Editorial

Why Black Friday Had to Happen for U.S. Regulated Poker

Apr.15, 2014 1:24:PM
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It has been three years since Black Friday forced the three largest poker sites out of the U.S. market. It has only been a two months since Full Tilt Poker players got paid thanks to a PokerStars bailout. Absolute Poker and Ultimate Bet players will likely never get paid. While it is no consolation to players that lost money, Black Friday had to happen to get regulated online poker to the U.S.

U.S. gaming companies became interested in the market. There was a major roadblock. The existing sites were certain to retain a significant portion of the U.S.-facing business. There would be little motivation for players to leave the tens of thousands of tables at offshore sites at any given to play at an intrastate one. The fact that players in regulated states still choose offshore sites that are 10 percent the size of PokerStars over licensed sites demonstrates this.

Gaming companies were less inclined to invest in a product that was saturated by dominant market performers.  That is not an issue now. These licensed companies are now creating jobs in the U.S. and paying state and federal taxes.

Two of the three companies that were involved in Black Friday were grossly underfunded.  Black Friday exposed the lack of liquidity at these sites that was unlikely to improve. The indictments brought those issues to the surface faster than they would have on their own. Had Black Friday never happened, Full Tilt may have imploded without PokerStars coming to the rescue. That would have been even more devastating to the industry.

Something Had to Give

Most players were satisfied with the status quo of online poker before Black Friday.  As long as the two largest poker sites in the world were available, nothing else mattered. The problem was that moving massive amounts of cash was becoming problematic for Full Tilt. The entire processing environment was becoming difficult. Processing fees for U.S. payments were running as high as 35 percent, according to an interview with Absolute Poker’s Brent Beckley. That was an unsustainable level.

Blue Monday occurred six weeks after Black Friday and was unrelated. That bust included UseMyWallet, an ewallet used by Full Tilt and Absolute Poker and may have created the same situation Black Friday did in terms of liquidity.  The threat of seizures by the federal government was also a potential problem long before the sites were indicted.

The fact is that the cat and mouse game of U.S. payment processing was not going to end well.  The cost of doing business with American online poker players, at least at that volume, was becoming prohibitive.  The only way to resolve this was to regulate it.  The industry could not move forward without going backwards first.

Regulated Market May Have Looked Different

There were two partnerships that were agreed to in the months prior to Black Friday. Wynn/PokerStars and Fertitta Interactive (owner of Ultimate Gaming)/Full Tilt Poker announced partnerships should online poker become legal in the U.S.  Both of these deals were made public in the weeks prior to Black Friday. These deals show how different the attitude towards offshore online poker sites was before the indictments were unsealed.

These partnerships would have created a much different U.S. market, assuming PokerStars and Full Tilt were deemed suitable by regulators. The sites would likely have been be ring-fenced, much like the regulated ones are today, but the brands were powerhouses in the market and continue to be to this day, three years after being forced to leave.