6 Things You Need To Know About Online Poker In Pennsylvania

6 Things You Need To Know About Online Poker In Pennsylvania

This summer (July 15, in fact) will see the launch of Pennsylvania casinos’ online gambling platforms according to a recent announcement by the Pennsylvania Gaming Control Board (PGCB). This will include online versions of traditional casino games, including a welcome return of online poker, once so popular throughout the country.

First, a little backstory:

In the late 1990s, online poker was introduced in the US. By 2003 poker was booming. Players from around the world could play poker with one another and it became a very popular activity indeed. Players met people they never dreamed of meeting previously. A game could be found day or night for players of all levels, and there was an abundance of games from which to choose.
As fast as poker was rising, it came to a crashing halt on a day the poker community calls Black Friday. On April 15, 2011 the US government destroyed online poker in AmericaOn this day, the Department of Justice (DOJ) seized the online domains of the top US online poker sites and began prosecution of their founders. US citizens found that they were blocked from accessing these online poker sites.  Ever since that dark day, legal online poker in the US has essentially been wiped out. The few exceptions are sites with intra-state player pools that operate in Nevada, New Jersey and Delaware.
The state of Pennsylvania is about to join the ranks of states with intra-state online poker. This is big news. Pennsylvania’s population ranks fifth in the country at twelve million people. With the launch of online poker in a few months, Pennsylvania will become the fourth state to re-enter this market and it will have the largest single pool of potential poker players in the United States.

Currently, New Jersey holds the top spot as the country’s biggest casino gambling market, however, experts predict that Pennsylvania, with its much larger population, will replace it in the number one slot. If, and likely when, Pennsylvania online gaming achieves success, other states may follow suit as they watch the revenue pouring into PA coffers. Right now, legal sports betting, both online and live, is sweeping the nation, so it is only natural that legislators will consider one as they consider the other.

Just how much revenue is at stake?

How big will the online poker revenue be in Pennsylvania? This is difficult to determine, but we can look to the Garden State for clues. During the first full month operating online poker in December of 2013, New Jersey online casinos collection $2.8 million in rake (that is the money the “house” charges to host a game). It’s important to note that this was only two and a half years since Black Friday and the interest in online poker was still robust.

There are network effects endemic to successful poker markets. Poker depends on players: you need at least a table’s worth of people wanting to play with each other at the same time, in the same game, at the same stakes. Being limited to the intra-state player pool isn’t helping the online poker market in New Jersey. Revenues have been flat.

Last month the NJ online poker sites collected just $1.9m in rake. A similar trend appears when reviewing annual revenues. The same trend shows up when examining annual figures. In 2014, New Jersey’s online poker sites earned $29.06 million and to date, the annual revenue figures have not surpassed this figure. This is hardly surprising. When you are used to having the entire world as your player pool, these shallow, restricted pools aren’t very inviting.

Still, Pennsylvania is a bigger market. How well will online poker do in its first month in Pennsylvania? A larger population could yield a larger market. On the other hand, nationwide interest in online poker has fallen so it is difficult to tell.

A good bet would be to guess that Pennsylvania’s first full month of online poker revenue will be less than that of New Jersey’s $2.8 million figure from December 2013. While it is true that PA has a larger and more thriving live poker scene than does NJ, and that likely translates to desire to play online, there are some serious offsetting factors.

Online poker will have competition. Mobile online sports gaming will launch in Pennsylvania in early May of 2019. Plus, the same time that online poker launches, so will online table games and online slots. All of these verticals will be competing for gamblers and their disposable income.

Will online poker augment live poker rooms or is it competition?

More players play live poker in Pennsylvania than they do in New Jersey, but it is still a struggling market. In 2018, PA’s ten brick and mortar poker rooms took in $55.69 million in total rake. That is approximately 6% less than the total revenue for 2017.  That’s pretty flat and 2016 was much the same.

The problem isn’t a lack of effort by management. Both Sands and Parx have remodeled their poker rooms in the last year and Harrah’s just revamped theirs as well.

Perhaps an entrepreneurial casino operator will discover techniques that spark live poker action with online promotions. Perhaps some online tournament satellites that culminate in a large live tournament? Perhaps points earned online can be redeemed at the brick and mortar room? Presumably, synergies are out there. At least that’s the theory.

The pressure of online competition could spell trouble for the more marginal of Pennsylvania’s traditional brick and mortar poker rooms.  Currently, Presque Isle Casino and Mohegan Sun Pocano seem the most vulnerable. Each is on the smaller side. Presque has seven tables and Mohegan eighteen. Not only are they among the smaller rooms in the state, but neither of these casinos bothered to acquire an online poker license.

Which casinos will be the winners in this new market?

The best possible predictor of which online poker casinos will succeed in PA is how things are going currently in the NJ market.

Of relevance to the Pennsylvania market are three operators with ties to NJ online poker: Harrah’s Philadelphia (WSOP – a Caesar’s property), Mount Airy (partnered with PokerStars) and MGM/Borgata.

We can probably eliminate MGM as a contender for poker supremacy in Pennsylvania. In New Jersey, they are only ranked third, but worse, and more importantly, they do not have a physical poker room in the state of Pennsylvania. MGM took advantage of the PGCB’s newly created Qualified Gaming Entity (QGE) status to petition for online gaming licenses land-based PA casinos didn’t want.

Then there’s PokerStars and WSOP/888. PokerStars is the global leader in the online poker space, but so far, that hasn’t translated into clear dominance in intra-state markets. The WSOP (world series of poker) brand is also well known in the poker community. Their site is now leading the pack in New Jersey. Once in second place behind PokerStars, WSOP took the lead thanks largely to a player pool sharing agreement between New Jersey, Nevada and Delaware that (so far) only WSOP can benefit from.

Ok, so that makes it sound like WSOP is the front runner in this race. However, the multi state advantage that WSOP has over PokerStars will not come into play in the ring-fenced Pennsylvania market. Both of these operators will be contenders.

There are also two more participants to consider. First we have Parx Casino which boasts the busiest live poker room in all of Pennsylvania, controlling approximately 30% of the live poker market in the state. It is very possible that Parx Casino and their partner GAN could do well in this new market. They are well positioned to exploit any possible live/online poker synergies that can be found.

Then there’s long time US online poker veteran PartyPoker. They have now become partners with Valley Forge Casino. In its heyday (the early 2000s) PartyPoker dominated the US online poker market. They bring experience and a well known brand. Also consider that Valley Forge Casino is owned by Boyd Gaming, no stranger to poker themselves.

What will the future hold for online poker in PA?

Who will be the long term winner in this space? Who will fold?

Currently, the PGCB has issued eight licenses to operators to offer online poker. To further confound the issue, each license holder can operate as many skins (brands) as they like. That’s a lot of operators in a small market. Even with the relatively large population of Pennsylvania, it is difficult to imagine that each of the eight separate poker operators will all thrive in a limited intra-state market.

Here is a list of all the casinos in play in the online poker space:

Additionally, just because they hold a license, that doesn’t mean that all these casinos will launch an online poker site. Some may decide their prospects just aren’t worth the time and expense.

Ah, the good ol’ days: will we ever go back to merged player pools?

For online poker enthusiasts, this is the biggest question. While the ability to play in a ring-fenced poker market might be better than nothing, US poker players once had the whole world open to them. Being restricted from playing with the broader worldwide poker community severely retards online poker’s longevity – and profitability.

Perhaps PA could join with other states who are beginning to merge their pool of players? If so, joining in with Nevada, New Jersey, and Delaware would add other 14 million to the potential player pool. That would certainly help. Next year could add another 2 million  when West Virginia legalizes online poker. The following year, Michigan is likely to follow suit with their 10 million potential players.

Currently each of these states are ring-fenced, but that system is breaking down. The walls are falling. States may decide they need to merge if they wish to be competitive. This truly is a case of win/win. Nevada, New Jersey, and Delaware have started the trend and hopefully more join in.

However, as exciting as the future looks, the ever interfering 800 pound gorilla is making its presence known once again. Even that small move in the right direction is now jeopardized thanks to the DOJ’s new “interpretation” of the Wire Act. 

The new DOJ missive has understandably made Pennsylvania regulators skittish. They are very unlikely to make any moves towards merging gaming pools with other states until this situation with the DOJ is resolved, and as we all know, the wheels of justice turn slowly.

The matter is currently sitting with court in New Hampshire. Interested parties across the country are watching closely. Likely, this issue will not be finally settled until and unless the US Supreme Court weighs in. With a conservative court likely by then it is hard to say which way the issue will be decided. Will they rule on the side of commercial freedom and state’s rights or on the side of centralism and nanny-state restrictions?