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New 888 Dominance Could Be Good for New Jersey

888 Holding’s recent agreement to purchase bwin.party was a shocker. Not quite as startling as when Amaya Gaming bought the parent company of PokerStars and Full Tilt Poker last year for $4.9 billion, but quite the surprise nonetheless. Amaya had teamed up with GVC Holdings to put in a 110p per share bid for bwin.party, a potential deal valued at about £900m (about US $1.4 billion). It looked like the deal was as good as done, but 888 swooped in at the last second and stiff-armed GVC/Amaya to grab bwin.party. Interestingly, the price was lower than GVC/Amaya’s, as 888 is only paying approximately 104p per share. Both bwin.party and 888 cited the generic business-speak “synergies” as a big reason the marriage will work.

According to PokerScout.com, 888’s flagship online poker site, 888poker, is the second largest poker room or network on the internet, with a seven-day average of 2,200 cash-game players. Of course, that does not take into account tournament players, but let’s just say the numbers all work out. PokerStars is far and away the largest online poker room with 14,500 cash game players. Adding bwin.party’s notable brand, partypoker, to the mix will further solidify 888 in the number two spot. PokerScout has partypoker’s traffic at 1,050 cash-game players, good for seventh in the industry. Accounting for overlapping customers, the combined company will have maybe 3,000 players (maybe less, but who knows?), giving it a large cushion between it and the third-place room, Bodog (1,700 players).

888 LogoTo me, though, the more interesting thing resulting from this business deal is the impact it will have on the U.S. online poker market. As it stands now, there are three states with legalized, regulated online poker: Nevada, Delaware and New Jersey. There are two online poker rooms in Nevada, the 888-powered WSOP.com and the South Point Hotel Casino’s RealGaming.com, which uses its own software. Delaware has three online poker rooms, all linked and all using 888’s software. In New Jersey, there are two competing networks: the Party Borgata Network, using PartyPoker’s software, and a WSOP.com/888 combo, obviously using 888’s software.

As may be apparent by now, once 888 has control of bwin.party, it will have control of both networks in New Jersey.  As Nevada’s RealGaming is barely viable and 888 already has Delaware, 888 will essentially have a monopoly in the U.S. regulated online poker market. Is this is a good thing? For the time being, I think so.

Clearly, competition is a good thing. It forces companies to innovate to stay relevant and makes them (or should make them) avoid customer-unfriendly policies and pricing, lest customers flee to other providers. In the online poker world, a monopoly provider could raise rake with little consequence and just sit on its laurels, not improving its software, investing in security upgrades, or implementing attractive promotions.

But online poker isn’t like other industries. Again, you do want competition, but you really don’t want TOO much competition. The more poker rooms there are, the thinner the player base will be spread. Sure, people can play on more than one site simultaneously – I have done my fair share of that – but most people don’t. Casual players, even if they have accounts on multiple sites, will almost always just play on one at a time, usually on just a single table. Hardcore grinders are much more likely to play on more than one site at once, but they are generally going to want to concentrate their play on a single site for the loyalty benefits. Most players simply do not spread their play amongst multiple sites.

The problem with this is that liquidity begets liquidity. If a player checks out an online poker room and sees the tables buzzing, there is an excellent chance he will create an account, deposit, and join said tables. This, of course, increases the room’s traffic, making it more attractive to the next player to come along. On the flip side, a small room with only a few scattered games going repels prospective players, as they move along to another site where there is more action. Those small sites, then, get smaller as players leave because of low traffic levels.

In New Jersey, the only one of the three states with competing poker rooms, 888’s takeover will create a single, larger room or a larger network composed of the current Garden State sites. That monolith (in relative terms; it still won’t come close to the largest international sites) could then look more attractive to potential poker players who had yet to jump into the pool. Liquidity can then beget liquidity and help the market in New Jersey grow.

PokerStars is expected to enter the New Jersey market later this year or next year, so 888 wouldn’t have a monopoly forever, and that’s fine. You still want competition. Any other poker operator may struggle dearly to generate any traffic (see RealGaming), but PokerStars will instantly become a force. But with the WSOP/888/Party Borgata/whatever network established, it will very likely be a fair fight. Both sites/networks will be viable and provide customers with plenty of action (again, in relative terms), while at the same time competing against each other hard enough to the benefit of the players. If the New Jersey market remained split between WSOP/888 and the Party Borgata Network, there’s a good chance that PokerStars would have come in and sliced into both its competitors, fragmenting the market.

Long-term, I do want some competition, but it needs to be limited until the U.S. market grows. Most states won’t be able to support more than one or two sites. States are allowed to form interstate compacts and combine their player pools, but only Nevada and Delaware have done that so far. A temporary 888 virtual monopoly would be a great time to have New Jersey to join the other two states and form a coast-to-coast network, but who knows if the Garden State’s government will get onboard.

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