Delaware And Nevada Agree Landmark Online Poker Compact

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Wednesday, February 26th, 2014 | Written by Adam Brown

Delaware and New Jersey have moved a step closer to forming an integrated internet poker market after signing an interstate online poker agreement designed to establish the legal framework necessary to allow both states to share their player liquidity. The historic online poker deal, the first of its kind in the US, was signed yesterday by Delaware Gov. Jack Markell (photo right) and Nevada Gov. Brian Sandoval and could be a life-line to the two states’s nascent internet poker industries. As of yet, no date has been set for when the online betting expansion agreement will be enacted.

Combining players will allow the two states to develop a more diverse and viable online gaming environment, while players should reap the rewards in terms of more competition and larger tournament prizes. Commenting on the new deal, Delaware Governor Jack Markell, said:

“The more people there are on a poker site at any given time, the more likely they will be able to find a table that fits their game style at a time that fits their schedule..This agreement represents a crucial step in Delaware’s and Nevada’s efforts to make our online poker offerings more diverse, more competitive, and ultimately more enjoyable.”

Liquidity a key challenge for Nevada and Delaware

Currently, just three states in the US offer online gaming options, but unlike New Jersey and Delaware, the state of Nevada has restricted its online offerings solely to internet poker. Unlike New Jersey with its population of almost 9 million people, Delaware (917k) and Nevada (2.76m) have smaller potential markets, making overcoming liquidity problem a key challenge for the two states. As investment banker Jay Masurekar from KeyBanc Capital Markets, explains:

“When you are doing online gaming in a state like Delaware, there is just not enough population to bring in much revenue. Unless you have bigger states involved, it’s not going to work. In summary, Delaware may just be too small to fully take advantage of online gambling on its own.”

Unlike online casino games which pit the player against the house, the need for greater player liquidity becomes even more urgent as regards poker which requires solid player traffic to sustain tournaments and cash games.

The story so far

Nevada was the first state to introduce regulated online poker, but a year and a half after granting its first online poker license and 10 months after Ultimate Poker went online, the Silver State has yet to release its revenue results. However, by the end of March analysts should have a clearer picture of the state of Nevada’s online poker market after South Point launched last week, thus satisfying the Nevada Gaming Control Board’s of having at least three sites running before releasing revenue results. Nevertheless, according to Adam Krejcik of Eilers Research, Nevada poker sites will generate around $18 million in revenues this year, significantly lower than original state projections.

Likewise, Delaware online gambling results are also running way below the $5 million revenues forecast pre-regulation, with the latest Delaware Lottery monthly figure of $145,276 in January showing The First State will have difficulty generating even $1.7 million in revenues this year. Furthermore, poker which accounts for a huge 61% of Delaware’s online gambling revenues, recorded a huge 17% fall in revenues to $88,390 in January, compared to $106,992 in December. Worryingly, the biggest of the state’s three online poker rooms, Delaware Park reported a 26.7% fall in poker revenues in January; and Harrington fell by 24%, while Delaware’s smallest site Dover Downs actually reported an improvement in its revenues by 15%.

Compact a life-line for Nevada and Delaware

Nevertheless, Nevada and Delaware were well aware of the challenges that their prospective online gambling industries would face, and before launching last year, Delaware Lottery Director Vernon Kirk had highlighted the necessity to form compacts with other regulated states, explaining:

“We have had conversations with both states [Nevada, New Jersey], and it’s a little bit too early in the process to project how that is going to work out. My guess is that, certainly with Nevada, they are definitely anxious to compact with us, and us to them likewise.. Once we get up and running we will be pursuing that more aggressively.. that will be one of the very first steps we take after launch.”

In addition, while other states are taking a wait and see approach to online gambling before determining its viability, the precedent set by the recent agreement signed by Nevada and Delaware may help persuade other smaller states to come off the fence and join the compact bandwagon. However, bigger states like California with 38 million residents, and New Jersey (8.9m) may either decide they can succeed on their own, or alternatively may seek out preferential deals before deciding whether to pool their state players.