Is Regulated Online Poker Set Up To Fail In Pennsylvania?

Martin Derbyshire November 29, 2017 1063 Reads
online poker in Pennsylvania

Pennsylvania is poised to roll out its own version of online poker in the new year. This after the state saw fit to legalize it as a part of a comprehensive gambling expansion passed in October.

However, if the numbers coming out of the online poker market in neighboring New Jersey are any indication, it’s really set up to fail.

Yes, online gambling sites are breaking records in New Jersey. They reported $196.7 million in revenues in 2016. Plus, with two months left in 2017, New Jersey online gambling websites already recorded more than $200 million in revenue. However, the harsh truth for online poker remains that it represents less than 10 percent of that revenue.


The New Jersey online poker example

By all accounts, online poker sites are barely making ends meet in New Jersey. In the summer, online gambling hit its stride and continued to post an average of approximately $20 million in revenue each month. Meanwhile, the NJ online poker market posted its worst month ever. In fact, New Jersey online poker sites reported only $1.7 million in revenue in June 2017.

At the time, there were two online poker networks with two sites each. Plus, one stand-alone site operating in the state: Borgata/partypoker, 888poker/WSOP, and PokerStars. Two more sites, Pala and playMGM, have since come online, although revenues have not increased substantially.

It may be the worse case scenario, but do the math with five sites operating at June revenue levels. You’ll quickly see NJ online poker sites only average about $4 million a year in revenue. That’s the exact same cost of an online poker license in Pennsylvania.

So, even before they take out the 16 percent tax, advertising, marketing, and operating costs, the best a PA online poker site can really hope for in year one is to break even.

OK, Pennsylvania is a little bigger than New Jersey in terms of population: Approximately 13 million to nine million. However, there’s very little indication there’s any bigger appetite for online poker among the masses there.

If there is, that appetite is clearly for offshore and unregulated online poker sites that accept US players. After all, they offer more cash game options and bigger tournament prize pools than any fenced-in state-regulated online poker market ever will.

The biggest names in the game want in

Yet still, online poker operators are practically champing at the bit to get going in PA. In an earnings call this month, NJ online poker market leader PokerStars said it wants in. Plus, all indications are that Caesars Entertainment and its 888poker/WSOP sites will open up shop in the Keystone State as soon as possible. Popular PA live poker spots like Parx Casino and SugarHouse Casino are good bets to want to start running online satellites for their live events as well.

PokerStars and WSOP.com, two of the biggest names in the game, can’t be thinking they can beat the rake on the $4 million licensing fee in year one. Nor can they be thinking Pennsylvania represents a market so much larger that there’s a boatload of money to be made. The reason they want in PA must be more about the future than anything else.

Shared player pools are the future

In October, New Jersey finally signed an agreement to share online poker player pools with Nevada and Delaware. Those two states have been doing it since 2015. Once the sites get the regulatory approval they need to get going, it’ll double the size of the market. That means more cash games and bigger tournament prize pools. In turn, that will attract even more players to online poker in those three states. Ultimately, it will move the online poker needle a little. Adding Pennsylvania could move it a lot.

The online poker legislation passed in Pennsylvania includes language allowing the state to enter that same agreement down the road. If and when it does, it could more than triple the size of the legal and regulated online poker market in the US. That has to be the reason why these savvy online poker operators want in.

Because if it doesn’t happen, and the fence around the new Pennsylvania online poker market stays up, it’s a market that’s destined to fail. Which certainly doesn’t sound like the kind of place the biggest brands in online and live poker around the world would really be this excited to jump in on.