I’ve heard many projections out there about the potential size of an American online poker market. I’ve yet to see a peer-review study that addresses the question, and most of them are mysterious when it comes to their methodology. Earlier this week while talking to a reporter, I gave my own attempt at finding the potential size of the national market for poker. I’ll run through my calculations here with complete transparency. I don’t have an ideological axe to grind either way–I’m just curious to see if it’s possible to arrive at a credible estimate using publicly-available figures.

First, I’m going to make a big assumption: that people nationwide will play poker in roughly the same proportion as Nevada gamblers. Nevada doesn’t have legal online poker, but it does have 915 poker tables, about enough for anyone who’s looking for a game. This is going to be a conservative estimate that assumes that legalizing online poker wouldn’t exponentially increase the number of poker players, but would instead attract players in the same ratio to the overall number of gamblers as Nevada casinos. That’s a big leap, and it may be completely wrong.

To find what percentage of Nevada gaming revenues are poker-derived, I divide the 2008 Nevada poker win, $115.7 million, by the total 2008 Nevada gambling win, $11.6 billion. I get .99655%, which I’ll around up to 1%.

That gives me the working hypothesis that we can expect legal poker to generate about 1 percent of the total revenue of legal casino gaming.

According to the American Gaming Association’s State of the States 2009 (pdf), commercial casinos brought in $32.54 billion in revenues in 2008 (this includes the Nevada totals).

According to Casino City Press’s 2008-09 Indian Gaming Industry Report (this isn’t available online), Class III (Vegas-style) Indian gaming facilities brought in $24.72 billion in revenue in 2007 (the latest year I can get my hands on).

Add them up and you get a total casino estimated annual American casino win of $57.26 billion.

One percent of that is $572.6 million.

Of course, that number could assumes that online players follow the same patterns as terrestrial poker players, and that people won’t alter their gambling behaviors too much with the addition of online poker. If Americans stopped playing the lottery instead and flocked to online poker, that number would be much, much higher. But then (if you are just legalizing poker to maximize tax revenues) you have the problem of propping up state lotteries, which often are instrumental in funding education. You could divert online poker taxes to pay for education instead, but then you haven’t really created any new revenue streams, you’ve just shifted the burden from lottery players to poker players.

I’d have to guess that the actual market is bigger, perhaps as much as a single order of magnitude, although again, if that is true, the money being spent on poker would have to come from somewhere, and other gambling expenditures seems the most likely place. I doubt that it would be much smaller. There are too many variables to say for sure what the market is, such as the extent to which those playing illegally today would move to legal sites, or how many home or club poker players would move online, or how many new players legal sites would create.

So as usual I’ve started with a question, worked at finding an answer, and end up with more questions. If anyone has a better estimate, or a better idea for getting the real estimate, let’s have a conversation about it.

Posted in business of gamblingon 11/13/2009 02:52 pm by Dave