From the Editor's Chair | v. 26

Amid the summer doldrums when half the industry disappears on holiday, last week still managed to produce some weighty news items.

Perhaps the most eye-catching development was Ladbrokes' deal with Microgaming Software Systems Ltd. -- well, both the deal itself, and what it represents for the European online poker industry.

Analysts whom I spoke with were mixed on the tie-up. Global Betting and Gaming Consultants told me the deal was done primarily in the interests of boosting liquidity, while another analyst, who wished not to be named, was less excited on the legal risks it presents to Ladbrokes.

While the bookie will not take United States wagers from Microgaming players on the network, the fact remains that the Justice Department, which has a well-documented history of prosecutorial zeal, would be just as happy to stamp aiding and abetting on this one.

From an outsider's perspective, the Ladbrokes decision, if nothing else, certainly comes as a head-scratcher. The company has been a major, outspoken and effective cog in the European Case-Law Machine; my guess would be, however, that it is not attempting an indirect challenge to United States policy with the Microgaming move.

Looking at the broader issue of European online poker, it's easy to run into the minefield that is financial analysis. Metrics provided by GBGC suggest that, quarter over quarter, poker revenue for Europe-facing listed companies has fallen 6.2 percent in the 2008 fiscal year; however, year over year -- and during the comparable period -- these companies are up 20.1 percent.

What gives?

We're not sure, but during days when CryptoLogic Ltd. and its former licensee, Betfair, are fielding nearly identical traffic levels, the market -- as I've said ad nauseum at this point (sorry) -- looks ripe for consolidation.

Richard Carter, a leisure analyst with Numis Securities in London, told me today that if major brands -- Betfair, 888 Holdings and CryptoLogic, for example -- were to join and share liquidity, it would make quite a splash.

"Those three sites suddenly have a more compelling offering relative to the others, so the other ones become a little more marginalized," he said.

At a first glance, it would seem that the pioneer group of networks to merge would have a first-mover advantage in a consolidation-trending market.

Mr. Carter makes a sound point that, initially, a tripartite European network, for instance -- consisting of major brand names -- would likely be a hit and, in turn, put severe pressure on other standalone networks.

To put it in another, terribly nerdy way:

Should a few of the big boys consolidate in Europe, their newfound mass would be proportional to a most undesirable brand of gravity: that which attracts players from standalone networks.

Will the European poker networks begin to consolidate? My guess is Yes.