Two Way Hard Three | Las Vegas Casino & Design Blog

April 20, 2011

Federal prohibition, online poker, and Nevada

Posted by daveschwartz

Over the past few days, I've spoken to several journalists about last week's wave of indictments that targeted three major online poker sites. One question that I've been getting is, "Could this benefit brick and mortar casinos?"

My initial answer was no, it wouldn't in the long term. If you look at the numbers of tables and total win from 2002 to 2010, it's clear that, as online poker became more popular, poker in Nevada casinos boomed. That implies that a thriving online market actually helps Nevada casino poker, since more people are more familiar with the game.

Now, you can never prove that the boom in online poker caused the growth in Nevada poker; we all know that correlation doesn't necessarily mean causation. It could be that they both benefited from a bigger upswing in public interest in the game due to the rise of televised tournament poker around the same time. I'd argue that online and televised poker cross-pollinated each other, with a pretty big overlap in their audiences. But even though I can't definitively prove that online poker caused the 2003-06 Nevada boom, it seems the most likely explanation.

So what impact will closing three major websites have? Instead of logging on, will people flock to local cardrooms and casinos? It's definitely possible, particularly in the short term. But in the long term, denying Americans access to online poker will, ultimately, shrink the market for casino poker. With fewer places to learn with training wheels on, it's likely that there will be fewer new live poker players. It's one thing to get the feel of the game by playing for free, then playing for money online; it's another to make the jump from freeplay to a live table.

I was curious (there's a lot of that going around on this site, apparently) about what impact UIGEA's passage had on Nevada revenues, so I compiled a new report, looking at monthly statewide Nevada revenues from January 2004 to February 2011--that, I figured, would give me enough of a set of data to see how significantly UIGEA impacted Nevada gaming. Was there even a small influx of players to Nevada casinos after it passed?

The answer is no, there wasn't. The growth of Nevada casino poker really peaked in the summer of 2006; for the next year, it grew moderately each month. There wasn't any significant change in the rate of that growth in October 2006, when UIGEA was passed, or in the months following. In fact, after a big jump in June 2007 (because the WSOP was moved up by 3 weeks), Nevada poker started to decline pretty dramatically.

It might have been anticlimactic, but the official implementation of UIGEA in June 2010 didn't do anything to stop the decline in Nevada poker either.

To me these numbers suggest that, ultimately, the traditional casino and poker business won't really benefit from online poker prosecutions. I'd guess that either players will find other sites to play on or they'll cut back on their play. And, as I mentioned above, if online play noticeably drops, traditional poker rooms would lose a vast farm system.

So history seems to tell us that the prosecutions won't really be a game-changer for Nevada casinos. Their ultimate impact won't likely be a direct one; instead, it could be that the attention the indictments focus on online poker might spur cash-hungry state legislatures to seriously consider legalizing online poker. Should Congress be persuaded to slightly amend UIGEA to allow interstate play (it already allows intrastate play), we might see a new American online poker industry rise from the ashes of the Black Friday indictments.

But that's a story that hasn't been told yet.

UPDATE: I've expanded the CGR report to include data going back to January 2004. And it's now in landscape instead of portrait orientation.


Read archived comments (9 so far)
April 20, 2011 3:30 PM Posted by dave202

good analysis. Great resource... I think it will benefit those smaller poker rooms that will continue to risk making billions of $$. I don't think you'll see any extradition, so if the owners don't care about living or visiting the US, they'll pile the money up.

April 20, 2011 4:20 PM Posted by Paolo

Correct me if I'm wrong, but poker isn't exactly a large profit center for casinos, is it? I guess it brings people in through the doors, but does it make that big of an impact on the bottom line?

April 20, 2011 8:37 PM Posted by Jeff Simpson

Good analysis. I agree completely.
As for Paulo's comment and question on the importance of poker, clearly poker isn't that big of a contributor to the bottom line. (With a few exceptions, like the Rio during the WSOP.) But poker is an important flavor, like a real race and sports book, with value beyond its direct revenue production. At Aria, Bellagio, Wynn and Venetian, for example, poker players regularly make the short walk to the table-game pit to blow off a little steam (and part of their bankrolls).

April 21, 2011 6:57 AM Posted by Mike P.

I don't quite see how you can separate the effect of the UIGEA from that of the ongoing depression. In fact I'd guess the economy has had a greater impact on poker play up until now than the legal environment.

Consider the Bush administration didn't exactly rush to implement an enforcement mechanism for the UIGEA, and after some initial uncertainty it was pretty much business as usual at the online sites that stayed in the US. I'm sure there was a net decline in US residents' presence on those sites after Party Poker pulled out, but it wasn't difficult at all initially to fund accounts - I had a small account on Pokerstars that I funded with a debit card from my local bank for example.

Now that it's being seriously implemented televised poker is dead, the last couple of poker magazines are dead, and the general public's interest in poker will die too. I don't see this being positive for B&M casinos.

Dr. Dave's numbers bear out what I've noticed anecdotally - there seem to be fewer players at the low limit games I play, they're putting less money on the table and reloading less when they bust out. I blame the economy.

By the way Dr. Schwartz and Jeff Simpson have really boosted the quality and quantity of analytical posts here. Thanks to Hunter for getting them as regular contributors.

April 21, 2011 9:01 AM Posted by parchedearth

Even without the recent events, poker was a dying fad that had a nice run this time around. It was only a matter of time before properties once again converted their poker rooms back into slot parlors. The better poker rooms will probably stay, but most properties will shut them down again.

April 21, 2011 10:16 AM Posted by Dave

Poker accounts for about 1% of all Nevada casino revenues.

But, as Jeff said, many poker players also play other games.

Also, many poker players travel with (spouse/partner/friends) dedicated slot and table players, and casinos don't want to miss out on this action.

April 21, 2011 1:31 PM Posted by Erin Wootan

Great post. Logically, it's easy to make the jump to thinking that brick and mortar properties will see an increase since players can't access their favorite sites anymore, but it was brought to my attention that the conditions of online poker aren't easily replicated in live poker rooms in casinos. Players can't play multiple tournaments at once, and their daily take ends up being much less in the long run. It seems that new information and details come out daily regarding internet poker and it's very interesting to read your analysis. Keep it up!

April 21, 2011 3:23 PM Posted by Dave

To combine an answer to MIke P and parchedearth, poker's decline is likely due to both the recession and a broader drop in interest. In the report you can clearly see that the falloff in poker revenues started in the summer of 2007, a bit ahead of the recession, and that the real growth had stopped a year earlier.

And Mike's absolutely right that, in the long run, a vigorously-prosecuted online poker prohibition will lead to a decline in Nevada play--which actually might not bother casino honchos too much since (like pe said) they can reconvert their rooms to slots and make at least 10X the revenue. But it's too bad for Nevada poker players.

April 26, 2011 11:13 AM Posted by Paco

Maybe I am way off base here, but would it be possible to pass a law to permit online poker strictly from hotel room to hotel room in Nevada? It would eliminate much of the checks on age since people must be of a certain age to get a room. The casino resorts would benefit from increased room rental (especially midweek). You could still draw players from a pool that is considerably larger than a live game.