He has submitted Senate Bill S3536 which states in part:
“Notwithstanding any other provision of P.L.2013, c.27 (C.5:12-95.17 et al.), wagers may be accepted thereunder from persons who are not physically present in this State if the Division of Gaming Enforcement in the Department of Law and Public Safety determines that such wagering is not inconsistent with federal law or the law of the jurisdiction, including any foreign nation, in which any such person is located, or such wagering is conducted pursuant to a reciprocal agreement to which this State is a party that is not inconsistent with federal law.”
Theoretically, this could allow New Jersey players to play in cash games and tournaments against players from countries such as France, Germany or Paraguay. In practice, this won’t be so easy, and the idea that New Jersey players could shortly be playing in the international dot-com pool is probably unrealistic at least in the medium term.
Legal and regulatory issues may prevent international liquidity pooling
From the regulatory viewpoint, France, Germany, and Paraguay represent three completely different cases. France has a national regulator, Germany has a State Treaty on Gambling which has been all but overturned by the courts, and Paraguay has no regulatory framework for online gambling.
PokerStars operates in all three countries, but it holds a French license from regulator ARJEL, operates in Germany under license from EU member state Malta, and in Paraguay under its Isle of Man license—which covers all its dot-com operations. 888poker and partypoker are in the same boat.
In summary, regulated online poker falls into three categories:
- Online poker is regulated nationally, or at the state level, and operators need a local license.
- Online poker is not nationally regulated but a supra-national license is accepted by the local legal system. For example in the EU, a license from the Malta Gaming Authority (MGA) is supported by EU law as valid in all EU countries which don’t have their own national regulation.
- Or there is no national regulation and an international license from an offshore jurisdiction such as the Isle of Man has no local legal authority but is supported by World Trade Organisation (WTO) rules.
Sharing liquidity in each instance presents a completely different set of problems for the New Jersey Division of Gaming Enforcement (DGE).
Stripping out the language of the bill, it is clear that there are three main restrictions to putting shared liquidity into practice. Wagers may only be accepted by New Jersey regulated online poker rooms where they are:
- not inconsistent with federal law
- or the law of the jurisdiction, including any foreign nation, in which any such person is located,
- or such wagering is conducted pursuant to a reciprocal agreement to which this State is a party that is not inconsistent with federal law.
The second restriction is the real killer. It immediately makes it almost impossible to establish shared liquidity with any country which doesn’t have its own national or state legislation. WTO trade rules won’t be a factor—New Jersey will want to be certain that the national laws governing any players playing against New Jersey players will permit them to do so legally.
That pretty much rules out New Jersey players from participating in the global dot-com player pool.
It probably also rules out establishing an agreement with the MGA in Malta to create some form of a shared pool with the EU.
What’s left are the segregated player pools in countries where regulation restricts the market to national residents, and there aren’t many of these.
Spain, France, Italy, and Portugal segregate their players from playing in the global dot-com player pool. France actually allows foreign residents to play at nationally regulated online poker rooms, but only if they are allowed to by their own national legislation.
At first sight, France may appear to be a good first port of call for New Jersey regulators looking to add liquidity, after all, France has just issued PokerStars with the first ever license that would allow them to share their French player pool with Spain and Italy.
PokerStars needs similar licenses to be issued by Italy, Spain and possibly Portugal before it can combine its segregated market player pools, but the Rubicon has been crossed. It should be noted that PokerStars is the only online poker operator that operates in all four of Europe’s segregated markets and is likely to be the prime beneficiary of shared liquidity.
Players at UK licensed online poker operators are not allowed to play on French licensed poker sites. PokerStars won’t allow a British resident player to open an account at PokerStars.fr. The law doesn’t prevent this, the regulators are happy with it, but PokerStars simply can’t afford it.
The UK point of consumption tax means that any British player playing at PokerStars.fr would make the company liable to pay both French and British taxes on the player’s activity—and the two tax systems are themselves completely different. The double taxation makes sharing liquidity between the UK and France a non-starter.
New Jersey will encounter similar problems if it is allowed to share online poker liquidity internationally. Yet one of the bill’s intentions appears to be to increase revenues for New Jersey, both for the industry and government.
In the bill’s preamble, Senator Lesniak has written:
“Since its inception under P.L.2013, c.27 (C.5:12-95.17 et al.), Internet gaming has resulted in economic benefits to Atlantic City and to this State, and is estimated to have produced, within the first three years of implementation, approximately $998 million in economic output, over 3,000 jobs, $219 million in employee wages, and $124 million in tax revenues, of which $84 million derive from Internet gaming revenue alone. The provisions in this act, P.L. c. (C. ) (pending before the Legislature as this bill), permitting Internet gaming equipment to be located outside of the territorial boundaries of Atlantic City if necessary to facilitate the conduct of international wagering, would increase the economic benefit of Internet gaming to Atlantic City and to this State.”
If New Jersey finds a deal to share liquidity with France, it should not expect the French to give up tax revenues they currently collect from their citizens. Any deal would likely follow the line that operators providing French players pay French taxes and those with New Jersey players pay New Jersey taxes.
For the big operators like PokerStars, partypoker and 888, there doesn’t seem to be any reason why adding players from another country to their New Jersey player pool should result in any additional investment in New Jersey.
In fact, if the solution they adopt involved gameplay being located on the servers in France—as Lesniak’s bill allows—then they might even be able to reduce their costs in New Jersey.
Shared liquidity is unlikely to increase New Jersey employment or add to New Jersey revenues, in which case politicians will have to ask themselves what is the point?
And here the case boils down to the potential additional profits that operators can make. New Jersey operators simply can’t afford to run regular $1 million guaranteed tournaments because they don’t have enough players to cover the guarantee.
If the player pool can be expanded to one or more of the large EU markets, then the position changes radically. The marketing power of million dollar prize pools will become available, and online poker participation rates and per capita revenues should increase.
This is the indirect route to the state gaining additional revenues and potentially more employment.
An additional bonus will probably be more players switching away from offshore unregulated poker rooms and joining the safer state-regulated poker offering.
All in all, even if Senator Lesniak’s bill does pass, New Jersey players are unlikely to suddenly find that they can once more play against the rest of the world. Nevertheless, some form of international agreement could well see a limited liquidity increase which combined with current and future US interstate compacts might provide a much healthier regulated online poker market to the advantage of all.