The Restoration of America’s Wire Act has now been introduced in both the US Senateand House of Representatives, causing at least a little bit of concern in the poker world, but that does not mean that efforts to legalize online poker in individual states has stopped.

Californiaheld another poker hearing last week, perhaps inching ever so slightly closer to creating a regulated internet poker market in the state. It is still a ways off and there are still several points of disagreement among stakeholders, but the hearings at least indicate that the process isn’t moving backwards.

One thing that motivates all parties, regardless of where they stand on the potential legislative details, is money. And California being the country’s most populous state, there is likely to be a lot of it up for grabs if online poker becomes legalized. In its most recent Weekly Scouting Report, the online poker cash game traffic monitoring site PokerScout.com discussed various estimates for the Golden State’s first year of poker revenue, whenever that might be.

Most of the estimates fit into a fairly tight range. Eilers Research, Online Poker Report, Gambling Compliance, and PokerScout’s findings with the consulting firm Academicon all estimate total first year internet poker revenue to be in the $215 million to $222 million range.

Two estimates came in well under $200 million: one based on a model of New Jersey’s online poker revenue and one based on a model of Nevada’s. The New Jersey model’s estimate was around $130 million and Nevada’s was just over $100 million.

PokerScout says these are so much lower than the others because they do not take into account the effects such a huge market like California would have on revenue generation. It is not a simple linear relationship. You can’t just say, “California has almost 4.5 times more residents than New Jersey, so its poker revenue will be 4.5 times greater.”

And as PokerScout states that the New Jersey model, for example, is based on “annual run rates” of $29 million; the $130 million estimate for California is right at 4.5 times that rate.

The problem with this method is that, as PokerScout eloquently says, “liquidity begets greater liquidity.” That is, poker rooms with more players at the tables look more attractive to potential customers, thus encouraging those on the fence to sign up. As a result, the big poker rooms (or, in this case, the state with the most poker players) continue to grow because of their size, whereas smaller rooms (or states) have more trouble with growth because people don’t want to jump in when the tables aren’t as active.

Additionally, a larger market like California can support better promotions and more game types, further increasing liquidity. PokerScout also says that before Black Friday, Californians raked 16% more than the average US player.

One estimate in PokerScout’s report was much higher than the rest: the one from the investment bank Morgan Stanley. The financial institution put California’s Year 1 online poker revenue at more than $400 million, dwarfing the other estimates.

It appears, though, that this may be an outdated figure, as Morgan Stanley published a new report in September 2014 in which it slashes its online poker estimate for California from $435 million (which might be the figure PokerScout is reporting) to $260 million.

Morgan Stanley admitted that one mistake it made in its earlier estimate was that it “likely underestimated the importance of sports betting in international markets,” implying that it had based some of its projection on numbers from other countries, not realizing how significantly sports betting factoring into the global figures.

Thus, poker was less of a factor than Morgan Stanley realized, resulting in the firm lowering its estimates for poker in America. Additionally, Morgan Stanley overestimated New Jersey’s market, so it needed to adjust its model for California to not be as optimistic as it once was.

PokerScout’s Scouting Report is a daily newsletter for the online poker industry, with in-depth data and analysis of the market. More information can be found by clicking here or contacting support@pokerscout.com.

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