Let’s Talk Numbers

Some people have been asking what the total impact is of the Neteller pullout. Before we get into that, let’s make the very, very, very big assumption other payment processors won’t be exiting the US market anytime soon. I say that because this is actually the best case scenario. Chances are more processors will be leaving the market and once the Treasury publishes regs most EFT/ACH payment processing is going away completely.

But let’s be glass-half-full optimists here and look at the numbers:

According to this Gambling911 article, Full Tilt was doing 75% of their business via Neteller and PokerStars was doing about 60%. I don’t know where Gambling911 got those numbers but they are fairly close to my guesstimates before I read the article. My range was 60% – 70% as that’s pretty much the average across the industry.

So, according to Poker Site Scout, the cash game seven day average for PokerStars is 10103 players and for Full Tilt it’s 4483.

Now, let’s assume 40% of Neteller customers just give up trying to put money on poker sites. Neteller represents 60% of PokerStars business so that’s 40% of 6062 players or 2424 players who will disappear from Stars. On Full Tilt, they lose 1345 players. It works out to about a 23% loss for Stars and a 30% loss for Full Tilt.

That’s a massive loss in revenue. I also believe that we’ll see the following trends unfold.

Conversion rates are going to tank as the bar is raised for getting money on sites

Many people who initially jump through hoops to get money on the site are going to notice how tough the games have gotten and slowly drop out of the playing market

Many Europeans and Canadians who bolted from Party to chase the fish swarming to Stars and Tilt will quickly realize that the games have toughened up considerably and will migrate back to sites like Party

So, not only are you taking the short-term hit but the long-term trend isn’t pretty either. Game liquidity tends to have a momentum to it. As you’re gaining players and liquidity is increasing the momentum is running in your favor as each new player makes the site that much more attractive. On the downside, as you begin losing players it snowballs downhill too. As you lose players the games get tougher and the win rates decrease which drives people away in search of greener pastures.

This was why I’ve said that this is the beginning of the end for online poker as we know it.

Now, let’s consider some less-that-best-case scenarios. Rumors are going around that other payment processors already have one foot out the door. The problem, so the rumor goes, is that the banks are the ones choking them off. ACH houses are having banks tell them that they are going to stop processing requests from them. All you need is 2 or 3 major US banks stop doing business with you and you’re up a creek without a paddle. Let’s say, that Citibank, Bank of America, Wells Fargo, and Wachovia all decide to quit doing business with you. Well, that’s such a huge portion of the consumer accounts held in the US that it may not even make sense to try to stay in business.

Here’s another little known fact, the ACH system is a competitive market where any company can offer their services. Still 85%+ of all ACH transactions are executed by the ACH network that is run by the US Treasury Dept. Since the US Treasury Dept is responsible for drafting the rules to ban transfers to illegal gambling sites how hard do you think it’s going to be when they run the network nearly all ACH transfers run through?

As someone so aptly pointed out on 2+2, it’s not about us, it’s about the fish. Can I think of ways to get around this minefield of payment processor closures? Sure! Will the average fish go to the same trouble? Probably not. How many people crushing the $2/$4 for 4BB/100 are going to keep playing when the games start to yield 0.50BB/100?

Let me put this in clear and easy to understand terms; several of the sites that you enjoy today will not be in business in 6 months. That’s the cold hard truth folks. Anybody claiming differently either:

a) Knows nothing about payment processing.

b) Is trying to get you to make a deposit on their site.

Hell, I’m a resident of Europe and I can see a buttload of problems for me getting money onto and off of sites and I have a foreign bank account with a foreign debit/credit card. Just to get money off of sites I have to use my overseas bank accounts now. Here’s an example of how difficult it is for me and supposedly this law doesn’t even apply to me (the UIGEA only applies to US residents).

If I want to use Neteller I have to call them up and re-explain to them that I no longer reside in the US. Somehow they have superpowers that caught me using 100% new information trying to set up a European account as an alternative to my US Neteller account. Literally the only information that I filled in that was the same was my name. My address, residence, bank account info, etc. was all different and they whacked me the second I tried to login. They gave me a pass and lifted the IP checks on my account that prevented me from logging in overseas but they made me keep my US account so I need to get them to change my account over. They’re predicting 2 – 4 weeks for cashout requests, how long do you think it will take them to get around to hooking me up?

How many fish are going to do this?

For instance, Full Tilt doesn’t even support SWIFT/Solo transactions which are the European equivalent of the US ATM networks. I have an overseas debit card but I can’t put money onto it from FTP because FTP doesn’t support it. PokerStars does but it’s obviously far from being a universal option. Even if you get that Caribbean bank account not everyone will even be able to deal with your unique circumstances.

Everyone’s scrambling right now. You’re going to see desperate attempts all over the map. Some people will start offering paper check deposits. Some will ask you to give your money to some guy named Hector who will meet you on the corner so he can route your money to your online poker account via his cousin in Peru. New money is the lifeblood of this business and without it even the mightiest will fall.

Bottom line: Over the next 6 – 8 weeks the 90% of poker players who are losers will burn through whatever bankrolls they have deposited on online poker sites. Barring some sort of miracle, this will begin the reversal of player growth on most US facing sites. Slowly at first but accelerating as time goes on, these sites will being to lose players faster than they can add new ones. Expect to see consolidation (mergers and buyouts) as well as a few weaker poker rooms just go straight belly-up. By Jan 1, 2008 the online poker landscape will be so different from what it is today that you will hardly recognize it.

Photo swiped from Flicker user bartendermagic_com