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The More The Merrier

Online poker depends on liquidity, but are regulators suppressing that?

The More The Merrier

It recently dawned on me that we may have this poker thing all wrong. If liquidity is king, then perhaps the regulatory structures should be developed to maximize them. Hear me out here.

First of all, it’s important to remember the “old days” when there were essentially no borders, and the likes of PartyPoker and, subsequently, PokerStars and FullTilt pooled players across the world. This was a brave new world (or as some liked to call it, the “Wild West”). They were able to pool mass quantities of players globally.

Today, other than those European states that still maintain monopolies (which are constantly being challenged by the private sector), most countries are allowing a fairly free-market approach where licenses are available to those who meet the criteria, whether land-based or not. As it’s evolved, the countries are mainly ring-fenced, which has clearly inhibited liquidity as well as the round-the-clock availability of games.

In the U.S., it’s playing out that that each state will have its own regulatory structure. And the licensing is being restricted, for the most part, to those who maintain terrestrial gaming licenses.

So these evolutionary approaches have led to a much diffused poker landscape. Let’s say a country or state has issued 10 poker licenses. The poker player liquidity is diluted in this approach, making the offering that much less attractive to the player.

When I heard of the efforts toward interstate compacts in the U.S., I had some hope that this would help the situation. But I struggled with the details of how this would actually work technically. In exploring it further, it became clear that this was only a marginal improvement. It still relied on the networks to pool among their own players. As an example, if 888 worked with operators in New Jersey and Delaware, which they do, they could pool those players. It did not mean that any pooling would be accomplished across networks.

Then I remembered speaking years back in 2007 with Jim Tabilio, who, at the time, was one of the main proponents of bringing regulated internet poker to California. When they were first conceptualizing what this would look like, they were taking the approach of licensing one to three poker networks. Bingo! It dawned on me that, perhaps, this was the approach that we should be taking as poker is legalized in the U.S.

So, I decided to look into this a bit more to flesh out the concept. What I found was actually some spirited debate among a few in the poker community on this very subject.       

In fact, Curtis Woodward advocated for regulation on the basis of sharing liquidity on common poker platforms in an August ’14 article in The way he describes the network model, a limited number of networks or platforms would be licensed and they would “skin” sites to, for example, California tribal casinos and card rooms.

Woodward points to the splintering of interests, which has inhibited progress in getting internet poker legalized in California. He states, “Rather than creating just a handful of partnerships that will leave out so many, and create staunch opposition from same, networks will create an opportunity for even small card rooms to extend their offerings online.”

He thinks this will actually foster competition in a positive way. “The card rooms and tribes should be competing for players, while letting the platform operators compete for the business of the card rooms and tribes,” stated Woodward. “By pushing the platform operators into the network model, and allowing any and all suitable card rooms and tribes to launch a skin, you change the dynamic and give the power back to the local interests.

But, given the perceived dominance of PokerStars, another poker expert, Steve Ruddock, offered a differing view. “There is simply no incentive for the Morongos or the Bicycle Club to push PokerStars to make improvements or add more features since all of their competitors will also benefit from this,” Ruddock wrote.

I reached out to former California Assemblyman Lloyd Levine, who was one of the original sponsors of the poker bill in 2007-08. He had this to add:

“Our original plan was to have one to three network operators with the other entities all being white-label partners. The justification for this was to narrow the points of enforcement for the Department of Justice. However, as it has played out, there is another reason that model might have been better. Bluntly, there are just too many entities in California that are eligible to do this and want to participate.

“With over 160 entities (card clubs, tribes, and likely racetracks) who could potentially offer poker, there just aren’t enough players for everyone to make money. Even if you limit it to the smaller number of entities who would likely be interested in participating and have the resources/capability to offer games, you are still looking at over 25 entities, and that still means there will be losers.

“A ‘hub system’ would minimize the risk by reducing the up-front costs to the various entities, as only the hub operators would incur the major expenses. Also, it would put all the players onto one to three systems instead of 25 systems.”

So as Pennsylvania and other states begin to explore regulation, perhaps this is an alternative that should be considered.

Sue Schneider is one of the pioneers of iGaming. She is the founder of the iGaming North America conference and is also editor of Gaming Law Review and Economics.

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