PokerStars' route to the US won't be replicated by the likes of Betonline, Bovada

Five Reasons Offshore Sportsbooks Are Not The Next PokerStars

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Offshore sportsbook BetOnline closed its doors to players in New Jersey this week. 

Players in the Garden State are being told they can no longer wager there and have until the end of September to withdraw their balances.

The fact that the move was seemingly voluntary has led some to speculate that BetOnline and other offshore operators might have plans to try to re-enter the US market legally. A similar pivot pulled off by PokerStars, now that things are opening up on the regulatory front. However, this is almost certainly not the case.

The actual reason BetOnline left is most likely that the New Jersey Division of Gaming Enforcement (NJDGE) has been going after their advertisers.

Starting in 2015, but intensifying recently, the NJDGE has warned affiliate sites that those advertising illegal offshore sites would not be welcome in the state. It followed up on this by not only threatening civil and criminal sanctions against said affiliates, but also any legal New Jersey-based gambling and sports betting providers that are continuing to do business with any affiliate found not in compliance.

That led at least one affiliate, OddsShark, to block IP addresses from New Jersey starting in February this year, while continuing to advertise offshore operators.

But others are complying with the NJDGE by dropping ads from offshore books. BetOnline may have decided that if shutting out New Jersey players is enough to get the NJDGE off its advertisers’ case, it’s a worthwhile compromise since many players will be switching to regulated sites in any event.

Even if BetOnline, or some other offshore operator harbors, some fantasies of eventually being able to bring its product legally to New Jersey or other US states, there are a few reasons that the chances of this are effectively nil.

Here are five reasons:

No. 1: Half-measures aren’t enough to get into US sports betting

The first and most obvious reason is that pulling out of New Jersey is not the same as pulling out of the US market entirely.

Ceasing to serve players from the state might make BetOnline a sufficiently low priority for the DGE that they’ll lay off of affiliates advertising them, but so long as they’re serving the other 49 states, they’re still in obvious violation of US and states laws, which disqualifies them from receiving any licenses.

Nor is any simple obfuscation likely to do the trick. The network formerly known as Bodog has been trying this sort of shell game for years but isn’t fooling anyone. They first split their operations into Bodog (which left the US market) and Bovada (which remained), then had themselves purchased by the previously unknown casino Ignition in order to move their US players there and get Bovada ostensibly out of the US.

Bodog, Bovada and Ignition have since been purchased by the Hong Kong investment group PaiWangLuo, but it’s still the same players as always, playing on the same shared network, and probably mostly the same people running the business behind the scenes.

NJDGE head David Rebuck has made it clear he will fight against anyone in any way involved with these companies from obtaining a license in New Jersey or anywhere else in the US.

Remember: PokerStars wasn’t just gone from the US entirely for about five years before they were granted a New Jersey license. They also went through a reverse takeover process with Amaya (now The Stars Group) and replaced a lot of upper management in order to become effectively a new entity, separated both financially and directorially from “the old PokerStars.”

You’d have to somehow launder these brands through an acquisition by a current private or public company in order to get into the US. But these brands are pretty radioactive for anyone hoping to serve regulated markets, so the list of potential acquirers may be zero.

No. 2: Regulated US markets are overcrowded

Although the market for US regulated online gambling has the potential to grow very large, at this juncture, it’s still quite small and exceptionally crowded. 

So far, only New Jersey has a full slate of online gambling products available, with Pennsylvania in the process of rolling out online gambling. Ten states have legalized sports betting so far, but the most important of these, New York, has only legalized retail sports betting, with no online option for now.

More importantly, there are a lot of very large companies fighting for a share of what is so far a rather small pie. Any other company hoping to get a toehold in the burgeoning legal online gambling market in the US is competing with the likes of Stars Group, GVC, 888, DraftKings and FanDuel. There’s simply not a lot of upside for a small company to throw their hat in that ring.

No. 3: Operating in regulated markets isn’t that appealing

If you’re an offshore site, and you have a choice between operating in a state and 1. submitting to regulatory and taxation regimes or 2. doing whatever you want, that’s not much of a choice.

Why, exactly, would you start submitting yourself to regulation when you aren’t now? Sure, sites are “regulated” in places like Costa Rica and Antigua, but that is a far cry from the type of regulation they’d encounter in any legitimate gambling jurisdiction.

By the same token, you’re not paying state taxes on gambling revenue as an offshore casino or sportsbook — not to mention the .25% federal excise tax levied on sports betting handle across the US.

Part of the advantage of being an offshore operator is not dealing with regulations or taxes, and they aren’t at all set up to do the former.

The impetus to even attempt a change from “offshore” to “regulated in the US” just isn’t there for sites like BetOnline give the above unless they get to a critical mass of states they are afraid to serve. Even then, it’s probably not that appealing to try.

No. 4: They don’t have alternative revenue streams or easy access to capital

When PartyPoker left the US market voluntarily in 2006 after the passage of the Unlawful Internet Gambling Enforcement Act, it was sacrificing a lot of its traffic, but not the whole of its business.

It was already well-established in what was a decent-sized European market at the time. Abandoning its US-based revenue was certainly a large blow, but a manageable one, and one which has paid off in time.

There’s no similarly large market at the moment for offshore operators serving the US. Pulling out entirely would mean shutting down a sizable chunk of a company’s operations.

Doing so as part of a larger, longer-term plan would require a lot of cash to cover the short-term loss in revenue, and neither banks nor investors want to touch these sorts of illegal businesses. Again, keep in mind that PokerStars spent three years post-Black Friday establishing a cleaner image before going public by way of the Amaya deal.

No. 5: They have their eyes on new markets, but need US liquidity

Some of these operators do have their eyes on creating new markets for themselves, but those markets are not yet large enough to be self-sustaining. For instance, Bodog/Ignition expanded its operations in Central and South America after the takeover by PaiWangLuo. Yet the network is smaller now than it was before, so it’s unlikely that it gets much traffic from those places yet.

In the case of poker specifically, it takes a certain minimum player base just to keep games running, which makes the US pool of players important in ways beyond just revenue. Even for sports betting and house-backed casino games, however, having a certain volume of traffic is important in order to smooth out variance.

A triple bind for offshore operators

In short, offshore operators that have been serving the US illegally are in a triple bind of their making:

  • There’s no smooth transition from illegal to legal possible, and any attempt to do so would involve accepting a lengthy “cold turkey” period with a massive downside, followed by considerable risk and uncertainty surrounding any long-term upside.
  • Even if they were willing to take that chance, they would need a source of investment or revenue to weather the storm. Their illegal activities make them untouchable for most investors, so the only viable way would be to have a secondary market big enough to support the company after a US withdrawal.
  • However, even those offshore operators who have been eyeing other markets still rely heavily on their US customers in the meantime. They’d need considerable time to grow elsewhere before even attempting the sort of full pull-out that might eventually sway regulators. To the extent that’s even possible, it would be several years down the road, which is an eternity in this rapidly evolving industry.

For now, anyone holding their breath for the likes of BetOnline to apply for a US license, let alone receive one, is likely to die of asphyxia before that happens.

- Alex is a journalist from Dartmouth, Nova Scotia, Canada. Now site runner for Online Poker Report, he has been writing about poker and the online gambling industry in various capacities since 2014.
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