As we begin approaching the six month marker since the Neteller crackdown in January I thought it would be a good idea to take a look back and see how the online poker world has changed.

First off, let’s start with the overall market impact. The cold hard truth is that there are less total players playing today than there were even back in Jan. The drop off has been even more dramatic since Black Friday (Oct 13, 2006). Many sites are recovering and despite an almost flat (perhaps even trending down) growth rate some sites are beginning to consolidate the US market. Other sites have not faired so well. In fact, I don’t think you would be too far off to say that some are in a death spiral.

Sites like UB used to average peak player numbers of about 2900 – 3200 as recently as Nov 2006 (well after the UIGEA). Now they can barely break 2300 one day a week with many days falling short of the 2000 barrier. As I’ve predicted previously, I think some sites will drip, drip, drip market share until they pass some magical threshold of liquidity and then it’ll be like a 1929 run on banks as players bolt for other sites adding to the consolidation effect.

For those who point at tournament numbers as proof that the glass is half full I” re-mention what I said in a previous post; If you take all of the big guarantee tournaments pre-Oct 13 and compare them to the big guarantee tournaments offered currently the total amount of guarantees is less. Sure Stars is crushing their million guarantee every weekend but by a margin equal to Party’s current $300K, plus Party’s pre-Oct 13 million guarantee? No.

Whether it’s real or imagined, players are screaming that the games have tightened up and it’s harder than ever to make money. That was always one of my predictions of the side effects of the UIGEA. The harder it is to get money onto a site the less casual players and newbies are going to go to the trouble to do it. Without the fresh blood the weaker of the winning players soon become the new fish. Wash, rinse, repeat until winning players are losing players and highly skilled players watch their win per 100 hands drop.

And while television shows like the WSOP, WPT, and High Stakes Poker used to funnel fresh new fish into the poker economy, judging by flat growth rates at US facing card rooms, that is no longer happening. Chris Moneymaker has a harder time getting into your living room and convincing you that you could be the next WSOP champ.

Sounds a little negative but I think that’s a fairly accurate portrayal of the industry at the moment. It’s not going to disappear overnight but at the same time it’s really struggling and most (if any) growth today is coming from people fleeing smaller sites and into the arms of the US facing sites.

Of course, I’ve always looked at this from US facing perspective so take all of the above I’ve said and run it through that filter. Many non-US facing rooms are doing quite well. Some never had a US presence and are still growing at a good rate while others pulled out of the US market and have begun to stabilize and grow again.

In fact, as I mentioned in a previous post, my research of the Poker Site Scout numbers appears to show that the non-US poker market is actually bigger than the US only market. However that comes with some caveats. First, it’s much easier to do one television deal with ESPN than to run 50 different television campaigns. The costs involved in running marketing campaigns and affiliate programs in 10 languages is going to be much higher than an English only approach. For that reason, it appears that many of the non-US facing rooms are less profitable and paying a much higher cost to acquire each customer.

Legislation

On the legislative front we’re quickly approaching the deadline for the government to publish their recommendations on implementation of the UIGEA. From what we’ve seen the government do by applying some minor pressure on payment processors and banks I believe that whatever the regs are they will be sufficient to keep a pretty tight reign on money flow into and out of sites. Again, hard core players will always find a way but if you choke off the new player base you can still be pretty effective at putting the breakes on the online poker boom.

Senator Kyl has been pushing hard on the Bush administration to enforce the UIGEA vigorously. I can’t see any reason why Bush would not listen to him. There’s little for him to gain and he hasn’t seemed to really care about the issue.

The little ray of sunshine everyone seems to be talking about is Barney Frank’s bill. I was quite hopeful before I saw it but I’m not so hopeful anymore. First off, the bill doesn’t seem to have much support in the House. He’s pushing this one uphill. Although the PPA has gotten behind it and it’ll likely end up being a close vote, it still has to pass the Senate and avoid the presidential veto.

“It’s a subject the public cares somewhat about,” said Robin Hanson, an economics professor at George Mason University who studies the gambling industry. “But they’re not overwhelmingly passionate about it.” USAToday

Shelley Berkley has also introduced a bill (HR 2140) which has sixty co-sponsors and support of both Democrats and Republicans is a much more likely bill to pass. That’s the good news. The bad news is that it’s a twelve month study of online gaming so there’s no automatic legal gambling at the end of the twelve months. They could come back and say that online poker is the greatest thing since sliced bread and Congress could still shoot down a bill legalizing online poker.

The US government has shown how resistant they are to online gaming by deciding to ignore the WTO ruling against them saying that it doesn’t apply. I wish I could do that when Uncle Sam says I owe him money but I guess it doesn’t work that way. I think a lot is being made out of this but the US to way to big and powerful for anyone to really enforce the WTO ruling. Is England (or any other sane country) really going to quit trading with the US over online gaming? Hardly.

And the local and state governments haven’t been all that friendly to poker either. North Carolina courts have decided poker is not a game of skill. A bill introduced in West Virgina to legalize poker is meeting some stiff resistance from conservative groups. The Amateur Poker Tour offices in Colorado were raided. The Texas poker bill died a silent death. And all that was just in the last month or two.

And while all of this is going on, poker is still exploding. Television ratings are up in the worldwide. Yahoo just launched a branded poker room but doesn’t accept US players. Virgin has launched a branded poker room and is marketing it heavily in the UK. Everybody seems to want to get into the poker business.

Conclusion

So, right now the outlook is pretty bleak on the legislative front in the short-term. My completely personal opinion is that legalization will eventually come for online poker but it’s going to be a few years out. In the meantime, the current attack on online gaming will continue. The DOJ is going to continue putting the screws to gaming operators and the companies providing payment processing to them. They’ll be fairly successful but it’s going to be a constant cat and mouse game which will allow the dedicated US player to stay one step ahead.

The industry is going to continue to consolidate. As acquisition and retention costs increase the budget to get a top notch site started is going to head skyward. If you were some guy thinking of opening a Cryptologic skin in Europe you have to give pause to seeing Yahoo and Virgin enter the market.

Basically, as has been the case since Oct 13th, bad news for US players, good news for poker.

Image unknowingly contributed by Flickr user ian of leam

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