Bottom line in Web poker: Nevada needs compacts with other states

So now the market is over-saturated.

Time will tell if Ultimate Poker, which has been accepting wagers since April 30, and WSOP.com can generate enough players within the confines of Nevada’s borders to co-exist. Meanwhile, at least three other real money websites — 888 Poker, Treasure Island and the South Point — could go live by year’s end.

Nevada’s relatively small customer base isn’t changing. Competition, however, will increase.

We don’t yet know the size of the Nevada market because the Gaming Control Board won’t break out monthly revenues from Internet poker into its own category until at least three websites are active. For now, revenues from online gaming are co-mingled with revenues from live poker games.

In July, the Balance of Clark County’s poker revenues were up 55.4 percent, to $2.1 million. Union Gaming Group Managing Director Bill Lerner said the figures imply that online poker — i.e., Ultimate Poker alone — had roughly $750,000 in gaming revenues during the month.

“We believe this is notable, given that there haven’t been tangible financial results yet of online gaming,” Lerner said.

Eilers Research gaming analyst Adam Krejcik estimated that Nevada could produce online gaming revenues of $45 million annually based on various economic factors, including population and the possible wagering spend per customer.

“If Nevada were also to approve online casino games, we estimate the total market could exceed $100 million,” Krejcik said.

The operators of Ultimate Poker (Station Casinos) and WSOP.com (Caesars Entertainment Corp. and the World Series of Poker) need players from outside of Nevada to grow the market. They want the state to enter into a compact with other states that would increase the player pool and allow online poker to be played across state lines.

“We’re very big supporters of shared liquidity,” Caesars Interactive Entertainment CEO Mitch Garber said on a conference call prior to launch of WSOP.com. “Nevada will have a healthy business on its own. I think it’s in everybody’s interest at the end of the day that there be compacts among states and that there be shared liquidity.”

Garber said compacts would also increase time on the game for the websites based on the three-hour time difference between the West and East coasts. It also gives the online operators “a greater diversity of players.”

Ultimate Gaming Chairman Tom Breitling called interstate agreements “a win-win-win scenario” for everyone. More players benefits the gambler and the operator.

“It’s a huge win for the states because pooling liquidity will generate additional tax revenue,” Breitling said.

The Legislature, at the urging of Gov. Brian Sandoval, tweaked Nevada’s interactive gaming regulations this year to put the state in a position to capitalize if Congress were to pass legislation to legalize and regulate online poker. That action now has as much chance of happening as Las Vegas Sands Corp. Chairman Sheldon Adelson changing his mindset toward online gaming.

The revised Nevada regulations also allow Sandoval to sign compacts with his counterparts in other states.

If this were a game of Texas hold’em, the governor is on the button.

In May, Sandoval said he held preliminary talks with other governors about partnering with Nevada on Internet poker. Nevada has the regulatory apparatus and the online casinos — it just lacks population.

“I’m introducing the concept of compacting,” Sandoval said. “We have the infrastructure and other states have the players. I’m hopeful we’ll continue to talk.”

Most observers view New Jersey as a possible partner with Nevada.

The state has an ambitious schedule to launch its own online gaming websites by the end of November. The potential customer base — New Jersey has 9 million residents and is adjacent to New York City, Philadelphia and other population centers — towers over Nevada.

The state’s potential online gaming revenues — which include all casino games — could generate $500 million to $1 billion annually.

Caesars plans to launch WSOP-branded websites through the company’s four Atlantic City casinos. Ultimate Poker operator Ultimate Gaming has deal with the Trump Taj Mahal.

Analysts said the announcement of a compact would be a more important event for Nevada than the launch of a third, fourth or fifth website.

New Jersey has its own issues, however. The Division of Gaming Enforcement said a large number of applications for interactive gaming licenses were incomplete. Casino operators and online partners have a long list of requirements they must fulfill.

It’s also unclear if Nevada and New Jersey are even talking. Krejcik said he doesn’t believe that “New Jersey is in any rush to partner with Nevada.”

Internet gaming is the most important growth initiative to Caesars Entertainment. It’s the company’s personal Macau, since the casino operator passed on entering that lucrative Chinese gaming enclave nearly a decade ago and has lamented the mistake ever since.

Without a compact with New Jersey or another state, Nevada won’t be much of a bump on the balance sheet.

Krejcik estimated WSOP.com will generate $10 million to $15 million in annual revenues.

Consider that the company’s World Series of Poker generated $14.4 million in revenues in 2012, which includes licensing and online operations in Europe. Caesars Interactive’s free-to-play social casino games, such as Slotomania and Bingo Blitz, produced $70 million in the past quarter.

For now, the opportunities for Caesars are similar to what Ultimate Gaming has found in tying the online site to Station Casinos’ land-based properties through branding and marketing.

Krejcik said Nevada is “serving as a benchmark” for other states considering Internet gaming regulations.

Howard Stutz’s Inside Gaming column appears Sundays. He can be reached at hstutz@reviewjournal.com or 702-477-3871. Follow @howardstutz on Twitter.