What’s Holding The U.S Online Poker Industry Back?

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Monday, April 7th, 2014 | Written by Adam Brown

Despite New Jersey, Nevada and Delaware embracing online poker in 2013, other states in the US have taken a much more cautious approach to internet gambling signalling a long road ahead before the country’s nascent igaming industry gathers any discernible momentum. The situation has even lead New Jersey to look abroad for opportunities to expand its operation, and as Senator Ray Lesniak, explains:

“It’s likely going to take years for other states to join us. That’s why I’m pushing for us to get involved in the international market, where it’s already well developed. I believe there is greater potential there than in the U.S. market at this time.”

The global online gambling market is an estimated to be worth $30 billion each year, roughly $12 billion of which is accounted for by US gamblers. Unregulated US online poker funnels around $2.3 billion of that tally into the pockets of offshore, untaxed operators, and so the question remains what factors are holding back US businesses from staking their claim to a piece of the lucrative, multi-billion industry?

Online Poker’s anti-hero Sheldon Adelson

Last year American online poker was riding a wave of optimism and this year started positively enough, too, with a Gambling Compliance study suggesting that at least 10 states would consider legalizing internet gambling in 2014. The states cited include California, Colorado, Hawaii, Illinois, Iowa, Louisiana, Massachusetts, Mississippi, and Pennsylvania. It has since become clear that none of them are likely to pass online gaming legislation this year, with billionaire casino mogul Sheldon Adelson and his Coalition to Stop Internet Gambling leading the charge to dissuade US states from embracing an industry he describes as “toxic, a train wreck and a cancer waiting to happen.”

With a $37 billion fortune behind him, Adelson is a force to be reckoned with and the world’s 8th richest man has also shown his determination in the past to campaign hard against opponents. Last election cycle, for instance, Adelson spent more than $100 million trying to defeat President Barack Obama, and has now vowed to do likewise in his crusade to criminalize online poker. Amongst his other efforts, the Restoration of America’s Wire Act (RAWA) has now been introduced to both houses of Congress and if passed will reinstate an earlier interpretation of the Wire Act banning all forms of online gambling. As John Pappas, executive director of the Poker Players Alliance, explains:

“We have a pretty large voice that has emerged on the other side. I’m sure that is playing some role in slowing down the process of the states..I think it’s more a business concern for him than a moral one.”

Weak start to regulated online gambling

Nevada was the first US state to launch online poker back in April, 2013, followed soon after by Delaware, then New Jersey. Prior to regulation, states were predicting all sorts of high-end igaming revenue figures, most noticeably New Jersey Gov. Chris Christie who forecast $1 billion for his state in its first year of operation.

The actual figures to have emerged have cast doubts on the viability of online gambling, with New Jersey‘s revenues averaging around $10 million a month, with a little over $3 million derived from internet poker. The other two regulated states have suffered even more worrying results, with Nevada three online poker sites having collected just $8.5 million over 10 months of operation, and Delaware generating just $73,971 in February, down 16% from the previous month.

Consequently, Morgan Stanley recently downgraded its estimate of the US online gambling market from $5 billion by 2017, to $3.5 billion, hardly enticing those states taking a wait-and-see approach from throwing in their lot. In fact, the figures highlight that smaller populated states would find it practically impossible sustaining their own individual online poker markets, and would have to form interstate compacts to stand any chance of success. As a result, those waiting on the line will now take even longer to decide as they wait to see how Nevada and Delaware’s agreement to share player pools works out. As John Pappas, explains:

“We need to be realistic when talking to lawmakers about what can be expected from iPoker revenue, particularly when looking at a state-by-state deal where individual states are operating. Until they can have interstate liquidity, I think they will always have lower-than-expected revenues.”

Regulation a slow process

Government are not known for acting swiftly, especially where controversial issues, such as gambling are concerned. Even the gambling resort of New Jersey took three years from start to finish to introduce and sign online gambling into law while, after three years of trying, the state of Mississippi has made zero progress on the online gambling bill introduced by Rep. Moak.

Complicating procedures further, political factors have also blocked progress on the issue, especially with state elections taking place every two years and politicians’ unwillingness to pass controversial legislation during this period.

“Very few people want to step out in an election year. I’m still going to introduce the legislation next session, but the chances aren’t good. As a Democratic leader in Mississippi, I can only hope that we come back to having the gavel and can move something in 2016,” commented Democrat Rep. Bobby Moak.

A glimmer of hope on the horizon

Offering a glimmer of hope for the USA’s online poker industry is the state of California, the most post populated and affluent of all the country’s 50 states. The Golden State is currently trying to build consensus between the disparate gambling interest, including tribal casinos and private cardrooms, to push forward its drive for online poker. If it succeeds, California is likely to show the marketplace online gambling’s true potential and consequently act as a huge catalyst bringing other states into the game. Nevertheless, California is determined not to rush the process, and as California Assemblyman Isadore Hall, points out:

“There’s not a damn state in this nation that rises above California. We are the leaders in all of these things, and we’ll continue to be the leader. The reason why it’s taken us so long is because we want to continue to be the leader and do it right.”