Several weeks ago in Amsterdam Jeremy Enke and I were having a discussion about what happens if they legalize poker in the US. Unfortunately we got cut off because his hotel was to the left and mine was to the right as we approached the end of the walkway. So, I thought I would elaborate on my views from our discussion a bit.
First off, I think the poker press is getting a little too giddy. The stories tend to sound as if legalized online poker will be the greatest thing to ever happen to the industry. But the real issue is what does it all mean.
You have to look at how you get a bill like that to pass. Whether or not a lawmaker believes that people should have the right to play online poker they have to make sure that everyone’s interests are served.
There seems to be an assumption in the poker community that once legalized that it will simply be like it is today except Party, 888, and others will be able to offer poker in the US. Unfortunately, that’s not how it works.
Any legalization of online gaming will come with a regulatory body who will determine who can and cannot offer gaming to US citizens. One of the big assumptions at the moment is that because PartyPoker paid a fine that they are clean. Actually, part of the settlement was an admission of guilt. That admission may come back to haunt them if companies like Harrah’s lobby for licensing requirements that state that any company allowed to offer gaming cannot have illegally offered gaming previously. It’s a perfectly logical requirement and one that many people would agree with so I don’t think it would be too difficult for a land based casino to attempt to get it inserted into any licensing requirements.
In reality, I would be very surprised if any of the current top online poker rooms ever get a license to operate in the US. If I was Mitch Garber running Harrah’s online division I would pump as much lobbying money as it took to make sure that the licensing requirements were sufficiently stringent that all existing online poker sites would be disqualified.
Likewise a lot of the digital ink spent on this issue insinuates that because Mitch Garber once headed Party Gaming that this is good news for Party Gaming. There’s no reason people should be assuming that Mitch won’t use his expertise in the online gaming industry to shut out competitors like Party Gaming.
I think the most likely scenario is the door gets shut very loudly on offshore online gambling sites. Harrah’s and other land based casinos will lobby very heavily to set up licensing requirements that will be very difficult for offshore operators to meet and it would also be in their interest to lobby for very aggressive measures against anyone who is operating illegally (i.e. offshore companies who have not received a license).
That would put land based operators in a great position. With all legal stigma removed and the ability to use their deep pockets to market legally in the US in addition to expanded payment processing abilities any new player looking to play online would make the natural choice to go with a well known and regulated poker room.
That would give the land-based casinos access to the US supply of the fishiest players which would lure the sharks away from today’s biggest sites where the games have become increasingly tougher to beat.
With such a huge market advantage that will also give the land-based operators an opportunity to completely rewrite the rulebook in regards to affiliates. With a brand name like Harrah’s and the ability to legally advertise they don’t need the affiliates as much as sites do today. In fact they may decide they don’t need them at all.
If they do decide to keep the affiliate model they certainly aren’t going to be held over the barrel like they are today. They’ll use this as an opportunity to update the affiliate model to better reflect the changed business environment.
MGR and lifetime payments will likely be the first casualty. If MGR even survives the shakeup then expect rates to be dramatically slashed. Also gone will be lifetime payments to affiliates with the more likely scenario being something like six or twelve months.
Another area of likely change is that land-based casinos with online operations will be in a position to decide whom they wish to keep in business. Coaching, community, and poker news sites might be seen as complimentary businesses that they wish to keep as affiliates but poker room review sites would hold little value to them and they would likely not want to get into an affiliate relationship with them.
Obviously offshore operators wouldn’t take this lying down. They would lobby very hard to relax the licensing requirements and many may even create a new clean corporate entity that had no previous history of illegally offering online gaming in the US. They may even enlist the help of the EU to put pressure on the US to open their market. But I think that will be a hard case to make since countries like Italy have set very strict licensing requirements.
But even if they are successful in getting the door open this is going to be a long and drawn out process. Meanwhile Harrah’s and similar land-based operators will be solidifying their control of the US market. By the time someone like Party can open up their room to US players land-based operators will have such a lion’s share of the market that it will be difficult for new rooms to gain any sort of substantial percentage of the US market.
All of this is assuming a non-gaming company doesn’t decide to try their hand at online gaming. What if Yahoo or Google decided to offer online poker? They obviously have the online expertise to build a poker site and market it effectively. How many newbies would flock to Google Poker? How much would Google need affiliates if the first result returned by typing in “online poker” was Google’s poker site?
Of course, we don’t know what’s going to happen until it actually happens but I have had conversations with some very respected insiders in the online gaming industry and the one thing everyone universally agrees on is that if online gaming is legalized in the US it will be a major shakeup in the online poker industry that will make the passage of the UIGEA look like a blip.
I guess to wrap this up what I can say is that many of the people cheering the passage of legalized online gambling in the US may be cheering their own demise.