Conferences

iGaming North America Conference Recap: Day 3

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The 2013 iGaming North America Conference came to a close on Thursday, a somewhat fitting day, given Nevada’s passage of fast-tracked online gambling legislation that same afternoon. Morning sessions featured a number of panels, including one with two industry heavyweights in SHFL Entertainment CEO Gavin Isaacs and Caesars Interactive head Mitch Garber. Garber, echoing sentiments expressed by American Gambling Association CEO Frank Fahrenkopf the day before, argued that he still believed, despite recent failures, that federal iGaming legislation of online poker would arrive in the next five years. Isaacs, for his part, disagreed. The lack of federal movement was underscored by the day’s second panel, featuring state legislators Jeff Danielson of Iowa and Bobby Moak of Mississippi, discussing policy at the state level in the continued absence of the long-awaited federal bill.

It was the afternoon sessions that seemed most apropos, given Nevada’s announcement, as two different sessions focused squarely on online poker. Three attorneys, along with Iowa Lottery CEO Terry Rich, opened by discussing the potential structure – and potential pitfalls – of the proposed interstate compacts needed to ensure reasonable poker liquidity in the US. Tom Goldstein opened the session with an overview of the issue, pausing to take Isaacs’ side in the will-they-or-won’t-they debate about federal legislation. He noted that traditionally, iGaming participants had focused on federal law, and only recently come around even considering a state-by-state process, and added later that he felt the “odds are not great for a federal online poker bill.”

At the state level, Goldstein argued forcefully that, on a constitutional basis, the proposed interstate compacts were clearly legal, and would most likely withstand a Supreme Court challenge. He pointed out that federal gambling legislation – such as the 2006 UIGEA and other laws – defined prohibited forms of gambling based on whether such activities were banned at the state level. None of the laws, he argued, “supplant the traditional regulatory authority of the states.”

But as a practical matter, Goldstein also pointed out the potential difficulty in creating a compact between the states and their regulatory capabilities. Each state “takes great pride in the depth and vigor of its regulatory department,” he said, later adding the key question for interstate compacts was simple: “Who is going to run this show?” This question led to others, such as whether a third-party regulator might be needed, and whether every single licensed operator in any state that is party to an interstate compact must be then be approved by the compact’s other states.

Sanford Millar followed up on Goldstein’s speech by noting the immediate decision states need to be make. “The ultimate question,” he said, is which comes first: licensing models or the compact itself. Millar elaborated on some of the potential difficulties listed by Goldstein, pointing out that there were already three distinct licensing models in play in the US: unlimited licensing (Nevada), limited licensing with a substantial upfront cost (such as the physical ownership of a casino in New Jersey, or the $30 million deposit required by California’s proposed regulation), and the “monopoly” model being developed in Delaware. Meanwhile, differing language on the nature of so-called “bad actors” would create further conflict. (One observer in fact tweeted Thursday that the point of Nevada’s revised 5-year blackout was precisely to block a potential compact with New Jersey, and to “discourage other states from working with NJ over NV.”) The difference between licensing models would create “significant difficulty” in executing a compact, Millar went on to argue. “Somebody is going to have give up their sovereignty.”

Iowa lottery head Rich offered one potential blueprint for state regulators in the Multi-State Lottery Association (MUSL), used to run the Powerball and Mega Millions jackpot lotteries. Though that organization appears to have substantially lesser licensing responsibility than state iGaming regulators were, Rich pointed out that the union of 33 states had created minimum standards, and was capable of handling a $6 billion workload, despite the fact that state-level lottery directors had an average term of about 18 months. Rich also went out of his way to praise the failed Reid/Kyl bill, noting that despite its lack of success it had “kicked the sleeping dog” and at least created the discussions that had led to recent state-level legislation.

But the myriad challenges of the interstate compact would come into further view soon after. In response to a question from this reporter about the legality of compacts with foreign jurisdictions, Goldstein again forcefully argued that even a cross-border compact would pass constitutional muster. (Rich added that MUSL itself had discussed the possibility of overseas agreements to boost its own jackpots.) But those potential compacts, too, raised serious practical challenges. Who would be approved operators in such an arrangement? Millar wondered how would taxation be determined; if New Jersey were, to say, set up a compact with Gibraltar or Isle of Man, that would give a significant competitive advantage to the offshore provider. Millar also asked who would get to determine with games were offered, and at what stakes, noting that a betting limit increase for a single game in his home state of California took some six years to gain legislative approval. Goldstein later added another issue, noting the trend in Europe toward “ring-fencing” poker liquidity. A country that was emphasizing a “dot country” model would by definition not enter into a compact; if France doesn’t want poker liquidity from Spain, it surely will be unlikely to accept it from Delaware. The remaining partners, therefore, would be in jurisdictions with open liquidity, which would create an overwhelming loss of control for state regulators, and, again, a strong competitive disadvantage for US-based (and US-taxed) operators. Goldstein argued that the long-term solution would be to bring in “all of the international liquidity,” once the largest players in the industry were well-regulated. But to this observer, such an outcome would seem to require a very long term, indeed.

The following session aimed to give voice to poker players themselves, with a panel moderated by Global Poker Index editor Marco Valerio and featuring PokerStrategy editor Matt Kaufman, online player – and trainer – Collin Moshman, and well-known poker star Daniel Negreanu. Negreanu, in particular, was exceptionally insightful and surprisingly knowledgeable about the details of iGaming legislation worldwide, repeatedly referring to several of the regulatory trends in Europe.

Valerio opened the discussion by pointing out the “bizarre” lack of representation from players themselves in many industry conferences and conversations about online gambling. He also noted with a touch of bitterness that the land-based casino industry – now so euphoric about online poker – had not been open to the concept until recently. The same people now charged with resuscitating online poker in the US, he noted, were the very people who, through lobbying and other activities, had done the industry significant harm in the not-too-distant past.

At different times, the panel returned to the question of sustaining online poker  terms of liquidity – the buzzword for the entire conference, in many ways. Kaufman noted that liquidity in Nevada alone would be insufficient to create profits for the majority of companies entering the market. He also emphasized the stunning market share owned by PokerStars (and subsidiary Full Tilt) worldwide, which allowed guaranteed prize pool tournaments like the Sunday Million to capture customer interest. The sheer number of players on the site, by itself, created “a self-fulfilling prophecy,” because of the higher prize pools and larger assortment of games the player pool creates. (I argued similarly in August, noting that in poker, as in markets, “liquidity breeds liquidity.”)

 Beyond liquidity, panelists offered interesting insights on the need for the recreational player, and the oft-discussed methods many operators have begun using to boost recreational visits, with moderator Valerio specifically citing Bodog’s  “recreational player model.” Negreanu – his association with PokerStars no doubt a factor – didn’t comment specifically on the model, but did note that “players are much more sophisticated” online, and become moreso every day. Everyone is focused solely on “EV” – expected value – and if the EV isn’t there, the players simply leave. At the higher limits, he noted, the absence of even one or two net depositing players could, by itself, cause a game to dry up, because pros would log off rather than simply take aim at one another. He later brought up the change in many rake distribution models, noting that “pros hate it” but conceding that it “might be worthwhile.”

Kaufman took a more pro-friendly approach, noting that their skill caused money to circulate longer, creating more rake for the operator, and emphasizing the importance of rewards and other rakeback systems, pointing out that “Supernova Elite” players on PokerStars could make six figures annually simply from bonuses and other rewards from the site. Moshman pointed out that pros were overrepresented in terms of hands, simply because so many were playing 15 or 20 tables at a time, but emphasized that it was important to keep track of what the recreational player was looking for. He noted a post on online forum Two Plus Two, wherein a recreational player complained about the speed of his games, which were often held up by delays from pros who were playing simultaneously on one or two dozen other tables.

In response to a direct question about anonymous tables and the use of data mining software, the panelists again had different opinions. Moshman argued that data mining is simply “part of the modern game,” while Negreanu noted that the software – such as PokerTracker – was the biggest difference between live and online play. Interestingly, the four-time bracelet winner allowed that the software “does hurt the game,” in part because it allows pros to find “fish” so easily on various sites. Kaufman came out most strongly against the practice, noting the “embarrassment factor” of some recreational players whose online profiles were tied to low ratings on tracking websites, citing it as a deterrent to additional play from those customers. But he noted two “unintended consequences” of banning third-party software. The first, in a comparison to the US’ Prohibition era, was that such a policy would give added benefit to cheaters, who would inevitably find their way around any such bans. The second was that it was the tracking itself that uncovered the majority of collusion and cheating on the sites (including the “super user” software used to scam high rollers at Ultimate Bet a few years back.

While happy about the slow US movement toward legalization, all three panelists were still skeptical about the near-term hopes for online pros in the country. Moshman (along with his wife Katie Dozier, also a professional player) now lives in Mexico six months a year to allow himself access to worldwide online poker sites. Negreanu has returned to his native Canada to play, while Kaufman noted that he had moved from New York City to Nevada recently to have more direct access to live play, with his own avenues toward online play largely cut off. All three players dismissed the idea that such plans would be changed by the recent events – again, citing liquidity issues. Negreanu got off the line of the day when arguing that no pro would leave making $100K on PokerStars in Mexico to make $30K on a website with a shallower player pool in Atlantic City. “I’ve been to Atlantic City…I’d rather be in Mexico,” he said to laughter.

Overall, the poker sessions reflected a common lesson from the conference; some progress has been made, but many obstacles still stand in the way of a comprehensive, competent US iGaming regulatory regime. The conference itself had a subtitle on many of its presentations which read “The Road To Regulation.” If attendees learned anything this week – and they surely did – they certainly learned to expect that road to be bumpy indeed.