Results Point In One Direction

Spring is a busy time for publicly listed gaming companies and market analysts alike as it is annual results season. The gaming giants PartyGaming, 888, Playtech and bwin all release their results between March and April and taken together they make somewhat gloomy reading for the world of online poker. Although there is some clear, tricolour, light on the horizon.

PartyGaming posted a 44% drop in profit in its poker room during 2009 to $42.8m from a corresponding 28% drop in revenue to $196.7m. The firm managed to regain its position as the largest poker network and returned to growth in poker in Q4 2009, but has had to spend considerable amounts in marketing and bonuses to achieve this.

Over at 888, another stalwart of the online gambling sector, there was equally disappointing news with poker revenues falling 28% to $51.5m. The firm said poker remained ‘challenging’ and added it will ‘continue to focus on product innovation and customer needs, and will be launching a major upgrade to our gaming environment and player experience later this year.’

Gigi Levy, 888 chief executive also hinted at an attempt at a paradigm shift in the world of online poker first mentioned in an interview with InsidePoker Business last year. ‘We will also be introducing features designed to enhance the online poker-playing experience beyond what is available today, aiming to attract a bigger audience to our offering.’ We wait with interest to see what new features 888 can bring to the party, but for now it is struggling for traction in a competitive European market.

Both 888 and PartyGaming lay some of the blame for the drop squarely on the shoulders of those companies still taking business from the US. PokerStars and Full Tilt Poker have over 60% of the online poker market between them and their ability to cash in on the huge US poker market doubtless gives them a huge competitive advantage in terms of marketing spend over the likes of PartyGaming with just a 6% market share.

Hope On The Horizon

Results at the other big two firms, Playtech and bwin, do point at a glimmer of hope for the non-US sector. Software firm Playtech, whose core business is online casino, saw an 8.4% rise in poker revenues to €103.5m from its European-focused iPoker network. This was in marked contrast to the 28% drop at both PartyGaming and 888.

Similarly, Austrian sportsbook firm bwin, who own the huge Ongame Poker Network, saw a 12.5% rise in revenues to €106.0m. So why the near 40% swing in fortunes? It comes down mostly to one word – Italy. Both Playtech and bwin were early entrants into the Italian poker market, where growth took even the most optimistic of analysts by surprise. The purchase by bwin of start-up Italian poker room, Gioco Digitale for €115m at the end of 2009 tells you everything about the potential in that market.

‘The change was attributable principally to the healthy development of poker revenues in Italy,’ bwin chief executive Manfred Bodner said when the company released its results in April. ‘As long ago as the autumn of 2008, Italy was the first country in Continental Europe to regulate online poker tournaments, and did so with tremendous success. 

In Q4 2008, bwin was one of the first providers to introduce real-money operations with online poker tournaments. The acquisition of Gioco Digitale in October 2009 made bwin Italy’s largest online poker provider. The company is therefore now in an excellent position to take full advantage of the booming Italian online gaming market, which is governed by modern, proactive regulations.’

Mor Weizer, chief executive of Playtech, gave a similar analysis of Playtech’s results. ‘Poker revenue growth in 2009 was driven largely by the success of our Italian poker network, which includes top regional operators such as Snai S.p.A, Sisal S.p.A, Eurobet Italia, Cogetech S.p.A and Gamenet, and has exceeded expectations. The network has a 16% market share in what is a rapidly growing market.’

PartyGaming were a later entrant to the Italian market, launching its site in June 2009, but is now ramping up its marketing in the region and has signed up some big name sponsored pros in the shape of soccer player Francesco Totti and F1 driver Giancarlo Fisichella. The introduction of cash games to the Italian market is likely to drive growth further in that market and nobody wants to miss out.

PokerStars is also present in Italy through a .it licence and it will be fascinating to see if the poker giant can use its huge marketing budget to dominate that market during 2010. The European firms have a strong foothold in the Italian market and will not give it up without a fight, but few can match the potential spend of PokerStars with its estimated $2m a day profits.

What all the publicly listed firms will be hoping for is a similar poker boom in France. PartyGaming with its ownership of the WPT, which is hugely popular in France, and its partnership to provide online poker to the French pool betting giant PMU are very well placed. And likewise, Playtech and bwin with their large French player base are looking greedily at a regulated French market.

PartyGaming also has eyes on the Danish market, where it has signed a deal to become the online poker partner for state lottery operators, Danske Spel. With a regulated Danish market expected to produce 34% Compound Annual Growth Rate (CAGR) and France 22% CAGR, PartyGaming could easily see a return to double-digit growth in its poker product during 2010/11.

Waiting For America

What everyone is waiting on, of course, is the potential opening up of the US market to regulation. PartyGaming has pinned its colours to this mast, although it has far more immediate potential uplift closer to home. And with bwin owning the Pokerroom brand and its database of players it would not be alone in attempting to invade the US if restrictions there were lifted.

But what lessons can the poker industry learn from the relative performances of the big companies in 2009. It seems that early entry into regulated markets is key to continued growth in what is a hugely competitive European poker market. This is already top of everyone’s agenda and the industry has even started using a new acronym for dealing in the more monopolist regulated markets in B2G  (business to government).

But online poker is rarely that simple, and the French market is going to be something of a bun fight and will not make winners of everyone. Perhaps the race to dominate France and Italy may even make opportunities for smart operators elsewhere.