International Game Technology (IGT), which closed its online poker operation in Europe yesterday, had seemed to be on a roll. A year ago, IGT looked to dominate online poker in Europe. The recent closedown caught many by surprise.
It was a year ago that IGT bought the Entraction Poker Network for $115 million. The company then had 4 million online poker players. But IGT ran into problems as individual European nation’s started to regulate the online game.
IGT Chief Executive Officer Patti Hart summarized the problem, as she observed that online poker in Europe has
shifted from dot-com to dot-country. She added that the shift translated into
less profitability and the product becomes less interesting.
With individual European countries now licensing and regulating online poker and players from certain countries not be allowed to play with those from others, the online poker market became segmented. That had an impact on IGT profits.
IGT, which is a major manufacturer of online slot machines and offers many other gaming services, will still provide bingo, sports betting and slots in European countries. But how will IGT’s actions affect the online poker market in the U.S.? Does IGT’s decision presage problems in the potential U.S. online market? Some are saying that it does.
That’s because the U.S. online poker industry seems to be headed to a statewide model, through which the game will be offered by individual states. If that does occur will it cut down on each provider’s ability to make a profit? Will over-regulation by individual states compromise each provider’s potential to prosper? Will it reflect the European model, as those in one state are prohibited from playing with those in another?
The U.S. and European online poker markets may potentially share some similarities but there are also major differences. First, the Justice Department has determined that the Wire Act, which prohibits wagering across state lines by electronic means, only pertains to sports betting. Thus, poker could potentially be played across state lines depending upon how laws are written.
Also, although online poker may start with the states, there’s a good chance that Congress will eventually pass national laws to regulate the online poker industry. This certainly has the potential to open up state borders.
IGT, which is positioned in Nevada to offer online poker in the U.S., has noted that their decision to fold their poker operation in Europe will in no way influence operations in other countries and it does not reflect a decision to completely eliminate its poker platform.
However, IGT did make reference to potential problems that may be inherent in the U.S. market. The company noted that much like the European industry that
It’s much more challenged when it’s a single state..[and they will] have to look at their own economics in providing online poker services.
The decision by IGT resulted in a loss of value in its stock as shares in the company fell 1.2% to $12.86. Its market capitalization now stands at $3.43 billion. Those who hold shares in the company have seen those shares decline by 25% over a one-year period.