California Legal Online Poker Market Projections

How Much Revenue Will California’s Regulated Online Poker Market Generate?

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Everyone agrees that the market for regulated online poker in California will be the largest in the United States.

But ask how large, and that agreement gives way to a broad range of opinions.

The short answer: in a base case scenario, regulated intrastate online poker in California will likely generate $215mm in the first year and closer to $310mm annually at maturity.

The longer answer follows.

Surveying revenue projections for regulated California online poker

SourceCircaYear 1 (mm)Mature (mm)
Gambling Compliance2015$217$366
Deutsche Bank2015n/a$365
Eilers Research2014$222$273
NV model ‡2014$151$210
NJ model †2014$125$204
Capitol Matrix2013$729$1300
Morgan Stanley2013$435$1189
Blue Sky*2011$317$732

All projections are for direct gaming revenue from poker and do not address the broader economic activity (taxes, employment, etc) that regulated online poker would generate.

The projections also don’t speak to what sort of profit could be realized by California operators. By and large, the projections assume intrastate play only. Base case projections chosen when available. More info, links and caveats below.

Filtering the data

What’s the consensus base case?

An unweighted average of the numbers above yields the following consensus base case projections for annual revenue from California’s regulated online poker market:

  • Year 1: $326.8mm
  • Maturity: $544.6mm

Throw out the high and the low from each set and the consensus is considerably reshaped:

  • Year 1: $281.6mm
  • Maturity: $485.4mm

Where to put the weight

I’m inclined to assign the most weight to the projections from Academicon / PokerScout, Eilers, GamblingCompliance and models based on actual performance in New Jersey and Nevada – aka, the low end of the spectrum.

Why? A couple of reasons:

  1. PokerScout / Academicon base their projections on a solid foundation. These are player activity levels in a given state prior to online poker’s Black Friday.
  2. PokerScout / Academicon and Eilers have been closest to the mark in terms of forecasting NJ and NV.
  3. Additonally, while not a perfect analogue for a number of reasons, NJ and NV are easily the most relevant available data sets for modeling California.

I’m also inclined to put weight on GamblingCompliance’s estimate because it’s the freshest (March 2015) and has a downward revision from their 2014 number.

On the high end, Capitol Matrix is an outlier projection generated (in some part) to serve a political aim and consequently should be discounted. Furthermore, Morgan Stanley has repeatedly been forced to shave massive chunks from its past U.S. online gaming forecasts, suggesting a tendency that warrants a similar discounting of their numbers for California.

That’s why my best guess for the first year – $215mm – is 29% below the unweighted average of $301.6mm.

When is maturity?

Forecasts differ on the maturity point for California’s regulated online poker market.

GamblingCompliance pegs it at four years out from launch. Eilers employs the five-year mark. Finally, Academicon sees maturity hitting at a full ten years following the market’s opening.

Deutsche Bank and Morgan Stanley have 2020 as the maturity date for California. This suggests a six- or seven-year ramp based on publication date.

For the purposes of our conclusion, maturity is defined as the fifth year of operation.

Why California online poker could hit the high end

  • Liquidity: A large population easily capable of supporting multiple rooms will allow California rooms to spread more games at more limits. Additionally, they can offer larger-ticket tournaments on a regular basis and generally enjoy the self-reinforcing effects of strong liquidity.
  • Brands: The existence of strong poker brands in the status quo, many of which have well-known marquee events, bodes well for live-online crossover.
  • Culture: Similarly, the existence of a strong poker culture should lessen the burden on operators to educate consumers regarding the online poker product.
  • Playbook: California should benefit greatly (emphasis on the should) from the lessons already learned the hard way by New Jersey and Nevada.
  • Geolocation: California should not suffer from the border geolocation issues that impeded participation in New Jersey’s online poker market (although the state will still have to deal with some of the consumer friction that comes with having geolocation as part of the gameplay process).
  • Payments: The population and perceived economic importance of California, along with the vast number of independent institutions, could help resolve payment processing issues that have plagued New Jersey.
  • Marketing: Strong competition will drive high promotional and marketing spends that will ignite player interest.
  • PokerStars: The presence of the global online poker leader in the market could materially boost player interest and overall revenue.

… and why it might come in low

  • Reality: It’s no coincidence that the Nevada and New Jersey models — the markets where regulated online gambling is actually happening — are the lowest of the bunch by a wide margin. New Jersey and Delaware have both performed below expectations due to complications seen and unforeseen. Consequently, California will certainly experience some headwind heretofore unidentified or vastly underestimated following the launch of online poker.
  • Bad bill: Legislation could artificially limit competition, undermining the natural dynamism of California’s market.
  • Payments: Processing in California could be as bad as it is in New Jersey. While California consumers will bring more pressure on banks, the financial industry simply isn’t moving quickly on this issue. Even with steady progress, material improvement could follow the launch of online poker in California by months, or even years.
  • Too many cooks: The launch of too many independent rooms could create consumer confusion. Furthermore, it could spread liquidity to the point where it diminishes the state’s population benefits.

Sources and caveats

Below find links to more information regarding the projections referenced in this article:

Base case projections chosen when available. All projections assume intrastate play only.

*Blue Sky numbers per on updated projections issued after Black Friday. Blue Sky offered a 10-year horizon toward maturity; we took their Year 5 number for a more like-to-like comparison with other forecasts.

† NJ model based on annual run rate of $29mm (trailing 12 months, per DGE data) and a population adjustment of 4.36x, mature market assumes eventual run rate of $3.9mm monthly for NJ.

‡ NV model based on current annual run rate of $11mm (NV GCB data / internal estimates) and 13.7x population adjustment, mature market assumes eventual run rate of $1.16mm monthly for NV.

This article originally ran in July 2014. It was substantially updated and republished in April 2015.

- Chris is the publisher of Grove also serves as a consultant to various stakeholders in the regulated market for online gambling in the United States.
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