Unlicensed Online Poker Rooms Continue to Abandon Regulated Markets

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Earlier this year several sites on the Merge Gaming Network, one of the largest US-facing unlicensed online poker networks in existence, made the decision to leave the now-regulated markets of New Jersey and Delaware.

Now it is being reported that several Merge skins are fleeing the Nevada market as well, according to an article at USPoker.com.

What is causing the exodus?

As regulated online poker takes hold in the US, unlicensed operators are finding it difficult to not only compete, but to avoid the watchful eyes of law enforcement agencies.

This withdrawal will likely include more and more unlicensed operators and spread to other states as they pass online gambling bills of their own. Here are four reasons why.

Increased competition from regulated sites

First and foremost, players in New Jersey, Nevada, and Delaware now have options to choose from.

Unlicensed sites and their stagnant payment processing – and the fear of the sites closing up shop and leaving players out in the cold – are no longer the only game in town.

As players jump ship to regulated rooms, the number one appeal of an unlicensed site (a strong player base) diminishes. With a dwindling player base even more players will begin to leave the sinking ship.

What these unlicensed operators will be left with is a site full of rakeback grinders who are probably costing the site more than they are bringing in.

This poll is the perfect example of just how powerful an impact licensed online poker has been on unlicensed operators in New Jersey.

Stiffer laws and increased penalties against unlicensed providers

Unlicensed operators are now facing clear, purposeful laws pertaining to their activity, and as you’ll see in the next section, there are now people looking to nail them to the wall.

It’s not just regulated markets either.

Certain Merge skins have pulled their product from virtually any state with a clear law on the books or locales that have shown a willingness to prosecute, including Washington, New York, Maryland and Kentucky.

Ever-vigilant regulators and competitors looking to be rid of offenders

Now that unlicensed providers are actually taking money out of the pockets of their licensed competitors (as well as from the state via tax revenue and licensing fees), regulators are simply not going to turn a blind eye to their activity any longer.

Perhaps more importantly, nor are the licensed operators with hundreds of millions of dollars on the line.

Increased fees from payment processors

Payment processors, who must also deal with the threat of increased fines and penalties for operating in regulated markets, are likely charging an even higher premium in these markets due to the increased scrutiny.

At some point, the proposition of servicing a market under these conditions simply becomes an unprofitable one. I’m not arguing that we’re clearly at such a point, but I will argue that we’re clearly moving in that direction as the regulated markets in New Jersey, Nevada and Delaware continue to grow.

Unregulated sites being pushed to the margins in other markets as well

This crackdown on unlicensed operators isn’t limited to the United States.

Several countries that offer regulated online gambling have been making a concerted effort to ban unlicensed operators.

Many countries have started creating blacklists that call for ISP providers to block the sites, and in the UK payment processors have agreed to stop doing business with unlicensed sites.

But as long as there’s demand, unregulated options will persist

As long as players continue to patronize unregulated sites, they will almost certainly find a way around the regulations.

All over the world, regulated markets are making serious attempts to thwart unlicensed operators, but these sites continue to have a certain appeal to a cohort of poker players.

Their risky dealings and willingness to run on fumes (using player deposits for operational costs and to offer lucrative deals to bring in more new players) allow them to offer incredibly lucrative promotions, bonuses, and other offers.

But these added benefits come with a heavy risk: the possibility of players never seeing their money again as at some point the Ponzi-esque scheme will come to an end.

Making matters worse, the more chicanery these sites have to put into action in order to continue to operate, the more expensive it is to do so. What this means is that when something goes wrong (an unexpected expense, an unscrupulous payment processor stealing money, or perhaps a funds seizure), the higher the likelihood that the site cannot survive.

And when this happens don’t expect the puppet regulatory bodies that oversee unregulated sites to come to your aid.

As we’ve seen in the past, at best the regulatory body will do little more than publicly chastise the offending site and pull their license. And at worst the regulatory body could be in bed with the site.

- Steve covers nearly every angle of online poker in his job as a full-time freelance poker writer. His primary focus for OPR is the developing legal and legislative picture for regulated US online poker and gambling.
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