US online poker remains mostly ring-fenced

The Divided States Of America: Why Interstate Online Poker Isn’t Ubiquitous In The US

Because it pits players directly against one another, poker is a different beast than most other forms of gambling. While that competitive aspect represents much of the appeal for many players, it does present some unique challenges for operators.

There is, for starters, a minimum level of activity needed for a poker room to be viable. From a player’s perspective, the experience of playing slots or blackjack doesn’t depend much on how many virtual seats are filled. When it comes to poker, however, the number of players online at one time — liquidity — is critical.

One popular solution over the years has been shared liquidity. Although this sort of network model is falling out of favor internationally, it remains an important tool to compensate for limited player pools in small markets. That includes all US states with legal online poker.

The obvious question, then, is why multi-state poker is still so limited in this country.

The state of multi-state poker in the US

With poker regulated on a state-by-state basis, the need for interstate compacts is obvious. Progress, however, has been slow. Even now, WSOP and 888 remain the only operators with a multi-state network — and it only includes three of the four where legal sites operate.

New Jersey, Delaware, and Nevada all legalized online poker around the same time, with their first sites launching in 2013. All three were interested in the possibility an interstate compact from the start, yet the formative process still took years.

It was most important for Delaware as the smallest of the three. On its own, it simply does not have the population to support a full-featured online poker room. It managed to link up with Nevada in 2015, fortunately, then with New Jersey two years later.

Even so, the WSOP/888 network is still the only one with the ability to offer a multi-state product. Its two US competitors, partypoker and PokerStars, aren’t currently active in more than one market with liquidity sharing.

Three new states, three new challenges

New Jersey’s addition to the multi-state pool was the most significant development for US online poker in several years. Now, however, things are ramping up across the eastern half of the country.

Pennsylvania, West Virginia, and Michigan have all legalized full-scale online gambling, though PA is the only one live with online poker so far. WV does have its first online casino up and running, so a poker room could theoretically launch any day. The timeline in Michigan meanwhile puts the earliest possible launch in October, though early 2021 is probably more realistic.

Unfortunately, there’s no indication that any of these states will enter into a liquidity-sharing agreement in the near future. Although the political climate is generally more hospitable to online gambling now than it was in 2013, some new challenges to interstate poker have begun to appear.

1. The ongoing Wire Act battle

The biggest obstacle to interstate poker is the US Department of Justice. Although online gambling has never been viewed favorably at the federal level, things took a drastic turn in 2018 when the DOJ’s Office of Legal Counsel published a new interpretation of the Wire Act.

As written, the 1961 federal law prohibits the use of interstate communication “for the transmission of bets or wagers or information assisting in the placing of bets or wagers on any sporting event or contest.”

Although a natural reading seems to limit its scope to sports betting, the DOJ now argues that the sports modifier only applies to one of the clauses. Without specifying which forms of gambling might be implicated, the new opinion concludes that the Wire Act is not uniformly limited to sports betting.

The New Hampshire Lottery Commission promptly challenged the interpretation on the grounds that it would interfere with big interstate draws like Powerball. A District Court judge agreed with the lottery, though the case now remains under consideration by the appellate court.

2. Trepidation among lawmakers, regulators

Although the DOJ seems to be an underdog in the case, the litigation seems to be having a chilling effect on interstate poker. The department has so far only agreed to defer enforcement until the end of 2020.

The logistics of liquidity sharing, however, require a fair bit of time, effort, and money from regulators and the sites themselves. Stakeholders have proven to be mostly unwilling to make that investment so long as the legal question is undecided, for fear that it could become wasted effort.

In the case of smaller states like West Virginia, the market is simply not appealing without shared liquidity. With regulators in the state taking a wait-and-see approach, prospective operators are so far declining to make a public commitment to WV online poker.

West Virginians may ultimately have to wait for a resolution in the Wire Act battle before they know if they’ll actually have legal access to real-money online poker at all.

3. Shifting priorities in uncertain times

Compounding these issues is the fact that poker keeps getting shuffled down the list of priorities.

When legal online poker first returned to the US in 2013, the global market wasn’t far past its peak. It has, however, been on the decline every year since. Although the industry still has room to grow in this country, worldwide trends cast some doubt over its longterm potential.

Meanwhile, sports betting is newly legal in the US and taking up most of legislators’ and regulators’ attention. Despite the federal prohibition which existed until 2018, it has already become a larger industry in the US than poker could ever be.

Adding insult to injury, the need to respond to the COVID-19 pandemic has interrupted virtually all other legislative efforts. The immediate problems spawned by the pandemic have to be addressed before gambling expansion can continue — and even then, online casinos and sports betting will remain higher priorities than poker.

When will interstate poker come to PA? WV? MI?

Given all the barriers, it seems unlikely that interstate poker will expand in the immediate future. New Jersey’s story shows that it can take years to happen even under much more favorable circumstances.

There has been a small amount of recent progress in Michigan, where a late change to legislation removed what would have been an authorization for interstate pooling. A supplemental bill introduced by Sen. Curtis Hertel Jr. is now working to restore such permissions for the purpose of multi-state poker.

West Virginia regulators haven’t had much to say about the issue, which will become apparent once sites launch with insufficient traffic — or fail to launch at all.

At minimum, it seems that the Wire Act case and the COVID-19 pandemic both have to be resolved before there’s any movement in any state. After that, it comes down to priorities.

Unfortunately, it seems more likely that it will take years for regulators to get around to it as attention continues to shift to the fledgling sports betting industry.

- 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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