On Friday, the owners of the biggest online poker sites, PokerStars, Full Tilt Poker and Absolute Poker, were arrested and the sites were shutdown in the United States after the FBI alleged that the sites laundered money and defrauded banks to get around gambling laws.
Online gambling
We sat down with poker agent Brian Balsbaugh of Poker Royalty, the most knowledgeable poker authority we know to break down the ramifications.
Darren: When things went down on Friday, what was it like?
Balsbaugh: It was a complete shock, In fact within the poker community we’re calling it Black Friday. Certainly those of us who were in the know were aware that the Southern District of New York was investigating payment processors in relation to their relationship with poker sites, but they absolutely kept it under wraps. It happened, it happened fast and it completely annihilated what was a flourishing industry in the United States.
Darren: How bad was the hit?
Balsbaugh: When Pokerstars, Full Tilt and Absolute Poker left the US market, 95 percent of the market share for US poker players absolutely disappeared and with that so did $200 million worth of marketing money and advertising money that these companies spent in order to acquire new customers. What that means is basically poker television shows like “The Big Game” on Fox and “Poker After Dark” on NBC are completely gone. So the poker landscape has changed dramatically in a very short period of time.
Darren: How will this affect the World Series of Poker?
Balsbaugh: I think that the World Series of Poker main event the attendance numbers will go down from approximately 8,000 to right around 2,500. Sixty percent of the field has historically been put in through these online poker sites, which are no longer operating in the United States, so clearly right off the top we’ll have a big deduction there. And the poker economy is very dependent on money transferring hands and as this money has left the US market so are a lot of these opportunities. So I think the field is going to decrease dramatically.
Darren: What's the future of online poker in the United States?
Balsbaugh: Online poker in the United States at this time is completely wiped out. There are few small operators in the black market who are still operating, but these were very big and very reputable major international companies -– billion dollar corporations which are regulated in the UK, in France, in Italy, they can no longer operating here. There will be, for a short period of time, another black market. There will be online poker in the United States. There is a huge demand for it and hopefully Congress will legalize and regulate online poker in the United States. So I see it as one step back for potentially two steps forward in a more burgeoning online market.
Darren: If these three companies were public, what kind of loss did they take over the past couple of days?
Balsbaugh: In 2006, Party Poker was publicly traded company in London servicing US clients. They traded at $8.5 billion at the time. When they left the market in 2006, these new companies took over that market share and they’ve grown much bigger than party gaming ever was in the United States. So I think it’s fair to say that these companies had an valuation of $20 billion to $30 billion potentially and it might be half of that right now.
Darren: Who are the beneficiaries of the shutdown?
Balsbaugh: The high level players likely will move out of the United States and into a place where they can play online poker and continue to make money. The mid level players, more recreational players, will play more live poker in casinos and in card rooms.
Darren: Other losers we didn't talk about?
Balsbaugh: In addition to the poker television shows going away, there are a number of other sponsorship opportunities which have disappeared as well. There are 100 online poker players with sponsorships which likely will disappear. In addition to that there’s an entire industry of covering poker tournaments in the media in conjunction with that. ESPN had a $22 million deal with Pokerstars, which has to be over now and then the live events like the World Poker Tour, like the North American Poker Tour. I certainly anticipate that their numbers will decrease as well because a significant portion of their fields, like the World Series of Poker, were driven through qualifiers on online poker sites.
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