John Mehaffey

There is some debate about what would be the best fit for California’s future online poker industry. Some feel that a single network with licensed skins managed by California card clubs and tribes is ideal. This is similar to how Delaware’s online poker market is. Others think that allowing several independent platforms to operate is more appropriate. Nevada and New Jersey use that model.

Problems with single network model

The single network dilemma creates numerous issues. While it would centralize all of the liquidity, this can actually cause licensed skin operators to fight among each other. All operators in California would be competing with the same product under this scenario. The only differences between each site would be the promotions. In other words, this means price would be the only thing differentiating each site.

This has been a nightmare on international poker networks. The iPoker Network is a great example of this. The situation got to become so difficult that the network operator decided to create two different platforms. Popular cash games and sit and gos are no longer shared by the entire network. The skins that provide the most players have exclusive tables. This lowers the value of the smaller skins and diminishes players’ experience on these sites.

How did the iPoker Network get that way?

It all started with skins competing against one another as opposed to trying to bring in new players. The network banned rakeback in 2006. This is where a skin returns a portion of rake to players. It also placed restrictions on how generous other promotions could be. Rogue skins decided to break the network rakeback and promotional rules to draw high volume players from skins. This was done with the help of affiliates that became all too eager to help these skins break the rules.

A network model would create a scenario where skin owners may become forced to break the rules simply because they cannot compete any other way. As soon as one site is known to play by their own rules, others have to follow or risk losing their high volume players to the overly aggressive competitors.

Skins become glorified affiliates

A single software provider becomes in control of most important decisions. This includes the types of games offered, backend capabilities to offer promotions, player features and maybe even banking. Skins that demand changes would be at the mercy of the network software provider to decide if that type of development was in their best interest. There is already precedent in the regulated U.S. market that software providers are not always willing to fix bugs or make improvements in a timely manner.

Rake Distribution

Another issue to consider is how rake would be distributed. Skin operators would need enough of a budget to cover marketing expenses. A 50/50 split may not be enough to accomplish this. The problem is that the software provider would have certainly won a bidding war. This could create an astronomical licensing cost that requires a higher percentage than a standalone software royalty deal would generate. In other words, more taxes would be paid in the form of an upfront winning bid. This would create a hardship on the network that can only be overcome through rake generated.

Lack of Innovation

Competition requires companies to be innovative. New products and ideas come out of a fear of getting caught by a competing company. There is no incentive to spend money to improve the existing online poker platform if there is no concern about a competing site doing the job better.

More Options Make Offshore Sites Obsolete

No site is perfect. A single monopoly platform is sure to have something players will find undesirable. If there are enough issues or if the platform is missing key features players demand then there is a good reason for them to choose offshore sites. It is naive to think there will not be unlicensed online poker rooms still in the market, especially if a poor product is chosen and forced upon players.

Limit Platforms, But Not to Only One

New Jersey showed that allowing an unlimited number of poker sites is not ideal. Betfair has nearly zero players and generates only a few dollars a month in revenue. While Ultimate Poker has been extremely generous with its promotions, it has lagged the other three sites considerably. Keeping the number of California online poker platforms to four would probably be a great policy. This would avoid dilution while providing players with enough satisfactory options.

John Mehaffey
John Mehaffey - John is a writer for multiple online poker publications and is the author of the popular Online Poker Payment Processing Report. Read more from John by following @John_Mehaffey on Twitter.