Trouble ahead for poker in France?
Will the French government's tax policies for online poker undermine the game's success in France? Bodog Network vice president Jonas Odman weighs the evidence.
The French Online Gaming Authority, ARJEL, has given 11 licensees an online poker licence: BetClic, Bwin, Partypoker, Everest, Chilipoker, PMU, Partouche, PokerStars, Sajoo, Eurosport, and Winamax.
These companies will be taxed 2% on all cash game pots and tournament buy-ins, including re-buys and add-ons, where applicable. There is a 1 cap for cash game pots but there is no cap for tournaments. Cash games pots where there is no flop are also taxed – including when everyone folds to the big blind.
Poker companies have to choose whether to impose this tax on their customers by increasing the rake and tournament fees, or take the tax from their own margins. Poker industry leader Pokerstars has chosen to impose everything on the players, and this has caused a big stir, even leading to a three-hour-long “strike” on Sunday evening, with players sitting down at cash-game tables and then sitting out to block the seats.
What impact would that extra 2% rake have on the poker players? First of all, it turns most winning players into losing players but from a poker site’s perspective, but that is not necessarily bad. The bread and butter for all poker sites are the net depositing players. What is bad, though, is that it gives all players a worse user experience.
Without rake, poker is a zero-sum game. The rake makes an average poker player a losing player, and an increase of the rake will make an average poker player lose their money quicker. We ran a query for one million NL Hold’em hands played on Bodog on $0.10/$0.25, $0.25/$0.50, $0.50/$1 and $1/$2 to see what effect an increased rake from 5% to 7% and an increased cap to $3.5. This is exactly the rake structure Pokerstars.fr uses, but in euros. Under this structure, the rake would have increased with 36.7%. In the absence of the rake on pots without a flop, the increase would be 33.6%.
This increased price would give an average player 26.8 % less hands before he runs out of money. The “little” 2% extra rake may not sound as much, but 26.8% less entertainment paints a more troublesome picture.
Casual players typically do not understand or care about the concept of rake, so it will not have a negative effect on sign-ups but the decreased entertainment value per euro will have a significant negative effect on churn rates.
Another EU country, Sweden, chose a different path when they introduced online poker through government-owned Svenska Spel in 2006. Advised by poker professionals, they chose to offer 50% lower rake than the industry standard. The combination of this low price for poker with its Svenka Spel’s strong brand – via its 6,758 betting shops and 100m annual marketing spend “ made Svenska Spel an instant success in the poker market. In 2007, it averaged 3,000″3,500 players per day, quite remarkable, especially given they only accept Swedish customers.
However, after only a few years, Svenska Spel’s poker revenue is dropping, and in 2009 its net gaming revenue from poker was 22 % lower than in 2008. There are many possible explanations for this: the player pool in Sweden may not be big enough, the marketing has not been good enough or the poker boom is simply over.
It will be interesting to see how fast the French online poker market will rise and fall with the opposite price strategy, and if any poker company will manage to be profitable in that environment.