Exclusive: Online Poker's Complementary Effect On Offline Gambling Market
PokerStrategy.com can reveal an exclusive study by the Universities of Nevada and Hamburg which prove that online poker has a positive effect on the offline gambling market. The study also presents some staggering statistics on the size of the North American poker market.
We all know that online poker rooms, and bricks and mortar casinos, work alongside each other all the time, you only have to look at the success of something like the European Poker Tour to see the mutually beneficial relationship between the two entities. But does online poker actually take revenue away from offline casinos, and vice versa?
Kahlil Simeon Philander of the University of Nevada and Ingo Fiedler of the University of Hamburg have worked together on a research paper which gives evidence that it does not. Their paper, "Online Poker in North America: Empirical Evidence on its Complementary Effect on the Offline Gambling Market" is the first of its kind to provide evidence that online poker does not harm offline gambling revenues, but in fact increased them.
Online poker and offline gambling complement each other
 |
| Online poker & offline gambling mix |
Previous literature has suggested that online poker is a gross substitute for offline gambling, meaning they compete with each other for the same revenue. This paper provides evidence that online poker and offline gambling are actually gross compliments (Please note the paper compared online poker to all offline gambling, not just offline poker, because of certain limitations of the study):
"The results are surprising: overall, online poker and offline gaming do not compete for an identical market and cannibalize each other’s revenue. Rather, we found a small but significant positive relationship between those variables. This indicates that the markets reinforce each other and the goods are gross complements and not gross substitutes."
"Depending on the model, we found that in a market with an additional $1 million in casino revenue, we would predict an additional $2.7 thousand in online poker revenue. That means that the larger the online poker market, the larger the offline gambling market and vice versa. On the other hands that means that a reduced online poker market has a negative effect on the size of the offline gaming industry."
Online poker is a $3.6 billion industry
 |
| The US market is worth $1.2 billion |
The study also provides the most accurate estimates to date of the size of the online poker market in 2010, particularly in the US & Canada. The overall online poker market in 2010 was estimated to be worth $3.6 billion, with the US market estimated at being worth $1.2 billion.
This was at a relatively stable time in the US poker market, just prior to Black Friday. The findings from the Online Poker Database of the University of Hamburg in 2009 suggested that 1,429,943 Americans (0.46% population) played online poker, and paid an estimated $981 million in rake.
The same study found that 307,000 Canadians played online poker and paid around $220 million in rake. Although this figure is noticeably smaller than in the US for obvious reasons, it is interesting to note that this equates to 0.9% of the population of Canada. This is double the percentage of the population playing online poker in the US, which is no doubt a result of the fact online poker is not legally restricted in Canada.
This evidence clearly has huge implications for a potentially regulated online poker market in the US, as legalised poker would surely result in these 2010 figures increasing significantly. Legal US online poker would, of course, lead to significantly more tax revenue, but the paper is also keen to point out the potential drawbacks:
"While the complementary effect appears to be positive for these offline and online operators, it leads to the common double-edged sword for regulators. In support of legalization is the incentive to accrue the benefits of tax revenue on this product as well as increased taxes on offline gaming. Conversely, legalization leads to higher availability of this product and a larger market size, which may lead to more gambling problems."
Here at PokerStrategy.com we think these findings are very important for not just the US online poker market, but the poker industry as a whole, as it is clear that online poker and offline gambling have a mutually benefical effect on each other. We would love to get your thoughts on this topic in our discussion forum.
Read the whole study Discuss the study in our community forums
by Barry Carter
