Poker: the New World Order

The following analysis is drawn from PokerScout data and is based on the average number of players for the last 7 days from the 22nd January. This seems to be the only data that is available for all sites but being for such a limited period will be susceptible to the influences of active promotions from PartyGaming for example. Overall the market has declined 3% over the year according to PokerScout but the picture shows the increasing importance of regulated markets where competitive conditions are very different as we discuss below.

PokerStars shows a decline from its September position of 45% back to where it was in June. FullTilt has ceded ground from the 20% share shown in the late summer probably because of it absence in Italy and low penetration in France. But, however one looks at it, the two companies  market domination is impressive - 90% of the market open to US players - giving them resources to fight-off challenges and to establish in regulated markets.

We can see 47% of the total market is accounted for by sites not accepting US players with PokerStars in second place with 17% just with its Italian and French sites. Merger activity is one of the major influences amongst the sites closed to the US. 

The bwin PartyGaming deal has been reflected in this analysis as a done deal which may be a bit presumptuous. We have commented elsewhere that merging a brand with a network may not be as easy as adding 2 and 2 and getting 4 - never mind the 5 that is expected. The Company will still have the problem of decaying player yield.

Deals and issues

The other potential deal which we correctly forecast back in September (at least that 888 would be the victim) will probably mean Microgaming losing one of its biggest operators as Ladbrokes moves to its objective of having a unique platform. Watch also to see if Ladbrokes can work its magic on player retention with the 888 player community which, like PartyGaming, has a track record of decreasing yield.

Since our September report Italy has shown growth of 32% whilst France has stood still. Both bwin and PartyGaming have used the network approach white labeling their platforms presumably to get liquidity. PokerStars is not far from its share in other territories with a single site underlining the logic of strong branding.

Our Relative Strength Index reveals the reality behind the market share position showing how many times bigger (or smaller) each operators' site is than the average - 985 players for Italy. Bwin.party have ten sites only three of which they own.  Italy is by far a stronger market with the average per site twice that in France (471). iPoker have 11% of the market spread over 6 sites which raises doubts about sustainabikity - in France they are even more vulnerable.

This weakness in France will pressure the networks with sites like Chili (iPoker) having to pay both its marketing costs and network fees and getting no support from other network members (there are none) on liquidity. Bwin.party's 28% share in France is distributed over 8 sites - two of which are their own. France and Italy will be the bellweather of the success of their merger - we believe time will show this is a real challenge.

Regulated Markets

Regulated markets could be said to be bad for players because they are more expensive and give less choice. Liquidity and economies of scale inevitably limit the number of sites and raise barriers to market entry. These factors make them most attractive to branded market leaders with resources to buy significant initial market share.

They also give significant problems to networks whose operators, by definition, have less financial clout - the alliance of 888 and Microgaming in France and the absence and poor showing of the networks in these countries proves the point.

Additionally networks are passive bystanders depending on a client operator to decide to enter a regulated market - and there seem to be few who want to take on the challenge. PokerStars has understood the regulated market dynamics leading in both - FullTilt has been slower off the mark and late entry will certainly be more expensive.

Unless the European Union acts in a concerted way (long odds here) the fragmentation of the market will hurt networks and other niche operators. Meanwhile, the need for real differentiation of direct interest to poker players has led to a flurry of enquiries as to what HUM4N's personalized real-time content can do.