, which regardless of what happens in the U.S., is still going to have a lot of liquidity. It’s hard to say there’d be a significant risk for their business, but projecting out more than a couple of years is always a challenge.

BP: Going along with that, how does the U.S. market compare to the global online poker market?

KP: The U.S. is the world’s largest economy. It also has widespread Internet and broadband access which are sort of the two biggest things in determining the value of a market. I was looking at a paper by Ingo Fieder and Ann-Christin Wilcke, called “The Market for Online Poker.” Ingo and myself looked at the North American market, but he also looked at sort of the global market, and the market share of the USA in 2010 in poker was 27 percent. It is a massive piece of the puzzle. There are a lot of people in the country, people with discretionary income and who have Internet access.

BP: Since most Americans are familiar with online poker, would you think that online poker as a percentage of overall online gaming revenue for a U.S. state would shrink over time as people become more familiar and comfortable with other games on the Internet?

KP: Well, some people thought that initially the casino games would be much larger than poker right out of the gate. In New Jersey, the first number that came out wasn’t all that much different. Casino games had a slight lead in overall market revenue over poker, but wasn’t that large. I think the big issue in the US will be whether states chose to adopt all sorts of casino games, or whether they only adopt poker. That will be the primary issue in terms of how it gets divvied up between the different games. But I don’t see poker falling by the wayside as other games become more popular. There is just nothing that will support that being the case.

BP: Has your research suggested U.S. online poker is complementary to live poker rooms?

KP: I’m fairly convinced that these two things are complementary…If you think about it kind of makes sense. It’s fairly different customer bases, and motivations, but they are similar games, so there is a link. They are activities that are done by different people and at different times. I think there is some loss in the overall gaming world, but it’s most likely going to come from offshore operators first.