What’s Really Driving Recent Policy Changes at PokerStars?

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There has been a flurry of chatter in the poker world over recent policy changes instituted by PokerStars.

The company has recently made a number of relatively small, but somewhat controversial, changes that have left some players with the distinct impression that it’s anything but business as usual at PokerStars in the post-Amaya purchase world:

New ownership or new regulatory overhead?

While some people have pointed the finger at Amaya as the force behind these cost-cutting policies, another explanation is likely at work: Regulations.

It’s not a coincidence that the Isle of Man, Gibraltar and Malta, with their virtually nonexistent corporate tax rates, are the preferred homes of online gaming providers.

The Isle of Man, where PokerStars headquarters is located, has a corporate tax rate of 0%.

However, over the past five or so years, more and more countries have legalized and regulated online poker. This has forced operators to apply for licensing in different jurisdictions, resulting in sometimes-hefty licensing fees and local tax bills.

These expenses were virtually nonexistent in the unregulated online poker markets during the poker boom.

Grey market subsidy decreases as time goes on

And those assigning blame to Amaya may have not considered the timing of these moves in relation to PokerStars’ departure from many of the remaining worldwide gray markets where operators aren’t subject to a local tax burden.

PokerStars now has the real problem of dealing with an increased cost of doing business in markets around the globe, and unfortunately some of that cost is going to trickle down to the player.

PokerStars Head of Corporate Communications Eric Hollreiser said as much in a blog post released on Monday:

We’ve shown that our pursuit of doing what’s best for the game, what’s best for the livelihood and vitality of the entire poker community, is good business, even if it means higher ongoing costs from expenses like local taxes in newly-regulated jurisdictions.

We make those decisions every day across the entire company. Most changes go unnoticed, because they’re meant to unobtrusively improve the player experience, like optimising security to ensure you’re playing at the safest poker site in the world.

Others changes get more attention, such as our recent changes to the foreign exchange (FX) charges or the rake that we apply to various games. 

After the change, more change to come

As mentioned in the opening, there will probably be material changes to the VIP program in 2016. And the unpopular moves are unlikely to stop there:

  • As legal online poker proliferates in the U.S., PokerStars will have to pay licensing fees and taxes in these new locales, as well as launch major marketing campaigns.
  • The cost of doing business in the online poker sphere is only going to increase in the future as the market contracts.
  • Expansion into casino, sports and social may force the company to make adjustments that are unpopular with poker players as PokerStars looks to incentivize other forms of gambling.
  • Additionally, don’t lose sight of the fact Amaya Gaming just spent close to $5 billion to purchase PokerStars and they are likely going through the books with a fine-tooth comb looking for areas where the benefit isn’t justified by the cost.

The big-picture benefit

Yes, in the short-term these cuts will, to varying degrees, adversely affect players, but the alternative (keeping the status quo) would create many long-term problems as well.

If PokerStars passed none of the cost of doing business onto players, PokerStars would have to divert marketing dollars, lobbying dollars, and research & development dollars to overcome their increased cost of doing business. More from Hollreiser:

Our research & development budget, technical infrastructure and security costs are significant.

We’ve made a lot of hard decisions over the years, some of which have cost the company a lot of money. In the early years, we bet big on sending thousands of online poker players to the WSOP, spending millions on mass-market television advertising and sponsoring scores of professional poker players. More recently, we invested heavily in stablizing the global online poker ecosystem following Black Friday; purchasing Full Tilt and paying back that company’s players. We also spend more than most companies in advocating for online poker regulation and legislation that will create certainty and stability for players and for our company.

The money has to come from somewhere.

So, we have to ask ourselves: Do we want to eliminate the fees on currency exchanges and a faster clearing bonus if it comes at the expense of PokerStars’ ability to market to new players and push for legalized poker around the globe?

- 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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