Onlinepoker

The online poker market is a controversial market. On the one hand are the monetary interest of the industry and the consumer surplus in terms of the joy of playing. On the other hand poker has a high addictive potential. Pathologic gamblers often face serious financial problems which lead to social problems that also affect their environment, which can be measured in external costs. Online poker involves special risks due to the permanent availability, the high game speed (especially when playing multiple tables simultaneously) and the absence of monitoring.

The addictive potential is the reason why online poker is illegal in most jurisdictions. Nonetheless, online poker grew to a billion dollar market. Even though numerous data is easily available, a precise depiction of the market was still missing. A couple of research projects by the Division on Gambling paper closed these research gaps. In collaboration with the independent market spectator PokerScout the Online Poker Database of the University of Hamburg (OPD-UHH) was created. It consists of data on more than 4.5 million online poker playing identities which were observed at the largest poker sites over a course of six months. The objective was to develop a clear understanding of the young phenomenon of online poker.

With the help of the OPD-UHH the highly debated question if poker is a game of skill or a game of chance was addressed. The answer is especially important because games of skill are legal whereas games of chance are not. To answer this question a theory of the influence of skill in mixed games was conceived that yields the so called Critical Repetition Frequency It is based on the idea that the influence of skill increases in the number of repetitions of a game (n) while the influence of chance only increases in the square root of n. The CRF is defined as the threshold at which a game of chance turns into a game of skill. The CRF was then empirically determined for online poker players. Most gamblers do not play long/often enough and do not reach the CRF; they play a game of chance. Therefore, poker is legally classified to be a game of chance.

Further analysis of the playing habits of online poker players showed that the playing volume is heavily concentrated: the 1% of gamblers with the highest playing volume account for 60% of the revenue and the top 10% even for 91%. The high concentration is evidence for professional gamblers on the one hand and for pathological gamblers on the other and is mainly observed in regular players. Newcomers and dropouts, however, have a lower playing volume than the rest of the sample and also reduce their playing volume over time. A subgroup of newcomers, however, increases their playing volume exorbitantly and, hence, is very interesting for the industry as well as for the prevention of problem gambling.

Furthermore, the prevalence of online poker and its market size in every country and their regions were determined (before “Black Friday” when the US-market was shut down and Full Tilt Poker became insolvent). 5.5 million players worldwide yield a gross gaming revenue of $3.6 billion. The USA was the biggest market with 1.4 million players active players and a market size of $978 million followed by Germany with 581,000 thousand players who lost $392 million. Worldwide market sizes can be explained by GDP per capita and culture. The prevalence of online poker in the homogeneous European Union can mostly be explained by internet activity. The legal situation does not seem to have an impact on the size of the market.

The findings of the research projects can be summarized to three main results:

Poker is legally categorized as a game of chance rather than a game of skill. Therefore the supply of online poker in Germany is illegal.
Most of the playing volume is generated by a very small group of intense gamblers. However, in contrary to games of chance in poker a detailed analysis of the betting behavior is required to distinguish between pathological and professional players.
It is strongly recommended to enforce the law with regard to illegal online poker operators, e.g. by preventing cash flows between players and illegal operators. Otherwise there will be – even in the scenario of legalization – an effective free market without prevention of addiction and no or only minor tax revenue.

The results are available in a couple of publications:

Ingo Fiedler, 2012, The Gambling Habits of Online Poker Players, forthcoming in: The Journal of Gambling Business and Economics.
Ingo Fiedler, Ann-Christin Wilcke, 2012, Online Poker in the European Union, forthcoming in: Gaming Law Review and Economics.
Ingo Fiedler, 2011, Gamblers' Habits: Empirical Evidence on the Behavior of Regulars, Newcomers and Dropouts,, submitted Working Paper
Ann-Christin Wilcke, Ingo Fiedler, 2011, Zur Aussagekraft der Onlinglücksspielstudien der Harvard Medical School, Zeitschrift für Wett- und Glücksspielrecht, 5: 316-322.
Ingo Fiedler, Ann-Christin Wilcke, 2011, Der deutsche Markt für Onlinepoker: Umfang und Spielerverhalten, Zeitschrift für Wett- und Glücksspielrecht, 4: 243-247.
Ingo Fiedler, Ann-Christin Wilcke, 2011, Der Markt für Onlinepoker: Spielerherkunft und Spielerverhalten, BoD Verlag, Norderstedt, 240 pages. Recension: Tobias Hayer, Marc von Meduna, 2011, SUCHT, No. 5.
Ingo Fiedler, Ann-Christin Wilcke, 2011, The Online Poker Market, forthcoming.
Ingo Fiedler, Jan-Philipp Rock, 2009, Quantifying Skill in Games – Theory and Empirical Evidence for Poker, Gaming Law Review and Economics, February 2009 (13), p. 50-57, Abstract.
Jan-Philipp Rock, Mareike Seifert, 2009, Abwicklung von Kreditkartenzahlungen für unerlaubtes Glücksspiel - ein Fall strafbarer Geldwäsche?, in: Zeitschrift für Bankrecht und Bankwirtschaft (ZBB), 2009, p. 377-387.
Jan-Philipp Rock, Ingo Fiedler, 2008, Die Empirie des Online-Pokers – Bestimmung des Geschicklichkeitsanteils anhand der kritischen Wiederholungshäufigkeit, Zeitschrift für Wett- und Glücksspielrecht, p.412-422.