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New Jersey: Bridgegate, Borgata and the big squeeze

23rd January 2014 10:36 am GMT
The New Jersey Department of Gaming Enforcement is doing a good job in a difficult climate. Let's explain why.Firstly, the figures it released last week are not bad. They’re not great either but the political climate in the US has made New Jersey something of a squeezed market. We will come back to the notion of “squeezed” later but first those figures in detail. The initial findings are fascinating enough, albeit with the clichéd caveat that these are very early days. Here they are in full:New Jersey gross gaming revenues
Operator (Supplier)PokerCasinoOverall
 Revenue  Market Share  Revenue  Market Share  Revenue  Market Share
Borgata (bwin.party)$1.90m59%$1.85m36%$3.75m45%
Caesars (888/Amaya)$1.20m37%$1.18m23%$2.38m28%
UCasino (Ultimate Gaming)$0.10m3%$0.78m15%$0.88m11%
Tropicana (Gamesys)----$0.75m15%$0.75m9%
BetfairCasino (GameAccount)$90<1%$0.43m8%$0.43m5%
Golden Nugget (Bally)----$0.18m3%$0.18m2%
Total$3.21m $5.16m $8.37m 
All revenue figures from Nov 21, 2013 - Dec 31, 2013, rounded to two decimal places.And what do they tell us?Borgata/Party vs WSOP/888The importance of the Borgata brand on the US poker scene should not be underestimated. In its first week in operation, the Borgata and NJ.PartyPoker websites shot up to 195 players while Caesars’ WSOP was left trailing in its wake with 153 players. 888’s All American Poker Network (AAPN) and Ultimate Gaming’s UCasino.com were left to pick up the scraps with 39 and 31 players respectively. Borgata and Caesars had the database of players and the brands to immediately attract players. Borgata and NJ.PartyPoker do not split liquidity so it is impossible to be sure of who is bringing in what but sources suggest Borgata is bringing in the majority. 888, which operates Caesars’ WSOP site and its own AAPN, has split from Caesars as it seeks to establish an independent identity in the US. From humble beginnings, 888’s AAPN now has 123 players while WSOP has 233. Borgata/Party has 265. (Ucasino has actually lost players since launch and had only 18 at the time of writing.) So 888’s sites have actually overtaken Borgata/Party in player numbers. We will have to wait until the next set of figures to see if they have caught up in revenues. This is a market of three poker networks: Borgata/Party; WSOP; and 888. Ultimate and Ongame, which is only available via BetfairCasino thus far, are yet to provide any competition. And experience of Europe’s regulated markets tells us that there will only ever be three or four leading poker operators in restricted markets. Can Gamesys break into this emerging oligopoly with its new poker product, which is still in production? The safe answer has got to be ‘no’ but if Gamesys can come up with a game changer in the manner of Zynga Poker, say, or even 888’s Poker Six then that would make things very interesting indeed. One should expect the return of PokerStars at some stage too but we’ll come back to them later.Casino revenuesMany assume the US is a poker-driven market in a similar way to how one might describe the UK as a sportsbook-driven market. However, I was quite surprised that poker revenues at Borgata and Caesars slightly exceeded casino revenues but the clamour for online poker among diehards might explain this in the early figures. Similarly, it will be interesting to see if Borgata and Caesars maintain their poker leads as the fish swim into the market. Thus far it would have been diehards who would have pushed aside any technical barrier such as geolocation issues or credit card acceptance to make damn sure they could play. This could provide an opportunity for the AAPN or even perhaps Gamesys, although bwin.party will also argue that its product is designed with fish in mind. Casino revenues account for around 61 per cent of overall revenues for the seven licensees. This will probably grow as the market as a whole matures. The nearest comparable figures I could find for a newly regulated market were in Denmark. Denmark’s population is 5.59m. New Jersey’s population is 8.87m. Denmark’s GDP per capita is $56,210 and New Jersey’s is $56,477. In its first month after re-regulation, Denmark reaped around $11.2m compared with New Jersey’s $7.4m. New Jersey’s shortfall can be explained by the technical issues. Geolocation technology is working quite well but as Geocomply CEO Anna Sainsbury explained here, around 10 per cent of customers were getting false negatives. She and others are working hard to rectify that. Ditto credit card acceptances, which is a more serious issue and DGE is busy lobbying credit card companies to rectify the problem. The operators I have spoken to are confident these hurdles will be overcome fairly quickly leaving space for growth in the market to a consensus figure of around $250m with higher estimates of around $300m. That sounds optimistic. Denmark generated the equivalent of $158m from casino games and poker in its first year after re-regulation. And Danish operators were not squeezed in the same way as their American equivalents.The Big SqueezeSqueezed? What is this squeeze I keep referring to? This is a very immature market. There are a limited number of operators because of the political need to protect incumbent operators (Atlantic City’s land-based casinos). This is where the DGE has done a pretty good job. It is supervising a market that is dominated by one player. Caesars has four casinos - five if you include the recently shuttered Atlantic Club, which it bought as a property asset out of bankruptcy. It has a fairly remarkable level of influence locally despite its Nevada roots. The DGE’s canny wheeze of allowing each operator five skins on a licence has given the market some opportunity to grow from this squeeze and allow more operators and suppliers in. It has given the casinos some room to manoeuvre and they can choose to use or sell their licences. Danish operators did not have to build their websites overnight - or over the course of a year. They operated as normal with a full suite of casino games. They were not experimenting with new suppliers or new products. Golden Nugget, for example, was not ready to go live with everyone else because it was using a completely untested platform. Bally Interactive’s iGaming platform was bought from small French operator Chiligaming, which was powered by Playtech. Bally has had a lot of engineering to do on that product and has still not managed to switch poker on. BetfairCasino is a completely new product and a new brand to the US market. In that context, it isn't doing badly. Tropicana has a strong brand locally but its website and Gamesys’s VirginCasino is completely new. Ultimate Gaming is an even younger company than Gamesys and Betfair’s supplier GameAccount - although it was built on the foundations of CyberArts. The battle between these operators will be fascinating. Amaya and its CaesarsCasino, which in the official figures is lumped in with the other Caesars and 888 products, has apparently grabbed 7 per cent of the overall market. This places it above Betfair and Nugget but behind Tropicana and UCasino. Here you can see the early advantages of the land-based database. That might level out over time. But back to the squeeze… The market has been artificially squeezed into a select few who are licensable. It has been squeezed by regulatory and technical constraints (the aforementioned geolocation issues etc etc). The market is nowhere near to operating with the best available technology. The biggest player, PokerStars, was squeezed out for what can only be political reasons. While Isai Scheinberg’s ongoing criminal case has been cited as the official reason for Stars’ exclusion, it is hard to understand. DGE knew all about Scheinberg’s role at the company and always has encouraged Stars to proceed with licensure at every step of the journey. It strikes me that the DGE is on something of a hiding to nothing. It operates in a fiercely political environment and unusually for a regulatory agency, seems beholden to the big boss Governor Christie. That might all change following Bridgegate but that is beyond my field of expertise. Christie is a very demanding boss by all accounts and his wildly optimistic prediction of $1bn in first-year revenues can only have added to the pressure - although DGE director David Rebuck seemed fairly phlegmatic about the prediction when I spoke to him about it. It shocked everyone at the time but it is only now that he has been weakened by Bridgegate that Democrat opponent Senator Lesniak is accusing him of “cooking the books”. So despite it all, DGE is doing a fairly good job. It has created a transparent market, which should grow. But cooked books or not, it will not reach $1bn. Of that I can be sure.sah@gamingintelligence.com
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