What the Economic Crash of 2008 Means for Poker (Part II)



This is Part II of a two-part series on perspectives of the economic crisis and its possible impacts on the gambling and poker industries. Read the first part of What the Crash of 2008 Means for Poker.

Dan Goldman has been a high-tech and marketing expert for nearly 30 years.  He is perhaps best known within the poker industry as the former Vice President of Marketing for PokerStars.  Goldman is arguably one of the 10 most influential people responsible for the poker boom, which began six years ago.  He has homes in both Los Angeles and Las Vegas.

Predicting the impact of the ongoing economic disaster on gambling and poker is soothsaying at its finest, given that the times we are going through are unprecedented. Comparisons to the Great Depression don’t make much sense since there are controls in place that can prevent some of the chaos that occurred from 1929 to 1932.  But there are other factors, particularly the blistering speed at which both news and nonsense travel, that muddy the waters considerably.

It’s clear that, in the short-run, gambling as a category won’t escape this downturn as it did in 2001 and in the early 1990s.  Las Vegas and Atlantic City are already experiencing unprecedented declines in business and the increasingly desperate offers from Las Vegas casinos (including top-shelf rooms on the Strip for under $60) are unlikely to change this trend.  Americans have the uneasy sense that the current situation may not be the type of trough that we have seen in the past; we may, in fact, be on the edge of a precipice.  Until there are some indications that this sense is untrue, the disposable income that Las Vegas is so historically good at soaking up will continue to be carefully guarded.

The poker economy doesn’t yet seem to be suffering.  Turnouts at major poker events remain strong (for example, the PokerStars Caribbean Adventure’s attendance this year was up 19% despite the economy and the expense of staying at Atlantis for non-satellite winners).  It seems reasonable to assume that, at least in the short-term, players will continue to treat poker as they have in the past – not as gambling, but as something that’s endemic to society, at least in the U.S.  Traffic on the two leading online poker sites, PokerStars and Full Tilt Poker, seem to be unaffected.

However, this is likely to change if the sense that we are in a “serious recession” turns into a “depression.”  For the most part, poker continues to be played with discretionary income (excepting, obviously, the small fraction of the poker community that plays professionally).  This discretionary pool is hardened to some extent from the economic downturn by poker’s social nature – it’s a cheap way for people to have a good time.  The chances are that the high and low ends of the market will be the last to suffer.  However, the middle of the poker market is in for some serious pain by the end of 2009 if we don’t start to see at least some light at the end of the tunnel.
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Dr. David Croson holds a PhD in Business Economics from Harvard University and has published dozens of scholarly articles on strategy in uncertain environments, managing risk, and the value of information.  He is presently an Associate Professor of Strategy and Entrepreneurship at Southern Methodist University’s Cox School of Business in Dallas.  Dr. Croson has been an avid poker player for 15 years and regularly uses poker as a teaching tool inside the classroom.

The key to handling a slowdown in spending is to realize that consumers don’t cut back on everything equally.  In fact, they actually consume more of some items.  Consider gasoline, for example.  On one hand, people may try to drive less to save money.  But on the other hand, they’ll still drive across town to save money at stores where there are sales, drive to places they otherwise would have flown, and choose recreational spots that are drivable.

People also tend to spend money on small splurges in a downturn.  High-end lipstick, for example, does well in economic contractions; it lasts a long time, is a visible indulgence, and yet costs only a few dollars more than the basic kind of lipstick.   The same is true for premium ice cream in the supermarket (at the expense of Baskin-Robbins and other full-service ice cream parlors).

If casinos could convert just a few table game players into a weekly poker tournament, the poker rooms would boom at only a slight cost to the pit.  The key for Las Vegas in the current recession is to appeal to people’s instincts to go to Las Vegas rather than, say, Virginia Beach, to show them what Las Vegas can offer them that no other destination can.  Poker is a perfect combination of “driving rather than flying” and an affordable splurge for players who would otherwise do nothing.  It’s much cheaper than many other things to do inside a casino.  In Las Vegas in particular, a stellar vacation can center on poker games, the pool, and a few good value restaurants.

Casinos need to recognize that some of their clients are a little stretched right now, but still in need of relaxation and recreation; making investments in keeping these players coming back once things turn around will pay off and need not be expensive for the hosts.  Certainly, most of my poker friends make a point of being loyal to a place that’s treated them well, particularly when other things aren’t going so well.

If I were running a casino, I would be sending out room comps to everyone I’ve ever interacted with (and some that I hadn’t).  I’d be throwing in some luxury splurges that most people don’t normally order when they have to pay for it (e.g., a fabulous molten chocolate cake).  Toss in a poolside cabana during the week (which will generate some tips for servers as well) with a complimentary bucket of ice and a hotel branded bottle of mineral water.  None of these things costs the casino anywhere near as much as they’re worth to the customer.  Let the customers pay for their own hamburgers if they’re trading down from filet mignon, but make them feel that this was the best value vacation they’ve ever experienced.
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Prior to playing poker and writing about the game for a living, New York-born Lou Krieger was a management consultant in California and Washington, D.C.  As one of the most respected writers in poker, he has written over 400 columns, 11 books, and is the host of “Keep Flopping Aces,” a weekly show on Rounders Radio.  Krieger has written for Card Player magazine and is the editor of Poker Player Newspaper.  He was named one of the most influential gaming authors of the past century, an honor given to only five poker writers.  He lives in Palm Desert, California.

Last Friday, I walked in the Agua Caliente Casino poker room in Rancho Mirage, California, which is about six miles from my house and where I usually play poker.  It wasn’t a holiday or a three-day weekend and no special events were going on, but all of the tables were filled to capacity.  Long lines existed for the majority of games and here we are in a recession, which made me wonder.

Earlier in the week, I heard a local radio interview with Richard Milanovich, Chairman of the tribe that owns Agua Caliente as well as the Palm Springs’ Spa Resort and Casino.  Milanovich is a savvy guy who seems to have his fingers accurately on the pulse of the local economy.  He said that while the tribe was feeling the economic pinch in the same way everyone else was, the numbers for Agua Caliente Casino were a lot better than the numbers he was seeing for casinos in Las Vegas.

He pointed out that it’s less costly for locals to play here and less costly too for weekend visitors from Los Angeles since Agua Caliente is only about 110 miles from L.A., while Las Vegas is a good 250 miles.

I guess I didn’t really buy it at the time, but having witnessed it in person, it sure made sense to me.  Of course, it was impossible to tell how many poker room patrons were locals and how many journeyed there from Los Angeles or San Diego, but the room was packed and Milanovich’s assessment seemed spot on.

I’m still a bit confused by all of this.  After all, if someone from L.A. is looking for a poker game, there’s no need to drive 110 miles to find one.  Los Angeles is full of poker rooms.  On the other hand, for a small, weekend getaway vacation, Agua Caliente is a less costly alternative to Las Vegas and also provides full casino gambling in addition to poker. Non-poker playing family members can have their fill of slots and other games, take in shows, and play golf.

I’m hearing anecdotal data from guys who have been forced into poker playing to feed their families and that might account for some of the crowding at the tables too.  On my weekly internet radio show, “Keep Flopping Aces,” one caller last week told me he lost his job as a restaurant manager, couldn’t find employment, and had to turn to his hobby, playing poker, as a job rather than an avocation.  He’s at his local casino every day, grinding out a living at the tables, and it’s paying better than anything he could find in the work-a-day world in this economy.

My summary is that Las Vegas will show reduced numbers for the duration of the recession, while local casinos, although not flourishing, will pick up some of the folks who heretofore were regular visitors at the Strip.  I’m sure some players will try to ply their trade and earn a living at the poker tables, although the majority of them will probably fail at this endeavor in the long-run.
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Russ Fox is a tax specialist and poker author.  He is one of the most respected authorities on the subjects of taxation and the law and taxes on gambling winnings.  Fox runs and operates a website called “Taxable Talk.”  The site regularly features topics of interest to gamblers and poker players.  Fox also co-wrote “Why You Lose at Poker” as well as many others strategy-based articles.  He lives in Irvine, California.

The poker economy has already felt the impacts of the Unlawful Internet Gambling Enforcement Act (UIGEA).  Coincidentally, I’ve noticed what I estimate to be a five percent drop in players in local (Los Angeles area) card rooms.  Meanwhile, the world economy is now definitely in retreat with massive stimulus programs being  politicians’ main idea of a fix.  Unfortunately, history tells us that government interference in the economy could actually make the situation worse, which is what happened during the Great Depression.

I see two possible near-term outcomes.  We could see the Federal Government further attack online gambling, including poker.  I remember when my friends said that the website Napster would never be shut down.  However, a judge did just that.  The staff at the Department of Justice has been very negative towards online gambling; to think that’s going to change suddenly is foolhardy.  While I’d love to see online poker legalized in the United States, I believe that to be very unlikely to happen in the near future.

Alternatively, poker could prosper in the coming years.  There’s historical precedent for this.  During the Great Depression, the card game bridge boomed in popularity because of the famous Culbertson-Lenz match.  Indeed, some bridge matches made the front page of most newspapers.  In bad economic times, people look to escape.  Poker, a much easier and more familiar game to Americans than bridge, could easily prosper.  Of course, in this day and age, this means appealing to television rather than newspapers, which we see is already happening.  It would also be ideal to have a personable individual win the WSOP Main Event, who could then represent the game.

There’s no way to predict the future with any degree of certainty, but I’m hopeful that poker will continue to prosper in the next several years.

Overseeing this series was Nolan Dalla, who has been a poker player, writer, and casino executive for many years.  He is perhaps best known for his long association with the World Series of Poker as its Media Director. Dalla is the consummate industry insider and also co-wrote the best-selling and critically acclaimed biography “One of a Kind: The Rise and Fall of Stuey ‘The Kid’ Ungar.”

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