Want Legal US Online Poker To Become Relevant? A NY/PA/NJ Interstate Compact Might Do The Trick

Games do not run round the clock, tournament guarantees are on the low side (and dipping), and low-to-mid stakes No Limit Hold’em games dominate cash game lobbies.

But with online poker at the forefront of the legislative conversation in both New York and Pennsylvania, that could change in relatively swift fashion.

Admittedly, there are still a lot of pieces that need to fall into place. But should NY/PA pull the trigger, then a liquidity sharing compact between NJ and its neighbors to the north and west feels like a logical next step.

Here’s a glance at what the first legal US online poker triumvirate might look like.

Cash game traffic

Unfortunately, there is no straightforward means of predicting average cash game liquidity for the NY/PA/NJ online poker network.

The closest comparison point is the ring-fenced market of Spain, which boasts a similar population — 46.8 million versus 41.5 million collectively for NY/PA/NJ.

Problem is, these are two very different markets.

Spain features a significantly lower GDP per capita and internet penetration rate than the northeastern US. The nation’s online poker tax rate of 20 percent is also higher than our predicted mixed tax rate of approximately 17 percent for NY/PA/NJ.

Using Spanish market liquidity as a starting point, we derive that NY/PA/NJ would average approximately 975 concurrent cash game players at this time of year. That figure strikes as remarkably low.

A better indicator is to look at current NJ online poker traffic. According to the latest PokerScout figures, the NJ market is currently averaging 320 players.

Applying a straight population multiplier tells us that NY/PA/NJ would average just under 1,500 cash game players — much more in line with our initial assumptions.

NJ is a good starting point for a few reasons:

• New Jersey’s GDP per capita walks the middle line between New York’s and Pennsylvania’s.
• Assuming a 20 percent tax rate on online poker in Pennsylvania (current legislation calls for as high as 25 percent), and 15 percent in New York, New Jersey’s rate of 17.5 splits the difference here as well.
• The internet penetration rates are similar for all three states (PA’s is slightly lower).

[geoip2 region=NJarea][i15-table tableid=29874][/geoip2]

But there’s one problem

Online poker is a unique gambling vertical in that liquidity begets liquidity.

One of the primary reasons the NJ online poker industry is restricted to only the most popular game formats is because there aren’t enough table starters to get alternative format and fast-fold games running.

Multiply the population reach of the market by more than 4.5 and the situation changes. With an increase in table starters, former observers are more apt to take a seat.

A compounding effect then occurs, where even more players sit down simply because there are already more options available.

Thus, to use a straight NJ population multiplier to predict NY/PA/NJ online poker liquidity would be overly bearish.

In reality, it wouldn’t surprise if NY/PA/NJ averaged 40-50 percent more liquidity than this figure, or an average of 2,100-2,250 concurrent players.

This figure is much more in line with that of the ring-fenced French market, which features a significantly larger population of 66 million. The French market, however, is hamstrung by overbearing tax rates.

Online poker tournament traffic

Assuming only one or two thriving online poker sites — and by thriving we mean cash game liquidity of over 800 average players — then NY/PA/NJ would likely play host to some attractive one-off tournament series.

In our comparison market of France, industry top-dog Winamax is poised to play host to an €11 million (~11.8 million USD) tournament series. Second place PokerStars.fr opted for a more conservative route. It’s currently running SCOOP 2017 features a €2.5 million prize pool.

Given this, and the size of recent series that have run in NJ (The PokerStars NJCOOP guaranteed $1.2 million across 43 events), we suspect the largest tournament series in the NY/PA/NJ market will guarantee upwards of $10 million. Second-tier series guarantees will run the gamut from $2-$5 million.

As far as the network’s biggest weekly majors go, a $200,000-$250,000 guarantee on Sundays doesn’t seem out of the question. Conservative estimates suggest that weekday major guarantees will probably range from $10,000-$50,000.

Who would be the major players?

There’s a common thread in just about every ring-fenced European online poker market: There are no more than two major operators. And there are never more than four operators with measurable liquidity.

We wouldn’t expect the NY/PA/NJ online poker network to be any different. This, despite the fact that there are currently three operators in New Jersey — although a case can be made than not a single one is currently viable.

Given the current US online poker climate, we suspect that PokerStars and WSOP/888 will enter into a heated rivalry for supremacy in the NY/PA/NJ market. All other operators will fight for the leftover scraps.

And should the market become too saturated (> four operators) some will be forced to leave. If too many operators hang around too long, the industry could be hindered by market fracturing.

Breaking it down

Our reasoning is based on the following:

• Despite being late to the party, PokerStars has consistently held a 40 percent revenue market share in New Jersey. That, and it’s the most recognizable name in online poker.
• Together with WSOP NJ, 888 has maintained an over 30 percent market share in New Jersey. Not to mention, 888 is the only operator with a presence in all three states that have legal online poker. And it has already forged a partnership with Mt. Airy Casino in Pennsylvania.
• WSOP is tied to one of the strongest brands in live US poker, and will likely forge a strong partnership with Harrah’s Philadelphia. The operator has a presence in Nevada as well, where it is the sole viable operator.
• An argument can be made that bwin.party (GVC) is still only relevant in New Jersey due to its partnership with the Borgata. Should the operator hope to compete with PokerStars and WSOP/888 in New York and Pennsylvania, it’s going to have to do better than partnerships with Category 3 casino Valley Forge (assuming that partnership still even exists).
• Other operators that have tried to stake a claim in the NJ online poker market — Betfair and Ultimate Poker — have failed miserably. To give an idea of how hostile the online poker environment can be, consider that Betfair Casino is among the strongest performers in the NJ online casino industry.

Putting it all together

Based on our analysis, we’ve come up with one possible look for the NY/NJ/PA casino market:

• PokerStars: 1,000 average cash game players, largest annual tournament series guaranteed of $10 million, revenue market share of 45%
• WSOP/888: 800 average cash game players, largest annual MTT series guaranteed of $4 million, revenue market share of 35%
• bwin.party: 300 average cash game players, largest annual MTT series guaranteed of $2 million, revenue market share of 15%
• Miscellaneous fourth operator: 100 avg. cash game players, largest annual MTT series of $500,000, revenue market share of 5%

Regardless of the composition of the market, one thing is for certain. An interstate online poker network between NJ, NY, and PA would be beneficial for state coffers.

In a bear case, the triumvirate would collectively generate over $180 million per year in gross gaming revenue. As independent entities, $150 million might prove a struggle.