U.S. Capital Building

The UIGEA passed the House and Senate on September 30, 2006. It served to restrict gambling transactions for financial institutions. For players, that meant it became harder to deposit and withdraw money.

On October 2, 2006, I made a prediction that the domestic casinos would rise from the ashes:

Here was my conspiracy theory:

1. Harrah’s Entertainment was the 13th largest contributer to Frist’s 2000 Senate campaign.  (Bill Frist was the senator that pushed through the UIGEA).
2. It approaches the senator with a deal that seems to be a win-win-win situation. Frist wins, the casinos win, and the U.S. wins.
3. Frist wins by displaying his morality for future presidential campaigns to the U.S. public by banning online “gambling”. After a period of “consideration” another senator that in cahoots with the casino decides to try to legalize.
4. Casinos start up their own versions of online poker. American casinos quickly gobble up the U.S. market.
5. The U.S. government gets hundreds of millions of dollars in tax revenue.

It’d be a win-win situation.

Now, it looks like my prediction is coming to pass.  Harry Reid recently put a bill to license, regulate and tax the online poker industry (though I admit he’s probably not in cahoots with Bill Frist).  The proposed measures would absolutely destroy foreign “rogue” operators like Full Tilt and PokerStars.  F-Train does an excellent job summarizing the 75-page bill, but here’s a a quick rundown.

• All current poker rooms have to exit the U.S. market and return customer deposits.
• No licenses will be given out for the first 15 months.  To be clear, that means that there will be no legal online poker in the U.S. for 15 months.
• Only companies that have owned or operated a casino for 5 years prior to the passage of the bill will be eligible to receive a license after the initial 15-month waiting period.
• That means foreign poker operators have to wait 15 + 24 months (3 years and 3 months) before they can come back to the U.S. market.

And when they do try to return to the U.S., they’ll be faced with entrenched domestic competition.

It looks like I was pretty spot on with my 2006 prediction.  The only question is whether the bill will pass (it looks somewhat unlikely), and if it does, how it will be modified.

Post a comment on what you think this bill means for the poker industry.

UPDATE: It looks like the language of the bill changed to allow all foreign poker rooms to get their license within 15 months (though this is still subject to change).

A model of how the poker economy works

Poker chips, tables and players aside - Here’s my simplified model of how the poker economy works:

• The bucket represents the poker room.
• There are two holes on the bottom.  One hole is the rake and the other hole is withdrawals.
• There’s also a faucet that brings new water into the bucket. That water represents new deposits.

The poker room needs to keep the water level in the bucket stable or rising.  A decreasing water level will eventually spell disaster.

Before we proceed, I want to point a few weaknesses of this model.

1. The poker economy is actually LOCALIZED.  That means that $100NL could be a very healthy game, but $200NL could be on the verge of collapsing.
2. This model doesn’t really factor in bankroll management.  A fish that deposits $10,000 and plays $5/$10 NL is one thing.  A fish that deposits $10,000 and plays $0.01/$0.02 is another.  Same kind of thing for withdrawals.  It’s one thing to withdraw your entire roll and stop playing poker, it’s another to be playing $50NL with a $10,000 roll and withdraw $1k.

Let’s consider some scenarios:

Scenario 1
The poker economy is booming. The water is flowing into the bucket faster than it’s leaking out of the holes. The right step for poker rooms is try to open up the rake hole.  They’re leaving money on the table if they don’t.  To open up the rake hole, they can increase the rake structure or they can try to attract players that play a TON of hands.  Back when poker was booming, the poker rooms did just that.  They started to let players play 16 tables at once, gave VIP rewards based on the number of hands played, etc. Many poker rooms probably understand we’re not in this phase anymore, but they’re not adjusting that well.

Scenario 2
The poker economy is declining. The water is flowing out of the bucket faster than it’s flowing out. The right step for poker rooms is to try to increase the flow of water OR decrease the flow of water out of the holes. You can increase the flow of water by marketing, deposit bonuses, etc.   You can decrease the water flowing out of the withdrawal hole by  VIP rewards and limiting withdrawals.  Why are poker rooms not encouraging a guy playing $5/$10 with a $10k bankroll to keep his bankroll on the site? You can also plug up the rake hole.  I know, raising or lowering “prices” is generally a crappy way to compete against other poker rooms.  But that’s NOT the point of lowering the rake.  You lower the rake to maintain the health of YOUR poker room.  It’s similar to what the U.S. Federal Reserve System does when it lowers the interest rate during a recession.

Scenario 3
The poker economy is stable. The water is flowing into the bucket as fast as it’s flowing out. Poker rooms can try to grow the economy the same way described in Scenario 2.

Now, it’s pretty obvious that Scenario 1 is great for poker players, Scenario 3 is OK, and Scenario 2 is disastrous. If I were to guess the state of the poker economy, I’d guess we were in Scenario 2.   So why don’t I see any incentives to limit withdrawals? Why don’t I see more deposit bonuses? Why are poker rooms not lowering rake?  Are poker rooms too focused on new customer acquisition when they can take easy, immediate steps to better the poker economy?

Additional Recommended Reading: Underlying Flaws of the Affiliate Rakeback Model

The Nuts

To have the best possible hand.

There are two possibilities about how this term originated.

1. Back in Old West, players could wager almost anything they had at a poker game. That included the nuts that held their wagon wheels in place. Without the wagon wheel nuts, the player would be stranded and might die.
   To the others at the table, it would seem that a player would only make such a bet with an unbeatable hand. Since many games were played indoors in the winter time, the wagon wheel nuts were often very cold and were sometimes referred to as the “stone cold nuts”.
2. “Nuts” in Old English means “a source of pleasure”.

Grinding

To play a ton of poker. Usually this involves mass-multitabling in games that are typically below your skill level.

Originally, “grinding” referred to using a hand mill to grind grain. You would basically be spinning a wheel and make a couple of bags of flour by the end of the day. It was an extremely boring and tedious job.

Fast forward to the 20th century and the definition of grinding began to take on a much broader meaning. People started to call almost any job “the daily grind”.

In the 21st century, grinding started to be used in videogames. In World of Warcraft, people would spend countless mind-numbing hours to kill weak enemies and level up.

Busto

To lose your entire bankroll.

In blackjack, the goal is get as close to 21 as possible. If you go over, you “bust” and automatically lose the hand.

Robusto

To win lots of money in a short period of time.

There are two possibilities about how this term originated.

1. Cuban Robusto cigars are around $250 each. If you go on a good run, you might open a bottle of Dom Perignon champagne and whip out a Cuban Robusto.
2. Robust is defined as “exhibiting vigor, strength or firmness”. Robusto works as a funny-sounding antonym of busto and the definition fits.

Baller

A successful high-stakes poker player that is flashy with his money and makes insane prop bets.

Originally, a baller referred to someone that’s very successful in basketball. Now, it can refer to almost anyone that’s rich and flaunts their wealth.

Tilt

Playing sub-optimally due to emotional distress.

Pinball started to become popular in the 1930’s. Early machines had a serious flaw – players could lift up a corner of the machine and be guaranteed not to lose. By the 1950’s pinball machines started to penalize players that tilted the machines by making them lose a turn. Some players continued to tilt, kick and punch the machine out of frustration even though it lowered their score.

Texas Hold’Em

A game that started in the South or Southwest United States in the early 1960’s.

It was originally called “Hold Me Darling”, “Tennessee Hold Me” and “Texas Hold’Em”. Predictably, “Texas Hold’Em” is the name that stuck.

Poker

Originally from the German word “pochen” which means to “to brag as a bluff”. The literal translation is “to knock” (that’s why you knock on the table to check). The earliest version of poker in English was called “brag”.

Poker Conspiracy Theories - Put on Your Tin Foil Hats

The UIGEA was passed in 2006 and made it harder for U.S. players to deposit money on poker sites.  But how and why was it pushed through Congress so quickly (and sneakily)?  Put on your tin foil hats – here are 3 crazy conspiracy theories.

Conspiracy Theory #1: U.S. based casinos pushed through the UIGEA legislation.

Consider these facts:

• In 2000, Harrah’s Entertainment was the 37th largest contributor to Bill Frist’s re-election campaign.
• In 2002, Harrah’s Entertainment was the 18th largest contributor.
• In 2006, Frist pushes through the UIGEA legislation.

Harrah’s wanted to push out international competitors.  It would be too hard dislodging PartyPoker, PokerStars and FullTilt from their dominant positions.  Harrah’s figured the UIGEA would be repealed in a year and two and that would give them enough time to develop their software.    Unfortunately, they miscalculated and the legislation is lasting far longer than they anticipated.

Conspiracy Theory #2: Credit card companies pushed through UIGEA.

Back in the day, you could send money via FTP or Stars to buy PokerTracker.  Transferring money via poker rooms provided a way for consumers to bypass credit card fees.  The credit card companies were worried that peer-to-peer transfers would catch on for regular consumers.  Anyone could pay for anything without any fees (and kill their profits)!  Even if the chances are small that P2P money transfers would take off, the potential consequences for credit cards are enormous.  Therefore, pushing through UIGEA might have been a +EV move.

The credit card industry is worth hundreds of billions of dollars.  They definitely have the resources and connections to get it done.

Conspiracy Theory #3: The UIGEA was pushed through to stop money laundering.

Let’s say you want to transfer your friend $10,000.  If you give him a check, that automatically triggers your bank to send an alert to the U.S. government.

But now, let’s say you transfer $10,000 to your friend on Full Tilt.  The U.S. government has no idea that happened.  The only way it would know is if you reported it on your tax returns.  Guess what?  Criminal enterprises aren’t gonna be honest on their tax returns.  There’s only a tiny, tiny percentage of people that are using poker rooms for money laundering or other illegal purposes, but unfortunately, that tiny percentage is enough to ruin it for everyone else.  The U.S. government doesn’t wanna give criminal enterprises free reign.  The UIGEA was passed to stop money laundering.

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These conspiracy theories may be a little far-fetched, but they’re definitely thought-provoking

General Tab
So the first part of the Premium section is the “General” tab.  You get to see some of the data that’s available to all users — total number of hands, bottom line, their winrate, etc.  Premium-only stats like VPIP, PFR, and Aggression Frequency are here too.  The chart on the right compares Isildur’s stats to Top Winners.  You can see that he’s looser and more aggressive than the Top Winners because his trangle (the red one) overlaps the triangle of Top Winners (the gray one).

PTR Premium General

General Tab: Pre-flop
Now, as we scroll down the page, we get into more detailed Pre-flop stats.  You can see his VPIP in the SB and the BB, his 3betting, 4 betting and shoving tendencies, and the likelihood he will fold his blinds to a steal.

PTR Premium General - Pre-Flop Stats

General Tab: Pre-flop – 3Bet
We can also drill down deeper into all of the pre-flop stats.  For example, if I click “3bet”, I can see how Isildur’s 3betting tendencies compare with Top Winners using the chart on the right.

PTR Premium General - Preflop 3bet

General Tab: Flop
Further down on the page, we can get into more detailed flop, turn and river statistics.

PTR Premium General - Flop Stats

General Tab: Showdown
Showdown stats are here too.

Results Tab
The “Results” tab shows a line graph with the overall amount of money Isildur won and a bar graph with the number of hands he put in on a specific day.

PTR Premium Results - All Stakes

Results Tab: Adjusting Stakes
You can also adjust the graph to include hands from just a specific game/level.  In this case, I chose $500/$1000 PLO HU.  You can also set a specific date range.  That could be particularly useful if you’re looking at a player with a long history.  He might have been a poor player 3 years ago, but he could be really good now…

PTR Premium Results - $500/$1000 PLO

Positions Tab
In the “Positions” tab, you can see how much money he won (or lost) in the BB and the SB.  As expected, Isildur1 has lost money in the BB and won money on the button.

PTR Premium Positions

Vs Tab
The “Vs” tab gives you a ton of sorting options on who he lost money to and who he won money from.  It also let’s you easily see how Isildur1’s VPIP, PFR, CR, and Aggression compares with other players using the graph on the right.

PTR Premium VS

Premium Table Finder
The Premium Table Finder is my favorite part of the Premium section.  It gives you a score on how juicy a table is and you can drill down to see the stats of the individual players sitting in.  In this case, Pinedale looks pretty fishy.  There no one with over 20,000 hands of experience and the majority of players are losers.

PTR Premium Table Finder

PokerTableRatings Premium is still in beta. Expected launch date is still to be determined.

Take a look at the graph below. The most of amount of profit potential is in the “development” and “introduction” phase.  Starting a business in these two phases, however, carries a phenomenal amount of risk.  A lot of industries look like they’re in the “development” and “introduction” phase before stalling.  The “growth” phase is where you wanna break into the industry.  The early pioneers have proved that the industry is profitable and they have developed successful strategies that you can imitate and improve on.

Industry Life Cycles

So where is poker in the industry life cycle?  Notice the remarkable similarity between the general industry life cycle graph above the number of WSOP entrants as visualized in the graph below:

Poker Industry Life Cycle

In my opinion, now’s not the time to get into poker.  If you didn’t start playing before 2006-2007, I think you’ll be trying to squeeze into a much narrower window of opportunity.  That’s not to say that someone just starting poker now can’t make it big.  They can.  It will just require more blood, sweat and tears to get there.

There are 3 main reasons why the poker industry has declined.

1. Natural maturity of the industry is responsible for 70% of the decline.  Just like any other business, a big profit margin quickly attracts competition and that competition eventually drives down the profit margin. The profit margin of every industry always moves towards  (but never reaches) zero.
2. UIGEA is responsible for 20% of the decline.  Passed in 2006, the legislation made American poker players jump through hoops to get money online and Party Poker withdrew from the U.S. market.  If the UIGEA is repealed and poker becomes regulated in the U.S., the industry will rebound but it will never return to anywhere near 2006 levels.
3. The global recession – responsible for 10% of the decline.  Fish have less money to deposit.

For the record, I’m friends with the guys at DeucesCracked and PokerTableRatings, but I’ve tried to remain unbiased in my evaluation.  I’m on the fence if they’ve hurt or helped the poker economy, but either way, I think they’re making a relatively minor impact in the grand scheme of things.

1. Online training sites – The availability of great coaching resources has made the competition tougher.  It’s also much easier for you to get better at poker.  It balances out.
2. Online databases – On one hand, online databases make bumhunting easier and limit action.  On the other hand, it lets you table select much more effectively and increases your profit margin.  Also, the guys at PTR use their data to help prevent cheating scandals (like UB/Absolute) from harming the industry.   It balances out.

The main reason why poker is tougher these days is the natural maturation of the industry.  But is online poker dead?  Of course not!  If you have the right mix of dedication, talent, intelligence, and guts, you can still be really successful.

The lucky winner of the $25 worth of free coaching is Hank. Congrats and prepare to crush souls.

Remember, posting on the AnskyPoker.com Heads Up Forums is almost like getting free coaching. You can ask me any question about HU cash games – be it general strategy or about specific hands you’ve played.

Update: In 3 days, 5 people have already signed up and posted.  My goal is to have 25 people registered by the time the contest is over (October 11, 2009).  Remember, it only takes a few minutes to register and ask question.  Hell, you might even learn something

You’ll be able to personally ask me questions about hands you’ve played, heads up NL strategy, hand reading and mental toughness.  I’ll post hands from my HU sessions too.  It’s gonna be almost like getting free coaching from me…ALMOST…

If you have questions about HU SNGs, 6max or full ring games, take it somewhere else

HEM support was on it pretty quick and came out with a beta version that should address most of the issues.  It looks like one of the lasting consequences of this update is that datamining will be out the picture.  That’s not really a problem for me since I never datamine, but I bet a lot of people will be pretty disappointed.

For the latest information, you can also refer to the official HEM forum thread.