Why the industry is optimistic about online poker

At Global Gaming Expo (G2E) 2016 I spoke with several gaming companies about online poker, and I have to say, I was pleasantly surprised by what I heard. Online poker may not be a top priority in today’s online gaming world, but companies aren’t exactly sitting on their hands.

There is clear optimism that online poker could soon experience a resurgence. There seems to be a renewed interest in online poker within the industry, and a desire to reimagine what have become stale online poker products that haven’t changed much in the past 15 years.

Before I unpack what’s causing this new wave of positive sentiments towards online poker, let’s take a look at how we got to this point.

The downward spiral

Poker’s popularity has been waning for several years, and online poker, the once prominent face of online gambling when poker exploded in late 2003 and people ran to their computers to gamble online, has been relegated to third fiddle in the online gaming pantheon, accounting for about  six percent of all online gaming revenue in Europe, according to a report by Eilers & Krejcik. By comparison, sports betting and online casino were 41 percent and 46 percent respectively.

Part of poker’s falloff can be attributed to the recent rash of consolidation in the online gaming industry that led to poker/casino/sports falling under the same corporate umbrella. With online poker being a much smaller piece of the pie than online casino and online sports books (as noted in a previous column), poker has found itself in the backseat, with sports betting driving the car and casino in the passenger seat.

But this shifting focus doesn’t fully explain away poker’s current downward trajectory. And while there are any number of reasons for online poker’s decline, one thing stands out more than any other.

The United States

The loss of the US market, beginning with UIGEA in late 2006 and the coup de grace coming on Black Friday, Aril 15, 2011, is the number one reason companies have pulled back on the online poker reins.

The US was the largest (in terms of players) online poker market in the world, and when it was cutoff the size and scope of the online poker industry was slashed virtually overnight.

The voluntary US chokepoint also allowed PokerStars, Full Tilt Poker, and a few other privately owned companies to continue operating in the US, and created a case of online-poker-have’s and online-poker-have-not’s.

In the ensuing years, the growth of PokerStars, and the company’s capacity to overwhelm competitors by throwing money into any market, has acted as a firewall of sorts, preventing other operators (most of whom restricted by their obligations to shareholders) from competing with the online poker giant.

Unable to compete with a company that was, operating in a market that other companies considered out of bounds, universally beloved (more on this in a minute) by the poker community, and possessing some 50-70% of the market, a lot of these operators started turning their focus away from poker and into other verticals.

But this appears to be changing, and companies are once again exploring their online poker opportunities. Here’s why.

What is the impetus of the renewed interest?

The zeitgeist

There is a lot going on in the poker world, and while a lot of professional players aren’t overly thrilled with this new direction (let’s call it the anti-Scheinberg), now that PokerStars has started down the recreational-model path, other companies feel a lot better about investing some money into their poker products.

PokerStars is no longer unimpeachable, and poker players are at least willing to give alternative products a look.

This opening was created when Amaya took over PokerStars.

As I noted above, before Amaya took over the reins, PokerStars had about as good a reputation as a company could have within the poker community. Isai Scheinberg made sure the company always appeared in the best possible light, even if that meant overcompensating certain players who felt aggrieved. The best comparison of Scheinberg’s strategy is a politician who believes you should always cut taxes; never raise them.

Scheinberg’s theory, which worked really well in the unregulated and gray market days, seems to have been, that if we are willing to throw enough money at this, it will keep all other competitors at bay and keep any new competitors from emerging.

In effect, Isai and company built up a massive brand, and this free flow of money from PokerStars to the players couldn’t be matched by other online poker operators, leading to a situation where PokerStars became monopolistic and in effect, untouchable and beyond reproach.

Unfortunately, the model they used to get there wasn’t built for the long haul, and wasn’t as successful in smaller ring-fenced markets. So when Amaya took over they likely looked at the PokerStars books and cringed at some of the expenditures, and where a disproportionate amount of the marketing money was going – hint, it was Supernova and Supernova elite players.

Good press is all well and good, but when you’re a publicly traded company you have a fiduciary responsibility to your shareholders to make sure your spending makes sense.

With PokerStars no longer the golden child of the poker community, other operators see an opening that didn’t exist a couple years ago, and can make the case that now is the time to put some money into online poker.

Even if they agree with the direction PokerStars is going and plan on following suit, the fact that poker players are even willing to give another poker site a try has them enthusiastic.

US markets are beginning to open

Online legalization has been a slow slog in the US, but we do have three states with legal online poker, and several more seriously considering it – New York, Pennsylvania, California, Michigan, and Massachusetts being the closest.

In these states online poker operators will start on equal footing in these states, with land-based casino partners that help even the playing field.

As we’ve seen in New Jersey, the PokerStars brand doesn’t mean they’ll grab 60% or 70% of the market, and now that PokerStars is a publicly traded company, it’s not going to just shell out money to stifle competition and rise to the top of the heap.

What will a second poker boom look like?

The online poker reboot is going to be a shock for players who were products of the original poker boom, and even more so for the players that got started in poker post-2007.

From my talks with multiple platform providers it became clear that there is a consensus that the model propagated during the poker boom was extremely detrimental to the long-term health of the game.

A lot of things went wrong.

  • The affiliate model was highly flawed, and led to affiliates targeting the wrong customers.

  • The rewards system was imbalanced, and heavily skewed towards professional players.

  • PokerStars veritable monopoly (and the player loyalty it accrued) halted competitors from innovating and focus shifting away from poker to other verticals.

PokerStars dominance led to many of these industry-wide mistakes, and a failure to correct course when the problems first started coming to light. Most online poker rooms simply doubled down on the high-volume strategy. Nobody wanted to be the company that ripped the bandage off, fearing PokerStars would use its position to scoop up what remained of their player base.

But now that the post-Scheinberg PokerStars is leading the way on this front, other companies see potential instead of dead-ends.

Poker is unlikely to return to anything approaching the first poker boom, and the lucrative rewards systems are a thing of the past, but the games could see an influx of new players and new games and product innovations.