Nevada and Delaware Agree to Compact for Online Poker. Who Wins and What’s Next

UPDATE 2/25 1:10 PST: The full text of the agreement has now been released and is available here. You can read our cliffs here.

The first online poker liquidity-sharing agreement between U.S. states is now in the books.

The governors of Delaware and Nevada signed a deal today that will see the states both share online poker liquidity and lay the framework for additional states (and games) to join along.

Video of the signing ceremony is available here.

Inside the deal

Full text of the agreement is located here. Read our cliffs here. Some of the basic points:

• The deal will allow Delaware and Nevada to share poker liquidity. Nevada will continue to offer online poker only.
• Players will log in at a local site and then be part of a shared player pool.
• Revenue generated by Delaware players goes to Delaware, Nevada players to Nevada.
• Delaware players are subject to Delaware laws and regulations, Nevadans to Nevada’s.
• The agreement also creates the Multi-State Internet Gaming Association. More on that below.

The Multi State Internet Gaming Association

The Multi State Internet Gaming Association (MSIGA) is created as a result of this agreement. The MSIGA is a Delaware LLC that is basically seeking to be the hub for interstate online gambling.

The MSIGA will set minimum standards and otherwise help to guide policy development related to online gambling regulation.

Membership is open to other states. Sandoval and Markell stressed repeatedly that the MSIGA welcomes additional members and is designed to be extremely flexible to accommodate the needs of other states.

Read the full details on MSIGA here. You can also read our cliffs here..

When does the DE / NV agreement kick in?

No firm date was set. Both Sandoval and Markell asserted that the agreement required no additional regulatory approval.

According to Markell, the only remaining hurdle to implementation is on the technological side.

888 – who will be a key player in this agreement as the only operator in Delaware – developed their US platform with compacting in mind.

So liquidity sharing could theoretically begin in a matter of months, a timeframe that has been echoed by a few sources on background.

Putting the compact before the horse

One potential wrinkle to the agreement that was not addressed during the meeting: What rooms are going to share liquidity?

In Delaware, 888 is the sole operator and powers all three Delaware online poker brands (which all feed into the same player pool). But 888 does not have a live room in Nevada. They have plans to launch, but no firm launch date as of yet.

888 does provide the platform for WSOP.com’s online poker room in Nevada (and in New Jersey). But in New Jersey, 888 and WSOP operate separate networks (The All American Poker Network and WSOP.com respectively) despite sharing the same software platform, an arrangement most expected to extend into Nevada.

Mitch Garber, CEO of Caesars Acquisition Company, said in an email that his company will “now take a real look at Delaware as well” following the signing of the agreement.

Garber described the agreement as “a very important milestone.”

“If you think about how quickly three states have legalized online gaming,” Garber continued, “and how quickly two states have reached a compact on sharing liquidity, this bodes well for future state legalization and future inter-state collaboration.”

Will revenues in Delaware and Nevada see a boost?

Adam Krejcik of Eilers Research offered the following opinion in a brief covering the NV / DE agreement:

Today’s announcement of Nevada and Delaware entering into online poker agreement (i.e. compact) whereby the two states will share player liquidity (revenue will be distributed evenly based on location of player that generated rake) is symbolically important; however we expect the financial implications for both states to be negligible.

I personally think that Delaware will see substantial gains in poker as a result of this agreement, but their overall poker number is so low that even substantial gains would be negligible in an absolute sense.

What’s next for interstate online gambling compacts?

While Sandoval and Markell spoke of the benefits to their individual states, it was clear that the focus of the agreement was the expansion of MSIGA to include additional members.

Obviously New Jersey is the only other state offering online poker and casino games at this point.

When asked if he had invited New Jersey to join, Sandoval responded that he has had conversations with New Jersey and that they would love to have New Jersey on board, but did not elaborate beyond that.

How would a compact impact New Jersey’s online poker market?

If New Jersey comes on board – and that’s a big if, for a number of reasons – what would be the impact on the existing online poker market in the state?

The big winner would be WSOP.com who would immediately leapfrog Party/Borgata for the top traffic spot in New Jersey thanks to the roughly 60% bump the addition of WSOP.com’s Nevada traffic would provide.

Another winner: Ultimate Poker, who would both shore up their Nevada room and – perhaps more critically – breathe life into their New Jersey operations.

But that’s all speculation. There’s a reason why NJ was absent from the ceremony today, and a number of reasons why they may never partner up with New Jersey and Delaware, as Joe Brennan Jr. concisely noted:

NJ will see the DE/NV "hub" strategy as a challenge to their own; not likely to join anything where they're not the "big dog" & empowers NV.

— Joe Brennan Jr (@joebrennanjr) February 25, 2014

Cliffs of the MSIGA structure

The skeleton of MSIGA is laid out in a 13-page document which you can review here. Below is a brief summary, article by article, of the points likely to be of most interest to online poker players.

Articles 1-3

Article 1 is the Title. Article 2 lays out the Purpose of the agreement and Article 3 covers the Definitions. There’s not too much of note here:

• The definitions suggest that a licensee only need to have a license in one state to do business in another (although you’d need a local partner for this to work).
• The definition of “State” does not explicitly mention tribal entities.
• The definition of “Other Internet Gaming” is limited to “variation or compilation of slots or table games found in full service casinos.”
• The definition of “Poker” is “any peer-to-peer house banked card game commonly referred to as Poker.”

Articles 4-5

Article 4 covers Requirements to Join, while Article 5 outlines the Operation of Internet Poker and Other Internet Gaming.

• Among some more obvious items (online gambling must be legal in a state for said state to join) , Article 4 also requires prospective members to receive a 2/3rd vote of approval from existing members.
• Prospective members must meet minimum standards (described later).
• Article 5 clarifies that members can share poker player pools and allow customers to play other permitted games “with or against each other.”
• Depending on how member states construct regulations in light of MSIGA, Article 5 could basically pave the way for reciprocal licensing.

Article 6

Article 6 details MISGA’s approach to Internet Gaming Revenue.

• The state of origin gets the revenue. So if a player plays a slot in Delaware, Delaware gets the tax revenue as articulated in their regulations. Same with rake.
• Rake in cash games will be calculated using the weighted contributed method, meaning it’s based on a player’s contribution to the pot.
• States first collect all the revenue from their licensees and then distribute earned portions to partner states.
• This article allows for states to charge “reasonable administrative fees” for collecting revenue from its licensees and then distributing to states as required.

Articles 7-8

Article 7 covers Governance, and Article 8 deals with Cooperation and Transparency.

• MSIGA is governed by a board consisting of one representative from each member state.
• That board will be chaired (and vice-chaired) by Delaware and Nevada for the first 4 years. The powers of the chair are not articulated.
• That board sets the policy for MSIGA, controls membership and so on.
• Members must designate a law enforcement representative for online gambling issues.
• Members can’t have subordinate or side agreements with other individual members (or subsets). Basically it sounds like you can’t pool with one state on one game and not pool with other states that also offer that game.
• But – perhaps critically – they can have such agreements “with respect to sharing revenue and/or costs […] certain oversight functions and marketing efforts.”

Articles 9-13

Article 9 covers Data Protection and I’m not completely certain if there’s anything of note in there. Article 10 outlines the Dispute Resolution policy for MSIGA, which seems pretty standard. The one odd part involves what happens when there’s a player dispute involving players in two states when a licensee is licensed in both states. As I read it, it’s unclear whose rules trump whose in that case.

Article 11 (Amendments to this Agreement) reveals that amendments require 2/3rds vote, or unanimous consent if there are only two members. Article 12 (Withdrawal/Expulsion from this Agreement) details the process for being booted from MSIGA; that requires 60 day notice and a 75% vote. Article 13 (Termination of this Agreement) says that unanimous consent is required for the agreement to be terminated.

I certainly could be missing something, but the remainder of the articles appear to be largely boilerplate.

Exhibit A – Minimum Standards

This section lays out the minimum standards prospective members must meet. It’s very brief, taking up a bit under two pages. Some points of interest:

• Sections 1 and 2 suggest a rather broad “bad actor” clause that could limit participation, but no specific bright lines are identified.
• Section 3 offers an overview of the basic technical requirements: geo location, age verification, auto-log off, self-limits, data backups, self-exclusion, identity verification, no player-to-player transfers, to name a few.
• Section 4 requires an ad for and link to problem gambling help on any website that conducts Internet gambling.