What will PokerStars do in Russia?

PokerStars Pulls Out Of China, Taiwan And Macau

PokerStars is no longer serving players in the markets of China, Taiwan and Macau as of Sept. 1. Less than two weeks later, on Sept. 10, it similarly pulled out of Serbia.

In both cases, affected players were made aware of the decision by email. The rest of the world came to hear about it by way of a post on TwoPlusTwo. The email, quoted in that post, lays out the decision in terse fashion and encourages players to withdraw their funds. The company has added new payment options and removed some of the restrictions on existing ones in order to facilitate that process.

PokerStars has a deal in place with a local company, 6up, which includes a special skin just for Chinese players, with its own promotions, freerolls and deposit options. One poster in the thread claims that Chinese players can still access the site through this skin. A number of Chinese players were still playing on the site on Sept. 1. However, this may simply be a matter of players with Chinese accounts logging in from outside the country.

New management, new compliance standards for PokerStars

PokerStars, along with its parent company The Stars Group, merged with UK/Irish gambling giant Flutter in May. In a call to discuss its first-half results last week, the company said that it planned on ceasing operations in “a small number of jurisdictions.” That was clearly signaling this move and may foreshadow others to come.

It’s not actually the first case of PokerStars leaving a market on Flutter’s watch. The company ceased serving customers from Cyprus on May 25, not even three weeks after the merger’s completion.

The Cypriot market was so small that the move received little attention at the time. Taiwan and Macau are similarly too low in population to move the needle for PokerStars’ overall business. Pulling out of China is a much larger deal, however.

An ongoing Chinese crackdown

Part of the motivation for the decision may be that China has been taking online gambling a lot more seriously of late.

Gambling is very popular in China, yet the government has taken a very strong stance against it. All forms of gambling have been illegal since the Communist Party rose to power in 1949. There are, however, a pair of state-run lotteries, dating back to 1987 and 1994.

The country uses the Special Administrative Regions of Hong Kong and Macau as a way of providing its wealthier citizens with a legal option, while keeping gambling off the mainland. Nonetheless, and despite the authorities’ best efforts, there is an extensive black market for gambling, in the form of unofficial lotteries, underground mah-jong parlors and so forth.

It took until 2018 for the government to clarify its position on online gambling. It has been making up for lost time in the past year, however. Most of its efforts have been directed at operations in the Philippines, known as POGOs, that cater expressly to Chinese clientele. The situation there is complex, as the rampant criminality of the POGOs has become a problem even for the Philippines, yet their economic importance is too great for the country to simply shut them down.

China has been combating the POGOs with a mixture of diplomatic pressure and direct legal enforcement at home. It hasn’t shown as much interest yet in going after western operators serving Chinese customers. They may become the next priority after POGOs, however. The Chinese government is a sufficiently powerful enemy that Flutter is probably making a wise move in preemptively avoiding such a conflict.

The never-ending dance around gray markets

Gambling companies love to talk about their commitment to compliance, but the reality is that it’s a decision they tend to make on a case-by-case basis. There are many markets in the world that are considered “gray” either because their laws about online gambling don’t exist, lack clarity, or simply aren’t enforced.

Whether or not a company chooses to serve a given gray market comes down to weighing pros and cons. In the case of China, the directly risk of enforcement is only part of it. Perhaps the bigger risk is that the government’s new position makes it more clearly a black and not a gray market, and this affects the company’s image. In particular, the expansion of online gambling in the US means that continued illegal operations abroad could impact access to new states as they open.

PokerStars isn’t the only company facing this dilemma. SBTech, for instance, has been plagued with questions about its suitability as a technology provider for state lotteries. These questions stem from accusations that it has operated illegally in countries including Turkey, Iran and China.

Similarly, GVC was nearly denied its license in Nevada because it took too long to divest itself of a subsidiary serving the Turkish market. GGPoker left a dozen European gray markets last year as part of its efforts to both legitimize its business and expand its operations in the west.

Goodbye to the whales

In terms of direct costs, losing China won’t make much of a direct difference to PokerStars’ bottom line. Despite its huge population, its players make up quite a small percentage of poker traffic. The game simply isn’t that popular among the general public in China.

It is, however, popular among the wealthy. Poker pros have lamented the news because it will mean the disappearance of some weaker players from high stakes tables. Those same players can still play when traveling abroad. However, their destination of choice for gambling is Macau. Since that jurisdiction is also banned, it remains to be seen how dramatic a change the new policy will make to the high stakes ecosystem.

It’s the opposite story for Serbia, and the effects of PokerStars’ departure from that country will be seen at the opposite end of the stakes spectrum. Its population is a mere 7 million, less than that of Pennsylvania or New Jersey. However, Eastern Europe produces a disproportionately large number of high-volume, low-stakes players. The loss of the Serbian market will mean the disappearance of more than a few such grinders and a small but noticeable impact on microstakes cash game traffic.

Russia: the elephant in the room

PokerStars has been exiting gray and black markets on a sporadic basis since well before the merger with Flutter. For example, it left Israel in 2016 and Australia the following year. It looks as if new leadership will bring an acceleration of this policy.

The big question, though, is what it means for Russia. PokerStars executives have, in the past, referred to it euphemistically as a “disrupted market.” The reality, however, is that the Russian government’s stance is no more ambiguous than China’s.

Unfortunately for PokerStars, leaving Russia would be a much bigger deal than any other market it has yet departed, save for the US, from which it was involuntarily removed in 2011. It’s hard to find a table on PokerStars that doesn’t include one or more Russian players, especially at lower stakes. Leaving the country could cause traffic to crash by perhaps a quarter overnight.

That sort of loss would definitely startle investors, so it’s not a decision that Flutter could take lightly. However, it has indicated that it will begin lumping poker in with general casino revenue in future financial reporting. Though there are other reasons to want to de-emphasize poker as a separate vertical, one aspect of that may be preparation to soften the blow should an exit from Russia prove necessary.

- 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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