Bridging Borders: Exploring Interstate and International Compacts in Online Poker
Once upon a time, there was no such thing as a ring-fenced online poker market. Players from Times Square to Timbuktu were free to check-raise the living daylights out of one another in a glorious transnational online poker party. The world was just one big poker pot.
The Rise of Ring-Fenced Markets
But this utopia would not last long. Countries across the world gradually realized they were missing out on the online poker craze, and that the game should be taxed at the point of consumption. They understood that it would be a whole lot easier to tax and regulate if online poker were placed within borders.
Challenges of Player Pooling
But these regulators misunderstood the fundamental nature of online poker – that it needs a critical mass of players to be online at any one time to thrive. Large player pools are necessary to create the range of stakes and game variants for a healthy ecosystem – and to build the large tournament fields and eye-catching prize pools that attract new players.
Geofencing in the US
In the US, where online poker was illegal on a federal level before being gradually reintroduced on a state-by-state basis, the new state markets were also strictly geofenced.
Interstate Player Pooling: The MSiGA Agreement
Nowhere was the paucity of players more obvious than in Delaware, which was one of the first states to launch a regulated online poker market, back in November 2013.
Let’s just say it was a slow start. In this tiny state with a population of just under one million people, you were hard pushed to get a six-max sit and go together at any one time. Delaware’s online poker players were probably all still playing on the black market, so underwhelming was the homegrown product.
However, regulators in Delaware anticipated this, as did their counterparts in Nevada, another early adopter of online poker regulation with a relatively small population. Both states incorporated provisions into their laws to allow interstate player pooling.
In 2014, they became the first signatories of MSiGA, or the Multi-State Internet Gaming Agreement, and New Jersey joined shortly afterwards. MSiGA is essentially a set of minimum regulatory and technical standards that allows states to pool internet poker liquidity.
International Expansion: Challenges and Ambitions
The agreement also requires that the operators divide the rake based on each player’s weighted contribution to the pot. This means the funds can be redistributed for tax purposes to the state where the player is located.
In recent years, Michigan and West Virginia have joined MSiGA, bringing the total population of all signatory states to about 25 million. Pennsylvania is also considering joining the party, which would add another 13 million into the mix.
Future Prospects: International Liquidity Pools
So the obvious question is, what’s stopping the MSiGA pool from merging with international pools, thereby resurrecting the glory days of frictionless cross-border poker? I’m going to stick my neck out and say that might happen one day. But it’s hellishly complicated.
Operator Perspectives and Global Markets
First up, which pool would it join? Take PokerStars. There’s the Euro pool, which includes the previously ring-fenced markets of France, Spain, and Portugal. Then there’s another pool that takes a more open approach to liquidity, which many countries can access via their own local extensions and which can be tailored to their regulations.
But some of these countries’ gaming regulations may not align with MSiGA, and it would be almost impossible to get them to agree to change them. Players from states or countries that sign up to MSiGA are not permitted to play against players from states or countries who are not MSiGA members.
And PokerStars is only one operator. The world’s biggest now in terms of traffic is GGPoker, which has an even more “open” approach to liquidity, although it has increasingly withdrawn from gray markets as it has sought to apply for licensing in Europe.
Challenges of International Compacts
New Jersey at one point certainly had ambitions to pool liquidity across national borders. In 2016, the state obtained an agreement in principle with the UK to explore the formation of an international poker compact. But this proved to be difficult in practice, and New Jersey was hamstrung by its own gambling laws.
New Jersey’s constitution requires that all gaming occur within Atlantic City – it is illegal elsewhere in the state -- and so it has restricted the location of gaming servers to the resort town by law. It seems that international operators weren’t too enthusiastic about uprooting their entire operations to Atlantic City.
Regulatory Outlook and Potential Expansion
In 2017, New Jersey Sen. Ray Lesniak filed a bill that would have allowed online gaming operators to be licensed in the market without being physically present in the state. But Lesniak retired that year, and the bill went nowhere. The issue has not been taken up since.
The good news for American poker players is that there are states that have not regulated online poker, may yet do so, and have the populations of small countries. California and New York, I am looking at you.
The Path Forward: Potential Expansion and Regulatory Impact
There’s a reasonably chance that these two states will regulate online poker within the next ten years. The factors that would make that happen are for another article, but their combined populations are similar to that of the UK’s alone.
Should they one day join MSiGA, you would have the liquidity required for a healthy poker economy, and that may embolden other states to regulate, too, as online poker will be more financially viable.
Who knows? From there, nations around the world might also be inclined to sign up to MSiGA and adopt its regulatory standards, transforming it into an international framework. Operators might even be prepared to move to Atlantic City.
At the very least, MSiGA has shown that it’s possible to pool cross-border liquidity in a regulated environment, while keeping a tally on where taxes should be allocated.
