Nick and Mike take you through the headlines in the world of online poker this week. The partypoker Million experienced technical issues, but the operator went above and beyond to make things right for affected players, the Pennsylvania online poker market is finally open with PokerStars becoming the first to spread legal, regulated real money online poker in the state, and the Q3 financial results for the parent companies of some of the major online poker operators are out.

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Full Transcript

Mike: Hello, and welcome everybody to the Pokerfuse podcast. It’s November 7, 2019. This is episode number 32. I’m your Host, Mike Gentile along with my co-host, Nick Jones. This week on the podcast, Partypoker was unfortunately forced to cancel its highly ambitious Partypoker Million Tournament last week after a technical issue resulted in not all players gaining entry to day two, but Partypoker committed over a half a million dollars to compensating players and plans to run another this Sunday.

After months of waiting PokerStars has finally launched in the state of Pennsylvania, becoming the first operator to spread online poker in the Keystone state and while its early days still, all signs point to a successful venture for the world’s biggest online poker operator. Finally, third quarter financial results are out and it doesn’t make for easy reading among the world’s biggest online poker operators. We take a look at the financial results of the parent companies of PokerStars, Partypoker and Unibet.

partypoker Million cancelled due to technical difficulties

Nick: I think it was the last time we recorded this podcast, we talked about the then upcoming Partypoker Million, a fairly audacious attempt by Partypoker to run a one-million guaranteed Sunday tournament every week. That first inaugural tournament was meant to run last Sunday. Unfortunately, things didn’t quite go to plan.

Mike: There was a bit of a hiccup on day 1D, which was the final flight. Those players that were able to make it to day two were not able to actually get seated in the tournament for day two. They did have to eventually pause it and eventually cancel it but with the hiccups also came an opportunity for the operator to, I guess, show what they’re made of and they did do that quite well.

Nick: As you explained there Mike, they had four day one flights. Ultimately, the last one started just six hours I think before the day two, which is the final day. The final day 1D flight, which was a turbo event and got 1,800 entries, almost as much as all the other days combined, which they needed because they were facing a pretty hefty overlay, but they got 1,800 players. They still had an overlays. That’s worth pointing out in addition to all the extra money that they gave back to players, the concessions they gave, which we’ll get to. The tournament did have 150,000-dollar overlay, which I think is probably what Partypoker expected.

This was a very high target to set. They would have collected, without the fees, the overlay was more like 70,000 and they would have collected fees through the Satellites and that kind of thing. That was probably acceptable to them but yes, day 1D indeed they got a lot of players in seats. Then unfortunately, day 1D players did not gain entry into the day two tournament.

Mike: 150,000-dollar overlay. Just to give that some context, how does that relate to other big overlays that we’ve seen perhaps in other big series?

Nick: It’s big like, I can’t think the last time PokerStars had a six-figure overlay. They just run their Bounty Builder tournament series and that had 30— They paid out like 35 million in total. I think it was 25 million in guarantee. That had some overlays. It might have totaled six figures across the whole series. But for a single tournament, it’s quite large. Over 10% is quite rare. Partypoker probably can’t shoulder that every week but I think for a tournament-

Mike: It’s also a good marketing opportunity.

Nick: Yes, that’s it and I think if you also get players playing your other Sunday tournaments, you get them playing throughout the week as well and something that’s really nicely structured about this is they have the day 1A for next week running at the same time you’re playing day two of that current week. They get through to that day two and they can start their journeys again for next week as well. That’s actually really smart. I’m not sure if I’ve seen anyone structure it that way before and obviously, as it goes on, once you’ve done one week smoothly, you’re going to generate more people into the next week. Those people in day two are going to start playing next week’s as well. It was starting on the back foot there. There wasn’t a lot of ramp up or promotion to this event from what I could tell. I think beyond the massive technical issue they had, I think they probably would’ve been pretty pleased with how that first week had gone and with that level of overlay as I say, so day two started and those— the people that qualified through day 1D, I think it was about 400 players, 404 players, something like that didn’t make it through each day two.

They couldn’t sit into the tournament. So Partypoker noticed this immediately and tried to pause the tournament so they could restart it, but they couldn’t pause it due to a second technical issue that they had. They didn’t manage to pause it for I think two hours. This day two played with only half the number of people that should have been in it, loads of people got knocked out and I think if you made day two, you made the money. A lot of these people were paid their money, totaling $400,000 was paid out to people who got knocked out that day to who were only facing a field half the size they should have done.

So, Partypoker, it was in a really tricky spot there because you’ve got people who’ve invested two hours paying day two who feel like, “Okay, I’ve accumulated a big stack, that should be worth something.” There’s people who were knocked out day two who were paid out prize money. Then of course, there’s all the people who didn’t make it, who should have taken their seats and couldn’t. Partypoker very quickly. So this all happened at like 7:00 PM on Sunday, by 9:00 PM, they had decided what they were going to do and what was a fairly tricky spot. Yeah, I have, I mean probably not made everybody happy, but have paid a lot of money out of pocket to make a lot of people pretty happy.

Mike: Yes. So, what I saw on social and in the forums and such was that most players were pretty pleased with the way that Partypoker went about trying to make good for the players. There was a lot of details behind the compensation. There were a lot of players in a lot of different circumstances. There’re those that got knocked out in day two. There were those who were supposed to make day two that didn’t make day two. There were those that had big stacks and made day two. There was a lot of different nuances to making this compensation, and it seemed like most people were pretty happy. I don’t know. There’s a lot of subsections of players in different circumstances. Do you have the details behind how each of those groups were compensated?

Nick: Yes, and it took me a while to work out exactly how it was happening, but broadly, so the, the one million dollar guarantee, which included the overlay, that was obviously honored and that was distributed to everybody who made it through to day two, whether they could take their seats or not. 50% was split evenly amongst all players. Then the other 50% was based on chip stack, I presume at the start of day two. So that was how the million dollars was distributed, which I think is probably fairly standard. Again, for people who played day two and accumulated chips, they would be a little bit miffed at that.

But, this is often how these things are dealt with. But then in addition to that, so beyond that million dollars, everyone who was playing day two when the tournament was paused was given the next pay spot, which I think was like $1,600. They were given that in addition. Everybody who’d been busted out of day two and they’d received a payout, that money was honored even though the tournament was ultimately canceled.

Mike: A quick question. That money that was paid out that they were compensated for, then that was in addition to the 50% that they would get from the guarantee and the other 50% based on chip stack?

Nick: Yes, I believe so. The million dollars was distributed to everyone who made it through to day two plus on top of that, everyone who received a payout for playing day two and busted kept that. In addition, everyone who remained got the next pay spot. I mean we were already at something like $450,000 I think paid out. Then on top of that, everybody who was affected, so everyone who made day two, that’s I think 806 players all received another $215 ticket to play a future Partypoker million event. So all on top, it was something like $600,000 in compensation that they gave back to players in addition to the overlay, which they honored in the million dollar prize pool, which was paid out. So, a huge chunk of change.

Mike: Yes, regardless of the circumstances of any individual player, it’s hard for someone to point at them and say that they didn’t treat players fairly. I mean, just listening to the list of things that you rattled off there, a lot of that seemed over and above or above and beyond what they would be expected to do.

Nick: Yes. I mean, and just to read what Rob Young put on twitter soon afterwards. “Tonight we have the worst possible thing that ever could happen on the side,” it was how he classified it. Yes, and that happened. It was a complete mess and they very quickly decided to try and turn it into a big positive. It’s easy to say like I can’t think of another time that an operator has made such a call in that kind of power, the only thing that comes to mind is poker stars had a 1.2 million dollar overlay in the tournament a year or two back. But I mean, that was, you have to pay that out, you got a guaranteed tournament.

I mean I suppose you can cancel it if you see that overlay coming and annoy a lot of people but that’s the only thing that’s in that order of magnitude where I think that, if we include the overlay, we’re looking more like, yes 750,000, three quarters of a million dollars paid out by Partypoker. Yes, that was week one of the Partypoker million. We were of course, recording this on Thursday. We are halfway into week two at the party poker million. This thing will run again with the same structure this Sunday and they’ve already had the first-day ones running.

Mike: Right, how can they be sure that they have this problem fixed? Are they confident that they’re going to be able to take players from day 1D and have them feed into day two?

Nick: I hope so.

Mike: Yes, because if that were to happen again, it’s hard to imagine that they would be able to do anything less than they did the first time around and that could be quite costly.

Nick: Yes, I mean, it sounds like my gutters and this is just based on, how I think these things would have gone. I imagine it was the day 1D was that there was a deployment error, so it wasn’t correctly set up to feed into day two. Obviously, they’ve done, they’ve run multiday tournaments all the time and so, they obviously have the capacity. Unless there was some weird glitch, I would imagine day 1D was set up and didn’t correctly fit in.

When that was spotted I think that’s when the technical errors here and they either couldn’t correct that problem or and then we know that they couldn’t pause the tournament and I think, I read somewhere— it might have been on social media that they did manage to cancel it but it was still in the lobby due to some [clears throat] excuse me, some lag or delay. Yes, obviously their proceeding, they’re not, “to the whole concept” and to say they’ve run multi-day events before, so presuming they’re comfortable this time that it’ll work.

Mike: Yes, maybe the actual inability to pause the tournament is actually the bigger issue because, like you say, they have one multi-flight tournaments before, so the feeding from day 1D and to Day two could have just been maybe, somebody didn’t check a particular box but not being able to pause the tournament, that seems like it could be a bigger issue.

Nick: Yes, and then maybe that is a problem that they have fixed or looking to fix. This definitely seems like an ability that you want, yes. What we can see so far is the turn out so far is about the same as the first week. Probably, a bit lower than they would want to see. We’ve only had day one A and B at the time of recording. They’ve had about 1,500 people take their seats. They need 5,000. With that said, day 1D is going to be huge and the thing is, there’re 800 or so people who have now got Partypoker million tickets. Although they won’t have had that nice overlap effect again because they have these technical problems.

I imagine a lot of people didn’t play day 1A because they are probably so annoyed of day two being canceled. That only got about 600 runners. Day 1B did better than the day 1B the week prior. Obviously, the bigger crew could turnout tonight which is their day 1C but I think day 1D is where they could see over a couple a thousand people. Yes, fingers crossed they get a few more players in seats for this week and it’s worth pointing out, they also have the micro and mini versions of this tournament, which has a $200,000 and $20,000 guarantee for a buy in a $22 or two dollars I think and they suffered the same technical problems in week one as well and there was the same compensation power in these tournaments.

Mike: All right, I’ve got a question for you. I hope I don’t catch you off guard or unprepared but we had talked about this tournament when it was first announced and we had talked about how this could affect the overall landscape of Sunday tournaments, Sunday majors and I’m curious as to, did we see any big change on how the Pokerstars Sunday million reacted since this round?

Nick: We did notice a change. It was a very good week for PokerSars Sunday meeting.

Mike: It was an added effect, very cool.

Nick: Well, it’s hard to say after one week, maybe a lot of people were just planning to play the PartyPoker one and because of the problems, they then played the Sunday Million. Maybe there was the additive effect that people played both. There were also just a lot of factors at the PokerStars side of things, they had been running the bounty build a series for the prior three weekends. Prior to that, they had a lot of PKOs. We saw a healthy turnout. Probably the healthiest we’ve seen since the other side of summer for a completely straight, non-progressive knockout Sunday million. We are going into the higher parts of the season. There was definitely a noticeable bump. I think this Sunday and going forward, it’ll be interesting to see how numbers are impacted.

PokerStars launches in Pennsylvania

Mike: In what must have seemed like an eternity for people in Pennsylvania, online poker is finally back up and running in the Keystone State. On Monday this week, PokerStars soft-launched their online poker room starting at two o’clock and that soft launch period lasted until 10:00 PM. Then again, on Tuesday, they had a 2:00 PM start that lasted until midnight this time with the site going fully live on Wednesday just after 11:00 AM. It was quite a celebratory mood all over social media and in the poker forums. Everyone seemed very happy to get back to the online tables.

Nick: Yes, the time they were recording this, PokerStars has not done a full 24 hour period of play yet. We had the soft launch windows Monday, Tuesday and then it came online for a full launch. Again, I think around 2:00 PM local time on Wednesday. Today, when by the time these guys out, they would have had their first full day. All signs point to a lot of people jumping through the hoops to sign up and deposit and play on PokerStars Pennsylvania.

Mike: There were a lot of butts in seats for sure but that didn’t come so easily. There were a few hiccups. No, not really a few hiccups. There was really just one. It was more of a hiccup from the side of the operator than the regulator. The regulator is absolutely the one that deems whether or not the soft launch was a success and whether or not they allow PokerStars to go forward with a full launch and they did.

From their aspect, it wasn’t really a hiccup. But from the operator, they had a little bit of trouble getting their download of their client out to the players. Because players were being directed to a URL that was redirecting them to a play money client. It wasn’t so easy to get the real money clients up and running and get into the actual seats.

Nick: Maybe things would have been clearer by the time this podcast goes out. There’s still question marks in my mind. I’m not quite sure PokerStars primary domain. Because they promoted this new pokerstars.bet URL. Which is what went out in the press release, the media stuff ahead of time and on the PokerStars blog as well. It was to sign up and play, you go to pokerstars.bet. It seems pokerstars.bet is very clearly the pokerstars.net equivalent for, I guess, the US markets. It’s difficult because obviously depending on what location, you see different sites.

I think that led to a lot of confusion about people writing this and excitedly sharing links and stuff is what you— For me, pokerstars.bet works, I’m not redirected but I see the dot net client for the UK market. I think they had a bug in there that even if you’re in Pennsylvania, you got the dot net download client for the New Jersey thing, which cause issues. The bigger picture was that that’s the dot net site and if you want to play for real money, the URL is this pokerstarsmountairy.com URL, which is I think their primary one they use because the domain has to have their partner name in the domain.

Mike: That’s part of the regulation. I don’t have official word from PokerStars on this but it’s, looking at how things transpired, it’s my assessment that they’re trying to use this pokerStars.bet domain for everybody to have so that it’s geolocated based on the location of the player. When they go to that, it redirects them to the required URL. In this case, pokerStarsmountairy or exactly whatever design— I don’t have it in front of me. What then will happen is, it will feed them the correct download client. At the same time, it satisfies the requirements of the regulation which requires you to have your land-based casino partner as part of the URL.

But I don’t think there’s a restriction in the regulations that says you can’t have multiple URLs. What they’re trying to do it looks like is have pokerstars.net redirect to the required URL because it’s probably a lot easier to market or for someone to remember pokerstars.bet than to have to remember a URL that has requirements of the regulation built into it.

Nick: Yes. Despite all that confusion, hundreds of players managed to work it out and get downloaded, get signed up, get any geolocation issues so to get deposited and play real money poker. People were feverishly monitoring the lobby for play accounts, so I think by the day two soft launch window, well over a thousand people were sat down and playing. Now, that number does include play money players, the one reported in the lobby, but there were very few play money tables going.

We are talking about definitely, hundreds of individuals sat down over a thousand seats at the cash game tables during a soft launch window where there was no promotion and the URL nobody really understood. Pretty strong demonstration of the pent up demand for online poker in a US state.

Mike: Yes. Before we sat down to record this, I pulled up Anuj’s article that he wrote on the results of the soft launch, and I pulled some traffic figures from there and this is what I’ve got. Day one of the soft launch, which was an eight-hour period, the peak of players at the tables or seats filled I should say, was around 750. There were also 12 MTTs that ran on the first day and three of them that actually had guarantees. Initially as they were rolled out, none of the MTTs had guarantees but I think they added them as the day progressed. There was 12,000 K in prize money awarded and a total of 1341 entries in tournaments for the first day, so that sounds pretty good.

Nick: Yes.

Mike: Then, concurrent cash game players according to Game Intel peaked at 573.

Nick: Yes. We’re starting to get now data from Game Intel which formerly Poker Scout, which tracks the average concurrent players of cash game tables and we have the data now in the PRO data platform if you are a subscriber to Poker Industry PRO. Just looking at these numbers now, for Wednesday, the average first— We’ve only got three data points obviously, but they’re averaging around 370 concurrent players, that interesting tidbit is more than all other US regulated sites combined. WSP 888, which spans three states is around the 200 concurrent players mark and then Poker Stars in New Jersey is around the 70-80 mark.

Borgata/ Party Poker network is much smaller. Now it’s definitely worth saying that, again, these are windows during peak times, so their average concurrency is going to be higher because they’re not open during 2:00 AM or 3:00 AM or probably 8:00 AM. Again, these numbers will decline, but it will be surprising from this if Poker Stars did not sit on top of a ranking of all US regulated sites despite being in just one state compared with the WSOP which is across three.

Mike: Beyond how they compare to the US or just as a point of reference, the population of Pennsylvania is about equal to the other three states that have legal online poker combined, that’d be New Jersey, Nevada and Delaware, but how does traffic that we’ve seen so far, how does that compare outside of the US? Do we have any other markets that we can look at to say if this is a success or if it’s average or below average?

Nick: Yes, and again, like it has to draw too many conclusions from these partial numbers. In a podcast in a week time, I think we’ll get some better numbers, but very roughly speaking, when you’re in that 300 concurrent players mark, 350, Unibet is around that size, it’s estimated some sites like Partypoker in Europe, they’re segregated market in France and Spain is around that size, MPN is around that size. To compare something like 888poker is around 900 seats, so about three times larger.

Nick: Wow, and that’s the global.com market, correct?

Mike: Yes.

Nick: Okay. Well, that’s encouraging to start for sure. They did receive some propping up from some of the promotions that they did to begin with, they had a $600 first deposit match bonus, which is pretty standard and then I think they also had, was it, $30 free in bonus money that they were giving to people that created a new account.

Nick: Yes. $30 free play, which I think is their standard for markets, but it definitely encourages players to get in there.

Mike: There were also the free-rolls that they ran. In total, there was $30,000 given away as prizes in free entry tournaments over the course of the first week to 10 days. While there’s a lot of this pent up desire in Pennsylvania to get back to the tables, there wasn’t a big huge promotional push to get all these people to the tables during the soft launch period. For me, that’s encouraging because that leaves a lot of room to grow, especially when we’re looking at coming up on the high season for online poker, I think we could see a pretty significant increase in traffic in Pennsylvania in the not too near future.

Nick: Yes. In fact, they launched promotion so the free-rolls you mentioned, the first one is today, the 7th and they run for like 10 days from today and they culminate into— I think if those $30,000, I think 20,000 is one final free-roll in 10 days’ time. Like really, yes, as you say, they probably are required not to really promote it during a soft launch window. That’s not really the idea. They just want to get through the regulatory red tape before doing anything.

At this point today is really when they’re going to start doing anything and you’re absolutely right, yes, numbers should absolutely increase once the domains get sorted and more PR goes out and more sites get promoting and the promotions get going. We would expect it to continue to climb from here far, and as you say, going into the peak season only helps traffic numbers. Things don’t really peak for like two or three months from here. We would expect again, the global market to be growing regardless.

Mike: Yes. I expect that the success by PokerStars in Pennsylvania could actually light a fire under some of the operators, some of the other operators to get them to recognize that, “Hey, maybe they want to get in on the action of online poker in Pennsylvania.” Because, once online sports betting or once sports betting in general was legalized, a lot of the operators started to focus their effort on this new shiny object because of the potential and the revenue that it has to bring in.

Even online casinos generate more revenue for the operators than poker usually does. Poker seemed like it got knocked down a few pegs and maybe wasn’t the highest priority, but now that we’re seeing success here in Pennsylvania and then the potential to combine player pools in the future maybe other operators are taking notice of what PokerStars is doing and maybe that could help get them to market a little bit sooner.

Q3 financials tell the tale of online poker

Nick: We are pretty much coming to the end of the third quarter financial season. We have the financial results from the world’s large online gaming companies and from the world’s largest online poker companies. While during the interim quarters, we don’t get financial results from some of the UK companies which only report on an annual or half annual basis. We do get some data. We have Q3 results today from the Stars group. We have a small trading update from GVC, which touched on poker a couple of weeks ago and we have data from the Kindred group. Mike, which would you like to dive into first?

Mike: Let’s start with Kindred. Kindred is Unibet for poker and just thinking back, I don’t remember a lot of huge stories, good or bad coming out of Kindred or Unibet. I suspect that their Q3 reporting will be more true to their performance.

Nick: Well, definitely, Kindred is the shining example of the three. They had a very good Q3 in terms of online poker and in fact, it was very good when set against the backdrop of their company as a whole, which has suffered a great deal with operations in Sweden. I think I’m seeing if I’ve got the data here, if the company as a whole, it was either flat or declining. Both casino and sports betting declined year over year and yet, poker continued to grow. Poker was up 18% year over year. It was its second-biggest quarter on record. Generated-

Nick: Yes. They have been at that level, let’s just check, I think this is like, yes, 10 quarters, eight quarters of consistent growth. Often in the 10, 20 even 30% area. We’ve seen this growth before but the whole company has been lifted. When that happens, you can just argue that Unibet Poker has done a good job of offering poker to their casino and sports betting customers. Obviously, Kindred group is sports and casino about equally is almost entirely their business. Poker makes up like 2%. We’re talking a very small share of the company’s overall interests.

If poker is up 20% but so does casino and sport, then you can say, “Okay, poker provided a good service to their customers but maybe it’s not bringing in new customers generating extra revenue.” When casino and sports declines and poker still grows 20% year over year, it really seems a clear sign to me that it is managing to sustain itself as business and attract new poker first customers directly into their platform.

Mike: Correct me if I’m wrong. Traditionally, poker is the player acquisition tool for other iGaming like casino and sports. I think sports, but to have those two verticals decline or be flat is is surprising. Maybe they’re cross-selling the other way or maybe their cross-sell to casino is not performing as well as it could.

Nick: I think it depends on a company to company basis. Definitely, for the stars group, for GBV, for other companies, they talk about poker being this good low-cost acquisition channel to bring customers into the brand. Then they can be cross-sold into the higher yield casino side. Sports betting can often be a cheap customer acquisition channel and they can also be crossed over into casino. The theory being that a lot of customers want to bet on sports, want to play poker as a default to then be sold on playing casino. They’re good ways of bringing people in.

I think kindred group has always just brought people directly into sports betting. That’s always been their business, poker has been something they offer on the side to keep customers who want to play a bit of poker on brand and on the site. It’s never really been a particularly meaningful part of the business. Five years ago, this embarked on relaunching their online poker product. Because they didn’t want to remain on a network. They wanted to try and do something different. What these numbers show is that that strategy has been very successful.

I think they are bringing in you know poker first customers potentially for the first time. Long-term, that should help provide a secondary funnel for players coming into to the Unibet brand. It’s only really getting started. It’s still very small. It’s still much smaller than obviously PokerStars. It’s still 30 to 50% of the business depending on which part you look at. Even a Partypoker, it’s 10% plus I think. This is still very small but is sustaining itself and growing.

Mike: When you have those smaller numbers, it’s a lot easier to grow at higher percentages. Either way, kudos to Kindred and to Unibet Poker. It’s quite a performance.

Nick: That’s probably a good transition point to discuss the Stars Group. Their results only came out today. It’s very similar reading to what we’ve seen the previous two quarters. Which is, online poker looking at the PokerStars business, their international side of the business continues to decline at around about the 10% mark year over year. It’s been like that all year. 2019 is definitely looking like it could be the lowest in five years. Offsetting gains that it made in 2018 and 2017. This is returning back to 2016 levels. The reasons for that that they give are, they do face some regulatory headwinds, Russia in particular.

Although that wasn’t mentioned in the presentation in the press release today. The withdrawal from Switzerland was the one thing highlighted. They withdrew in July. This was the first almost full quarter where they weren’t present in Switzerland. They’re still looking to return to that market. That took the brunt of the blame plus currency fluctuations. The big thing with the Stars Group and while overall growth is if even if it’s not negative as it has been this year is fairly flat. That’s because they were poker only company a few years ago and they’ve launched a casino and sports betting business.

Those have been traditionally growing substantially whilst trying to maintain roughly flat, so cross-selling poker customers into the casino and to a lesser extent, the sportsbook. Perhaps, the more concerning part of the Stars Group’s revenue is that the Casino and Sportsbook are also suffering.

Mike: All right, so they point to Switzerland. We know that Russia’s been a challenge for a little while. I’m wondering, is this all just cooperate speak or investor talk? I don’t know, Nick. What do you think? What’s your professional opinion? What’s leading to this decline? Is this a deteriorating image in front of the poker community? Is it regulatory challenges? Is it more focus on other verticals such as casinos and sports? What do you think it is?

Nick: Yes, there’s lots of factors isn’t there? I don’t think it’s all just investors’ talk that they face issues in disruptive markets and closed markets. They break the numbers out in presentation slides. They show the, in their established regulated markets there’s growth. You can just focus on that and go, “Okay. Underlying there is still this demand for poker that is growing by small percentage points.” The issue is that the business has always been operating in markets that aren’t fairly regulated, so you can’t just exclude them and definitely, the business is shifting more and more to regulated markets.

They bring their own costs as well. I think the main point is I don’t foresee an area where Pokerstars will be 100% regulated, so it’s always going to be part of the business. Cross-sell is always going to have its hit when you just look at poker from the higher level. They just want to look at the overall wallet spend of an individual customer and if they’re spending more in the casino and that is slightly offset by a loss in poker, that’s not really a problem to them. Poker is still massive even though we’re talking about declining figures, it still generates $200 million dollars in revenue last quarter.

The year won’t be to shy of a billion dollars for the year. It’s still amazingly cash-generative, revenue generative business that is seeing some declines also in the face of some increased competition, I imagine, and there’re regulatory pressures. Yes, there’s lots of things in the bucket there to explain it. I think, maybe the concern is they saw a fall in betting revenue from their international business. I think, just looking here, I think the casino actually did quite good, quite well. I’m just reading what I wrote today but yes, there was slight growth in casino. Overall, the international business did decline just under 8%. Yes and in business.

Mike: Just to recap, the decline was how much? 8%?

Nick: 8% across their international business segment, so that excludes the UK’s Sky betting and gaming and their Australia business.

Interviewer: Okay, and you had mentioned that currency fluctuations were part of that. On a constant currency basis, do we know what that decline was?

Nick: Yes. Constant currency basis, the decline was more like 4% across the international segment. Poker was 8%. Poker is not significantly out of line of the rest of the business here.

Mike: Okay. Well, that’s encouraging.

Nick: Yes. It’s affected slightly more than the other businesses. They do point to, they’re still confident in 2020. 2020, poker will return to small single-digit growth. They talked about lots of more products in the pipeline that will help grow. They talked about how they’ve got the PSPC coming up next year. They had a big Wcoup, these kinds of things. They’ve got ideas in the pipeline. They do expect things to return to growth. They will definitely start lapping some of these headwinds at some point. Russia, they’ve been facing issues there for a year now, so you would think at least come Q4, Q1, 2020, they will have a full year on the books of struggling with these difficulties, which makes annual comparisons much more favorable, much more rosy.

Mike: All right, so they’re looking at new product development and the PSPC as the two major things to drive them and get them back on track in 2020?

Nick: Yes, and the reality is that poker and Pokerstars is just talked about a lot less in these— Well, I was going to say, earning score, there actually wasn’t one today and they’ve stopped them pending the Flutter merger. They still put together presentation slides, for no one to present, which I find a little bit obscure. In these presentation slides, Pokerstars now might get one box and three bullet points where you go back three years and it was 12 slides because, not only do they have to talk about PokerStars Casino and BetStars. Of course, they’ve got Sky Betting and Gaming and they’ve got three separate Australian businesses. Now, of course, they’re talking about merger with Flutter. Just the amount of time spent on talking about PokerStars is much slimmer. Cleaning their future plans is less fruitful I think diving into these financials as it once was.

Mike: I think putting up the presentation without having someone to present it. The first thing that comes to my mind is, they don’t have to answer questions. That could be the strategy but who knows? I’m curious though. Did they mention the US at all as any factor and is potential to get things back on track, especially seeing the success of the launch in Pennsylvania? I’m curious if that was mentioned.

Nick: Just to your first point, I think, presumably, this is standard regulatory practice. As you say, avoids answering questions, but maybe you can’t answer questions when these things are pending. They didn’t propose to it during the Sky Betting and Gaming acquisition, but I won’t pretend to fully understand exactly when these disclosures must be made and in what format. I assume this is all legit and how things are done, it just surprises me. On the US front, again, things were highlighted, the FoxBet launch was successful. They mentioned, we just gone live for online poker in Pennsylvania, so they squeezed that in.

It’s very costly running here. It’s going to add a bit to revenue but it’s nothing compared with— you look at the engine that Sky Betting has in the UK, that PokerStars has. The figures are so large that the US market is never going to be more than a blip for the short term at least. I glanced through it today and I did only skim it and it came out a few hours ago. There wasn’t any grand proclamations again, the business next step is this merger with Flutter and it’s going to transform everything they do. They’re going to have Betfair, they’re going to have Patty Power, they’re going to have Fanduel. This could be a very different company that we’re talking about in a year’s time. That seems to be what the next steps for the businesses.

Mike: Well, then that leaves what GVC, right?

Nick: Yes. Let’s just do GVC very quickly. GVC was an odd one. GVC Partypoker, for start, they don’t really report Partypoker numbers directly. They don’t give direct revenue figures, but they always elude to percentage gains over time so we can make some extrapolations. In Q3, they didn’t talk about it. They didn’t give a percentage for poker overall, but it did decline, so we know that it did decline.

That has bucked a trend of revenues going up for, I don’t know, eight quarter something like that. Maybe even more. The reason why it declined, this is where things get interesting. The reason why it declined is they said explicitly is because of bots that they have removed from the Partypoker network this year has impacted revenue.

Mike: Poker is down for the first time in eight quarters according to GVC and they attribute that in large part to the removal of these bots from their network. Is that correct? Do I understand?

Nick: Yes, that is correct. I’m just trying to bring up. Partypoker sits in a portfolio of brands called the games label and that I won’t say, I don’t know, fell— Although this is two or three weeks old, otherwise it’s not super fresh in my mind. It grew 8% but poker declined. It would have been more except the loss of Poker. The one quote is, we’ve cleaned up the ecology of the cash rings on the Partypoker business. This was mainly as a result of giving cash games a bigger push. I think he just means focus there. This is the CEO talking.

In fact, it’s not even super clear that it definitely declined, but I think it probably did and that would be the first time. What we have seen is that we’ve seen that the percentages of growth— Again, they’ve enjoyed 30%, 40%, 50% growth over the last couple of years. This year, that growth has slowed to more 10% to 15%. Then probably last quarter, it might have even been flat or declined. That is in line when they started this bot clamp down which started in really December of last year. It is the last three quarters that they would have seen this impact, so it does make sense from that side of things.

Mike: I’m not sure if you have this information up in front of you but, what’s the trend looking like for their catching these bots and refunding money to players. I’m going to assume that the success there is going to impact the results for the next quarter.

Nick: Yes. There’s a couple of things there, like we talked about the Stars Group is that, they will lap the start of this impact in Q4 and definitely in Q1. Even if they continue doing it, they removed a lot of bots. I think their first month last December was like, they redistributed like half a million dollars I want to say, in that very first month they caught some huge accounts and refunded it. That’s going to have an overnight big impact on-

Mike: Year-over-year.

Nick: These softs gen— Yes. When we get to year-over-year, it’s going to look a lot better. They will weather that by Q4, Q1 2020, but the numbers have declined. I think last month was much less confiscating, much fewer accounts discovered. They point to that and say, “We’ve done the job of cleaning up our games, these bot operators have moved onto other networks or stopped their activity.” It feels like from what we’re seeing the last couple of months that, the job could be done. They’ve removed a lot of bot, a lot of players, who were generating rank at the tables.

Mike: Do we have a sense for just how clean the network is? Is this reduction a matter of them not catching it anymore or is this them saying, “Hey, we’ve rooted out a lot of these bots from the network and this is a clean place to play and better than other online poker rooms that haven’t done this work.”

Nick: It’s hard to say, isn’t it? They would definitely say the second one. There’s no reason to suggest it’s the first but this is the problem with these numbers. We’ve talked about that on the podcast a lot before as these numbers can then be interpreted in almost directly opposite ways. It could be as you say, that they have taken their foot off the gas of catching bots and that’s why there are less there.

That’s not what they’re saying. What they’re saying is that, “We’re finding less. We see online these bot forums how people are recommending not to play on Partypoker anymore because your accounts get caught and that kind of thing.” The accounts they do close have got less money in them. It definitely seems that the amount that they confiscated from some bot accounts, these operators had bot operators that got very lax in taking money off the side.

They were sitting there with accounts with tens of thousands or even hundreds of thousands of dollars in, doing their thing and feeling like there would be no repercussions. That definitely seems to have changed, maybe some are still operating. They’re still catching accounts every month, they’re still reporting those numbers. It’s hard. I certainly haven’t seen players saying, “The game’s still infested with bots.”

That’s definitely not chapter that I read. I think we have to take them on their word when they say that they’ve made this investment to the integrity team to cleaning up the games. It has had a material impact on the revenue we generated in the last year because of it.

Mike: I remember, there was some talk before about how exactly they were catching these bots. They attributed a lot of their success to their internal team and less so to players tips. Do they report the source of how they caught these bots? I don’t remember.

Nick: No. They don’t do that. They haven’t done that since I think April of this year when they stopped Huds and hand histories .

Mike: It looks like we’re going to see even if it’s just because of the year-over-year numbers and the lapping of the difficulties that have been faced as you mentioned. It looks like we’re going to see some better numbers in 2020 from the major online poker operators. How would you say that the revenue figures overall from these major companies, what do you think that says about the landscape of the online poker industry?

Nick: It’s definitely going to be a pretty brutal year 2018 across the industry, there’s going to be few bright spots. The end of last year and the report that we wrote, poker had performed pretty robustly considering the headwinds that they had faced. Most operators had reported growing revenue, growing customer activity, a lot of development underway. This year is not going to be that.

We are going to see PartyPokers’ poker growth will be a lot less than before. The Stars Group will be down double digits. Kinred should been doing well but still very slow. 888, I don’t think will stop its declines unless there’s a huge change that we see in their approach to the product. On the bright spot, you’d think in 2020, there’s nothing really in the short term to midterm that I would see would be another major impact, another significant headwind the operators will have to face. We do have a Netherlands regulation coming up, that should have a positive effect, that should be beneficial.

There is, the UK could cause further regulatory headaches for some customers, that’s a potential negative, but in theory, with the US markets growing, with potentially more European shared liquidity, with things like Sweden settling down a bit with the Netherlands. There are more bright spots than dark ones. Again, with a lot of operators lapping pretty horrendous 2019s, hopefully, we’ll see some— the customers are continuing to— Operators are continuing to invest as well. This is the same like we’re not hearing that people are just taking their foot off the gas and throwing in the towel.

PartyPoker continuing running million-dollar guarantee tournaments even though it cost them half a million dollars in technical problems. PokerStars has got a huge slate of new games coming out, another PSPC. They’re being more targeted on how they spend their money but they still have a strong team behind them investing. Unibet is still doing their thing. iPoker is still trying to fight their corner. 888, perhaps the only one that we still have yet to see really, like put their fists up and get involved. That’s all still happening. I’d like to see 2020 Q1 numbers getting off to a much better start.

Outro

Mike: Well, that wraps up this episode of the pokerfuse podcast. As a reminder, please give us a like and a subscribe wherever you get your podcasts. You can also follow us and interact with us on Twitter. Nick is at @pokerprojones. I am @SpookyBugs. Thanks, everyone for tuning in.