Las Vegas Business Press: Panel says critical mass matters for online poker

Tuesday, May 17, 2011

Expo speaker stresses need for liquidity, the ability to offer a complete game

BY CHRIS SIEROTY

In the online poker industry, liquidity has been a popular term, but what exactly does it mean?

The short answer is it means critical mass, which can make or break a site whether it is real play or free play online poker.

Poker players want to be able to play a game at any hour of the day with the type of stakes they want. That requires having a large enough pool of players to play against.

“Liquidity is sometimes sold as the most important factor. But it’s not the only factor which is important,” said Suki Sandhu, vice president of product at IGT Interactive. “Liquidity as I see it enables you to improve the player’s experience.”

Sandhu cited Google, eBay and Facebook as companies that have been able to draw large audiences that remain loyal because of product offerings. EBay’s liquidity comes from product categories and the number of products the site offers, he said; Facebook’s liquidity comes from the site’s community.

“Liquidity is important because it allows you to offer a comprehensive site,” Sandhu told casino executives, government regulators and others during a panel discussion on the new challenges facing online poker at the iGaming North America 2011 spring conference.

The conference addressing all aspects of Internet gambling was held May 2-4 at the Monte Carlo. Panels assessed the fallout from the April 15 indictments of the founders of three major online poker sites and whether online casinos would increase business for brick-and-mortar resorts, among other topics.

Dan Michalski, of Pokerati.com, said anyone can run a single table online 24 hours a day with 300 people, if he can reach out to players and keep them coming back.

“That table will generate about $100 an hour, that’s $2,400 a day. That’s around $500,000 a year,” he said. “It takes just one person to run that table. It can be a successful business.”

Michalski said whether you have a player base of 300 or 5,000, if you offer a bad product it’s harder to attract critical mass.

“PokerStars did a great job and had some of the best tournaments out there,” he said. “Ninety percent of the people playing in those events were guaranteed to lose, yet (PokerStars) needed to make sure they had a good enough time that they (would) come back.”

Agreeing with Michalski, David Gzesh, a Las Vegas-based attorney specializing in Internet gaming law, said PokerStars was able to use its large base of customers to “do anything they wanted … well, not everything.”

The founders of the three largest online poker websites — PokerStars, Full Tilt Poker and Absolute Poker — were indicted April 15, charged with money laundering and bank fraud. Eleven executives were indicted and the companies’ domain names were seized by the federal government.

The online gaming industry has grown over the last decade, drawing an estimated 15 million Americans to bet on the World Wide Web.

But the indictments shouldn’t be considered an attack on Internet gaming itself, a defense attorney and partner in the Los Angeles-based law firm K&L Gates LLP said during an hourlong panel discussion assessing the fallout from the day of the indictments, known colloquially as Black Friday.

Fred Heather, who specializes in financial and corporate crime cases, said the government’s cases are based on financial crimes that are separate from the act of wagering money on online poker.

“The heart of this case is this collateral activity, which constitutes bank fraud and money laundering,” he said.

Paul Hugel, an attorney with Clayman & Rosenberg LLP in New York who specializes in securities fraud cases, questioned the bank fraud charges, because they don’t involve theft. He said a potential defense could be to show that bank executives knew what kind of transactions they were processing.

Both Hugel and Heather stressed that would be a difficult case to prove.

A panel of experts also told the gaming conference’s attendees that online casinos are expected to enhance business at brick-and-mortar properties, not cannibalize it.

Steve Rittvo, chairman and CEO of The Innovation Group in Basalt, Colo., said that the gaming industry, if it fails to adapt, could face a fate similar to that of the horse-racing industry, which was slow to “react as its core customer base started dying off.”

During a panel discussion focusing on Internet gaming’s effect on the casino industry, Rittvo stressed that he doesn’t “see cannibalization happening” if online poker is legalized.

“We see growth from all categories,” Rittvo said, adding that online gaming would allow companies to offer incentives to drive traffic from the Internet to casinos.

Bellagio poker operations director Doug Dalton agreed with Rittvo, saying that online poker had driven the growth of the hotel-casino’s poker offerings.

“Brick-and-mortar casinos were concerned online poker would take a lot of customers. What we found was it brought people into our poker room,” Dalton said.

Dalton said online poker allowed people to become more comfortable with the game before walking into a casino and playing for real money.

Contact reporter Chris Sieroty at csieroty@reviewjournal.com or 702-477-3893.

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