LAC Takeaways: Compacts Will Be the Future of U.S. Online Poker

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Held in recent days were the London Affiliate Conference and ICE, which brought together members of the internet gambling and online poker industries. Many of the online poker sites that PocketFives works with were in attendance, as was PokerTracker’s Steven McLoughlin, who gave us his takeaways from this major industry event. McLoughlin broke down the sale of Full Tilt Poker, talked about the future of PokerTracker, and forecasted legislation in the United States, among other topics.

PocketFives: Give us your top takeawaysfrom the London Affiliate Conference and ICE.

Steven McLoughlin: Number one would be how much the industry has matured now that the U.S. market is no longer available. Just a year ago, you’d still hear people working at various companies complaining about PokerStars and Full Tilt, saying that they had an unfair advantage because they served the U.S. market.

The common misconception in the industry was that the reason Stars and Tilt were big was because of their access to the U.S. market. This is partly true, but what was often ignored was that these two sites were simply doing something innovative and different from everyone else – and players liked the innovation provided by Stars and Tilt. That is the real reason why they were the biggest.

This appears to have been a wakeup call for the online poker industry. What we’ve seen now is a return to customer service ethics and product innovation – finding ways to make the gaming experience better for customers and improving service by providing more transparency. The network that has impressed me the most on this front is 888. Their product today is night and day from what they had last year. They have not alienated the hardcore players; at the same time, they’ve embraced the recreational players in new ways that make both market segments happy. They have done a phenomenal job.

Another takeaway from London was what’s happening the U.S. The discussion is now focused on who would or would not be able to apply for a license, what types of licenses will be available in Nevada, and what other states might be pursuing online gaming. Much of the industry appears to have moved away from the one-nation solution; instead, they are embracing a state-by-state solution.

As I see it, the poker industry generally realizes that everyone wants a Federal solution, but the industry has accepted that it’s likely going to proceed state-by-state. That was fascinating to see and it is a radical change of perception.

I’m going to predict that a lot of the big poker companies we know now won’t be operating in Nevada. I can only discuss Nevada right now because it is the only state that is virtually guaranteed to proceed with online gaming, with the first licenses to be assigned in the coming months.

My prediction is that the future will center on the big, existing gaming providers in Nevada like ShuffleMasterand IGT. They will be guiding the industry going forward. Without going into specific deals, there are numerous existing online networks that are in the middle of negotiating with Nevada-based gaming manufacturers to be bought or licensed out.

PocketFives: We’ve had multiple PocketFives members ask if they can expect to see PokerStars service the U.S. market in the future. What do you think?

Steven McLoughlin: I think there is almost no chance of that now. The future is a state-by-state solution and PokerStars hasn’t made amends with the DOJ yet on a Federal level. Even when that does occur, it will not guarantee a safe path for Stars at the state level. We haven’t seen the end of PokerStars’ legal concerns in the USA; that’s all still to come.

The U.S.-based companies that will be licensed in Nevada have the incentive to block foreign companies from coming in. Each state will consider its own issues, its own laws, and its own reading on Federal law, making entry for Stars a very complicated matter.

PocketFives: Are you writing off the prospects of a Federal bill?

Steven McLoughlin: Everyone I spoke with has low hopes for it. Everyone wants a Federal solution, but nobody is banking on it anymore. What the industry is hoping for is a Federal compact solution will be created between states. A compact is an agreement between two states; this is how other interstate gambling is managed such as multi-state lotteries and horseracing. Like it or not, I think compacts will be the future of online poker in the USA.

In order for states to work together as a team under a compact, they’d need similar gaming laws. It could take many years for the whole system to develop, but we’re beginning to see movement for the most part. In the meantime, I am advising online poker players to consider relocating to Nevada or New Jersey in order to keep playing in the U.S. It is likely that these two states will be operational within the year.

PocketFives: Was there any new information revealed in London about the state of Full Tilt Poker?

Steven McLoughlin: I didn’t hear anything new about Full Tilt player funds or the GBT deal. The only conversation I had was about the acquisition of Full Tilt’s intellectual property. Apparently, there were companies that looked at acquiring the IP for Tilt, but passed. Additionally, there were other companies that thought the assets were toxic and could not be bought for use in the USA.

By the way, the International Stadiums Poker Tour, which Group Bernard Tapie runs, had a giant booth in London. Allegedly, you’ll start qualifying for it online and then you’ll go to the main floor of Wembley Stadium and play, which is interesting. It would explain why Tapie is interested in acquiring an online poker site.

PocketFives: How will PokerTrackerbe able to operate in a state-by-state framework?

Steven McLoughlin: The majority of our business is non-U.S. right now. In the U.S., we’d continue to support sites and networks in each state as they come online as long as we see it as profitable. We’re going to have to analyze every state and network and take it one by one. It’s going to create some problems for us as a company because it’ll create far more rooms for us to support. With that said, balkanization is already happening in Europe, and we have adjusted fairly well to the country-specific networks that have popped up.

We’re already in conversations with who we believe will be the bigger players in Nevada to make sure they understand the PokerTracker business model and how we help attract more players who play on more tables and rake more. Those conversations have gone well so far. Every company we have spoken with understands the benefits their business will gain from allowing personal tracking and they have all followed and learned from the bigger European poker rooms like PokerStars that embrace PokerTracker users.

23 COMMENTS

  1. Nice article. I do have to say that I only partially agree with the analysis about why stars and FTP were so big. Stars was not the biggest site before the public companies pulled out in 2006, though they were clearly running a superior business to most others. Tilt got huge post UIGEA as the top US alternative to Stars. They both did some nice innovation too, but really the reason they started destroying everyone with 5-1 and 10-1 type ratios (as in ratio of their liquidity to their other top competitors) was that they sucked up all the US liquidity post UIGEA and used the extraordinary money they were making there to hire much larger teams and market much more heavily everywhere.They were smart (in some ways), and they took advantage of a big opportunity in a much better way than someone like UB, Cake or Bodog ever could. But they also had a very huge unfair advantage over the public companies that pulled out of the US, and it’s really hard to ever argue that Stars would be anywhere near the position they’re currently in if they hadn’t used all the money they were making in their extra few years in the US to snatch up tons and tons of non-US traffic

    • So with the compacts, players could only play against other players within their compact? Could lots of states get in one compact? Like 50? I’ll take 25. So I guess if thats the case than playing against international players would definitely be out of the question. Our gov never ceases to amaze me. It’s the internet ffs.

      It would be so easy to track every move of a player’s money. They’re computers, they can be programmed to do anything. It would make taxes unbelievably easy to keep track of. I really don’t see what the hangup is. Just tax the shit out of it, tax depos, send a mf tax form to everyone who cashes out, and rake your billions ya fucks.

    • But they also had a very huge unfair advantage over the public companies that pulled out of the US, and it’s really hard to ever argue that Stars would be anywhere near the position they’re currently in if they hadn’t used all the money they were making in their extra few years in the US to snatch up tons and tons of non-US traffic

      We do not disagree with your assertion, I think you are right. The point that I was trying to address in the interview was that just last year most of the industry was blaming Stars and Tilt exclusively for their misfortunes due to “unfair” marketing to the US. Rather than look at their own errors, it was more convenient to have a scape goat. This year, most companies I spoke with were honest about blaming their failures on the lack of innovation, rather than on the loss of the US market to Stars and Tilt. The exception to this observation was bwin.party‘s CEO, who has publicly made statements that essentially says his company cannot grow as long as Stars is in business. After Black Friday many companies were visibly excited, it was almost as if they treated the misfortune of players caught in the Black Friday mess as a land grab. But the only company who really profited from Black Friday was pokerstars, this strategy backfired on most of the industry – and I think the industry has learned a valuable lesson from this about the importance of brand loyalty, product innovation and customer support. In turn we are beginning to see a lot of new innovation and rethinking of the online poker business model from some of the B and C class operators that embraces the needs of players better than they have in the past. This is very exciting to me, it shows that the industry is maturing and beginning to own its own errors rather than play the blame game. I think this is a very good step in the right direction, its a great sign for the future.

      PS: Good to hear from you Adam, it has been too long!

      Steven

      So with the compacts, players could only play against other players within their compact? Could lots of states get in one compact?

      In theory, yes. For example you cannot call across the state lines to buy a lottery ticket, but you can play using an authorized vendor that collects tickets for a multi-state lottery. Also in theory lots of states could enter into a compact, but first each state would have to reconcile it’s laws related to poker – a very challenging task since these laws are often embedded in the State Constitution.

      So I guess if thats the case than playing against international players would definitely be out of the question. Our gov never ceases to amaze me. It’s the internet ffs.

      I hate to say it, but I don’t blame the current government… this issue stems all the way back to the Constitution. Gambling has always been a states rights issue, it is not easy to take this power away from the states. As for international players, that is a very tough question to answer, issues such as GAT treaties and the WTO may be at play. It is beyond my understanding, and beyond the understanding of everyone I have spoken with in the industry (or industry lawyers) to date.

      I really don’t see what the hangup is.

      There is no hangup in Nevada, licensing just started, we may see the first online rooms by June. New Jersey is not far behind, a vote is expected soon. As for the rest of the states, you are right.

      – StevenM

      • Land of the Free…Oh let me sell my house, uproot and move to Vegas to play online poker, so I can be free to spend my money there. Joke. DOJ needs to have their email inbox filled up with questions. Squeaky wheel might get oiled

        • “compacts will be the future of online poker in the USA” – I guess I don’t really disagree, but are we really that far away from federal legislation? What about Sen. Kyl’s public willingness to finally carve out poker-specific legislation combined with Senate Majority Leader Reid’s obvious pro-poker position? Isn’t this what we’ve been waiting for? Does the lining up of this political muscle really mean so little?

        • Land of the Free…Oh let me sell my house, uproot and move to Vegas to play online poker, so I can be free to spend my money there. Joke. DOJ needs to have their email inbox filled up with questions. Squeaky wheel might get oiled

          Yup it kinda sucks that you have to sell your house, the car, and everything else just to play a recreational SKILLFUL game of poker.

          I don’t think email will do any good, you think they would be interested in your emails while the big shots are sitting in a back room of thier offices partying it up while playing poker themselves, ya don’t kid yourself plenty of them are into poker playin.

          Here is a better solution: rather than writing and whining on this forum on how your government are a bunch of rip off artist and sinse you have nothing else better to do, after all you can’t play poker right now because the gov’t said so, why not gather all the poker players in the u.s. and sit in front of the head office with a big sign and put on the sign whatever you feel like it and don’t move until they start to listen. And if they don’t want to listen you think they can easily kick millions of poker player off thier door step?

          Even to ask if pokerstars will return to the US is an insult after what your government has put them through.
          Not only does the government give a rats asss about the online poker but you see its obv they also don’t give a rats asss about thier own people. Lets see, can you think of just ONE good thing your government has accomplished over the last 12 months to benefit you!

          Think really hard and perhaps you can come up with some lame benefit…:)

          By the way i think interstate poker is the only answer right now but why is it taking so long. Yes i forgot your governement have to fix the other the screw ups they got themslves into first.

          So everyone get off your lazy rear ends and do something creative as if not then its going to take a very very long time before those big shot in politicians in thier fancy offices will ever budge!

          • State-by-State crap will be HORRIBLE for online poker players. How many online poker players live in Wyoming ? State-by-state fields will be very small and rakes will be high and guaranteed tournies will disappear. There are global poker websites now that attract less than a couple hundred low stakes players each day, and state-by-state websites will attract FEWER daily players. The U.S. needs FEDERAL level regulation that extends to ALL poker websites around the world. Online poker needs to be GLOBAL…not just state-by-state or country-by-country. Also, we NEED the Aussie’s and Scandi’s at the online tables because they always over-play their cards.

          • It basically sounds like online poker in the USA is going to be a complete waste of time. One of the fun things about the game was to be able to play with anyone in the world, which doesn’t sound like its going to be possible.

            Face it guys, even if and when legislation does pass, its never going to be like it was when people could grind freely on stars. No matter what anyone says, Stars is the best site around and will always be the best site. Online poker for US folks is doomed. If you want to play online, the only option is to move to another country.

            Sad times.

            At least this interview gave a real insight as to whats going on.

          • the real money comes from federal legislation,all the predictions on how much money the usa is missing out on will come nowhere close to the amounts ive seen projected, a few states compacted will bring small turnouts ,the excitement will not be the same , and the feds will make jack sh it as well, unless they open this thing up for the world and let some USA sites make some bad ass poker rooms with top notch budweiser type advertising and create the huge buzz poker deserves,get some national/global branding going ,step up to the plate u old thinking small minded buffoons ,def tired of hearing the comparison to state lotteries as well, WE SHOULD BE ABLE TO PLAY WHEREVER WE WANT ON THE INTERNET ,IT SHOULDNT BE HARD TO FIGURE THIS OUT,MAKE EVERY PERSON REGISTER 1 COMPUTER PER PERSON ALONG WITH DOCUMENTS [JUST A QUICK THOUGHT] do something clever ,compacts = small sites =weak money for everyone involved

          • I think i wanna move out of the USA just because of the bullshit government on the local, state and federal level 1st and the jacked up online poker situation second…

          • Thank f##k i don’t live in the land of the free.

            Quoted for truth!!! One of the reasons I live in AK is because we have a lot more freedom than most of the other 49 states.

            If I didn’t have a bunch of family and friends here I’d move out of this country sooooooooo fucking quick!!!!!!!

          • Good article, thanks. I’m curious about your thoughts around the fact that a few remaining sites have done relatively well since 4/15 (Bovada, Carbon Poker network). The DOJ continues to be criticized for 4/15 and everything i’ve read seems to indicate that they would be hard pressed to take any additional actions against the remaining sites (please correct me if you feel differently).

            If players vote with their play and support these sites, what’s stopping them from growing and becoming the go to choice for US players everywhere (even in NV or NJ) next 3-5 yrs?

            At this point advising players to move to Nev or NJ seems extremely LOL to me when there are a ton of other places on the planet with better access to better online games… especially when we have no clue as to what will games, software, rake, player base #’s, etc will be offered. Just my 2 cents.

            Thanks for your thoughts and the article nice work!

          • Good article, thanks. I’m curious about your thoughts around the fact that a few remaining sites have done relatively well since 4/15 (Bovada, Carbon Poker network). The DOJ continues to be criticized for 4/15 and everything i’ve read seems to indicate that they would be hard pressed to take any additional actions against the remaining sites (please correct me if you feel differently).

            If players vote with their play and support these sites, what’s stopping them from growing and becoming the go to choice for US players everywhere (even in NV or NJ) next 3-5 yrs?

            At this point advising players to move to Nev or NJ seems extremely LOL to me when there are a ton of other places on the planet with better access to better online games… especially when we have no clue as to what will games, software, rake, player base #’s, etc will be offered. Just my 2 cents.

            Thanks for your thoughts and the article nice work!

            Good questions, and I’ll hop in and answer with my thoughts and see if anyone else wants to as well…

            US players aren’t realistically going to vote with their play for sites like Merge and Bovada in a post-regulatory environment because those sites will almost certainly not be part of the licensed group of operators in the states. With licensed operators, people will have significantly easier access to their cash. That alone will be a transforming factor in the market. The legal, regulated operators will also have immense marketing reach. They’ll be able to attract a huge number of new players that Merge can only dream of, and those players will be depositing more frequently and leaving in higher balances. Trust is a huge issue right now. It may not be immediately obvious if you’re a recreational player on Merge and feel comfortable there, but most people just don’t want to jump through the hoops to get their money in and out while also feeling like they might not get their money back ever. It’ll be totally different in a regulated environment.

            Another, perhaps less obvious factor is that right now Merge, Cake, etc. get a very high percentage of their US traffic from affiliates. If they even stick around the US market post-regulation – I don’t think they will, but it’s possible – that doesn’t mean that affiliates will continue to promote them. Many poker media/community sites, P5s included, have already pulled away from these poker rooms. More sites – think 2+2 for example – will pull away when there are better and more legitimate opportunities in the US.

            So basically I believe that post-regulation, Merge and the rest will pull out of the US or perhaps cease to exist entirely. But if they don’t, they’d have an impossible time marketing their products to US customers and would also have an impossible time demonstrating value over other options. It wouldn’t look good at all.

          • Thanks for your response, but how can regulated operators “attract a huge number of new players that Merge can only dream of…” when they are limited to only players residing in their state (for example Nevada has just over 2m residents).

            If the regulation is state by state as predicted in the article, we’ll have perhaps NJ and Nevada in the short term approved and regulated and 48 states and even a higher proportion of the US population with no solution, so why would Merge/Bovada or any affiliates ever consider leaving in the shorter term?

            Not that I don’t agree with you and your points, but your answer seems longer term and once several states are on board and/or a federal solution is somehow passed…thanks again!

          • If the regulation is state by state as predicted in the article, we’ll have perhaps NJ and Nevada in the short term approved and regulated and 48 states and even a higher proportion of the US population with no solution, so why would Merge/Bovada or any affiliates ever consider leaving in the shorter term?

            I havent heard any grumbling in the industry yet, but I would not be surprised if new legal instruments which can be used to crack down on non-licensed operators like Bovada and Merge will be rolled out at the same time that State Compacts are allowed. All of the US facing companies that we have spoken with do not expect to be US facing forever, at some point the door will be shut. Nobody knows when that point is though – is it 10 months, or is it 40 years? Impossible to guess.

            I agree with everything Adam said in his last post, but we can also add that perhaps Merge or Cake’s software platform will be bought by a major player looking to gain a foothold in an emerging market (USA, Russia, etc). The companies may someday cease to exist if they are somehow barred from access in the US market, but the intelectual property will likely live on.

          • Im hopeful that one of the US-based sites will do a JV with stars that gives the JV license to operate, but the skin is a local company. too much to hope for.the stakes are huge for stars to settle with the DOJ – if i were their lawyers and advisors i’d be like ‘ok what is it gonna take’ stars and tilt were the most innovative, the most aggressive, the best software to use, cultivated the best players – nobody else came close. with or without 2006, stars would have become the biggest…i play on lock now and cuss the interface every time, and dont’ even talk about bovada and the ipoker sites…yech.the political administration (obama and crew) have nothing to do with DOJ actions…the DOJ doesnt make laws, it implements the law made by legislators… and it is run by bureaucrats and lawyers, not politicians…obama (so it seems) was a keen poker player when he was a state legislator in Illinois – I doubt moral objections would come from his corner…

            the fact that the US is an freer, or ever was any freer is a fantasy and a delusion. when founded, it was a pioneer in democracy and individual rights (as were France and England) – so you could have said in 1800 that the US had ‘more freedom’ than the rest of the world.every country (industrialized) has freedom of speech, conscience, political freedom, freedom of association and a basic charter of human rights… they mostly all have constitutions and free elections…(the US elections are less ‘free’ because of the huge influence money has in buying elections here)the US is now actually BEHIND most of the Western World in ‘freedom’ – in implementing the Universal Declaration of Human Rights…most ‘socialist’ countries (democratic socialism in most of Europe) are a whole lot freer in terms of individual rights…(about the only right you have in the US that you don’t have in Europe is to carry a handgun – and that is why your murder rates are 7-20 times that of Europe)when a right winger bangs on about freedom and the land of the free, generally they are deluded or ignorant…and poker proves just one example where being ‘socialist’ in Europe gives you more freedom…

          • State-by-State crap will be HORRIBLE for online poker players. How many online poker players live in Wyoming ? State-by-state fields will be very small and rakes will be high and guaranteed tournies will disappear. There are global poker websites now that attract less than a couple hundred low stakes players each day, and state-by-state websites will attract FEWER daily players. The U.S. needs FEDERAL level regulation that extends to ALL poker websites around the world. Online poker needs to be GLOBAL…not just state-by-state or country-by-country. Also, we NEED the Aussie’s and Scandi’s at the online tables because they always over-play their cards.

            13 inches – We agree with you, but the governments around the world do not seem to care about the unique needs of the poker community, they are more concerned with protecting tax revenue. The one network for the whole world solution which we are all used to and prefer is slowly being replaced by country-specific networks like we have found in Italy, Spain, and other European countries which are attempting to keep the business locked within it’s own four walls. In some scenarios the countries are allowing outside players (business) provided that the networks are licensed within the country an pay taxes on all the games (business transactions) that take place within that country. The current prediction is that this will be a similar model within US States as well, some states will want to go it alone due to the challenges faced within the existing State laws, however we are all hopeful that many States will gang together to create multi-State networks after making some revisions to State laws to allow this type of business transaction. Of course this is not as good as a network addressing the needs of all 50 States, but it is better than nothing – which is what we currently have in the USA.

            My personal prediction is that the immediate future is not as good for tournament players as it will be for cash game players in states where legalization is taking root, for example Nevada has only 2.x million people – that is 1/8th the size of New York City on an average business day. The population is too small to create the liquidity necessary for a vibrant tournament scene when spread out over multiple networks that will eventually be licensed in NV.

            On a related note, there is a lot of excitement about a possible new Reid/Kyle bill… the people in the industry I am speaking with are praying this will be the silver bullet we are all hoping for, but the chances are slim. In the worst case scenario, we hope that this alleged bill is a Federal solution which overturns UGEIA to allow cross-state transactions to allow the State compacts needed to create multi-state networks. In the best case scenario the alleged bill allows for international commerce, alteration of the WTO/GAT treaties to allow the USA to conduct business in other countries in the gambling field, and provide a path for States to opt in without affecting existing laws on the books in each state by defining internet gambling as being a separate entity from brick and mortar gambling. Of course that is a pie in the sky dream… but it cannot hurt to dream!

            – Steven

          • I agree, Steven. I think for cash players the opportunities will be abundant and lucrative even in one-state environments. The days of $2M Gtd tourneys on a regular basis are probably over for US players for a number of years, but I don’t think forever. Compacts could eventually let them get pretty big

          • The days of $2M Gtd tourneys on a regular basis are probably over for US players for a number of years, but I don’t think forever. Compacts could eventually let them get pretty big

            Adam – I agree. The question is, when will this take place, that is the million dollar question. Are we talking a few years, or a decade… its impossible to tell right now, we are just beginning to take the steps in the right direction. We have a long way to go.

            Thank you once again for inviting me to the forum to share this topic with the P5’s community, its been great so far, some insightful feedback!